New Delhi, February 28
Emphasising that in terms of growth the fiscal period 2003-2008 has perhaps been the best-ever five-year performance in the history of independent India, the Economic Survey for 2007-08 warned about a number of challenges which need to be addressed if the current growth momentum has to be sustained in the coming years.
The Economic Survey, presented in Parliament today by union finance minister P Chidambaram, noted that the economy has moved decisively to a higher growth phase and the 8.7 per cent growth for the current fiscal is in keeping with the trend of the GDP at market prices, exceeding 8 per cent every year since 2003-04.
There was acceleration in domestic investment and savings rates driving growth and providing the resources for meeting the average 9 per cent growth target of the Eleventh Five-Year Plan. Macro-economic fundamentals continue to inspire confidence and the investment climate is full of optimism. Further, buoyant growth of government revenues made it possible to maintain fiscal consolidation.
Inflation flared up in the last half of 2006-07 and was successfully contained during the current year despite a global hardening of commodity prices and an upsurge in capital flows. Overall inflation is projected to decline from 5.6 per cent in 2006-07 to 4.4 per cent in 2007-08. The projected decline is attributed to the deceleration in investment goods prices from 5.5 per cent growth in 2006-07 to 4.3 per cent in 2007-08, which the Economic Survey maintains should have a positive effect on investment.
Agricultural growth, dependent as it is on the monsoon, continued to fluctuate. The
overall foodgrains production in 2007-08 is expected to fall short of the target by 2.2 million tonnes, though it is expected to be 10.1 million tonnes higher compared to the second estimates of 2006-07. While the production of kharif foodgrains is expected to be 5.3 million tonnes or 4.8 per cent higher than 2006-07, rabi
production is expected to be lower by 3.3 million tonnes.
Providing a critical analysis of the economy over the past one year, the Economic Survey underlined the need for additional reforms to raise the growth to double digit. The size of the country's economy at market exchange rate will cross $1 trillion. With upward adjustments in the 2007-08 projections made possible, the GDP at current market prices is projected at Rs 46,93,602 crore.
A notable feature of the recent GDP growth has been a sharply rising trend in domestic investment and saving, with the former rising 13.1 per cent and the latter 11.3 per cent of the GDP over five years till 2006-07. Both private and public savings have contributed to higher overall savings while the increase in investment has been driven by private investment.
The annual average growth of money reached a trough of 13 per cent in 2003-04 and has been on an accelerating trend since then reaching 19.5 per cent in 2006-07. However, in contrast to money supply, average credit growth slowed marginally to 26.8 per cent in 2006-07 and has decelerated further in 2007-08.
On the Balance of Payments, the Economic Survey acknowledged that there is considerable uncertainty in quantifying the downside risk to global growth arising from th downturn in the housing market and the sub-prime mortgage market crisis in the United States. Monetary policy actions by the US and other developed countries seem to have contained the immediate impact though more surprises in the next six months cannot be ruled out.
Pointing out the changing composition of capital flow, the Economic Survey said the most welcome feature of increased capital flows is the 150 per cent increase in net foreign direct investment inflows in 2006-07 to $23 billion. The trend has continued in the current financial year with gross FDI inflows reaching $11.2 billion in the first six months.
India’s greater integration with the world economy was reflected by the trade openness indicator, the trade to GDP ratio, which increased from 22.5 per cent of GDP in 2001 to 34.8 per cent in 2006-07.
The industrial sector witnessed a slowdown in the first nine months of the current financial year. The growth of 9 per cent during April-December 2007, when viewed against the backdrop of the robust growth witnessed in the preceding four years, suggests that there is a certain
degree of moderation in the momentum of the industrial sector.
