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Indicators PolicyFinanceForeign TradeInfrastructureAgriculture You are here: Home News Economy Indicators 26 FEB, 2011, 08.22AM IST, SWAMINATHAN S ANKLESARIA AIYAR,ET BUREAU

Economic Survey sees India back on 9% growth path in FY12

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Read more on india|index of government economic power|gdp|food security act|fiscal deficit|economic survey|china

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NEW DELHI: The annual Economic Survey could have been written by Aamir Khan and titled Aal Izz Well. It is gung-ho about GDP growth rising to 9% next year, and staying there in the medium term. Services (which now have a 57.3% share in the GDP) will be the main locomotive of the economy. This, plus the coming demographic dividend, will offset many policy flaws and sustain fast growth. The Survey cites a new Index of Government Economic Power showing that India is now the fifth greatest global economic power after the US, China , Japan and Germany, and is well ahead of Britain or France. Analysts may worry about the fiscal deficit, but the Survey declares that India is galloping down the road to fiscal virtue. The fiscal deficit in the first three quarters of this year was just 44.8% of the level in the previous year. The Survey says the ratio of consolidated government debt to GDP, which touched 79.3% of the GDP

in 2004-05, will fall to 68.7% by 2013-14 and 65% by 2014-15. The recent revision of GDP data shows that we have underestimated true GDP for many years, and hence have overestimated the fiscal deficit. This, plus high inflation this year (nominal GDP will rise 20.3% against the expected 12.5%), means that the budget estimate of a fiscal deficit of 5.5% of GDP now translates into just 4.8%. This actually reveals a dirty economic secret: inflation can, in the short-run, be good for the governments books. Inflation erodes the real value of debt, and the government is the biggest debtor of all. However, inflation with a lag also increases government spending. Neither this nor the prospect of rising subsidies (implied by the Food Security Act and spike in oil prices) disturbs the Surveys fiscal optimism. It does not hint at any painful fiscal squeeze to come, either on the tax or spending side. What will the government do to bring down prices? The Survey analyses the contribution of supply, demand and international trends to inflation, but spells out no new initiatives. It describes the spike in vegetable prices as temporary bad behaviour which will soon be checked by a reversion to more normal behaviour. Going forward, it expects monetary tightening and other steps to bring down inflation. Rising oil prices pose a challenge, and the Survey says India must adjust to the reality of expensive energy. Higher infrastructure spending is another reason cited by the Survey for optimism about future growth. However, tucked away in small print is the dismal information that losses of State Electricity Boards are 1% of GDP (which means Rs 76,000 crore). Unaccounted leakages of electricity (theft and transmission losses) are a whopping 35% of the electricity generated. No wonder power continues to be a constraint on growth. Cost overruns in public sector projects had come down to a reasonable 12% in March 2008, but rose to 20.7% by October 2010, thanks partly to higher steel and cement prices. Land acquisition and environmental clearance need to be streamlined to expedite infrastructure, along with standardised contracts and better designed projects.

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Balakrishnang Gurumurti (Nerul) 28 mins ago (11:35 AM) if what they say is true, then india shd issue social security toall poor indians. poor will fall under 2 lacs earning per year, after all when you give zero income tax upto Rs.2 lac per annum, then Rs.2 lac per annum shall be bench mark to provide social security. If this does not happen all ur statistics just sticks out to say that all a great fraud on poor of india!

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