Highlights of Economic Survey 2009-10

Finance Minister Pranab Mukherjee Thursday 25 Februar, 2010 tabled a cautious but optimistic Economic Survey 2009-10 in Parliament, which predicted 7.2 percent growth for the current fiscal and a full recovery in 2011-12, while remaining concerned over inflation and fiscal deficit.

The Survey said Indian economy is well on a recovery track and is expected to expand by 8.25-8.75 percent in 2010-11 and even exceed 9 percent the year after.

Survey Highlights

Growth

• Economy seen growing 8.25-8.75 % in 2010-11

• Economy expected to return to 9% growth in medium term

• India FY11 growth seen 100 bps more than FY10

• Medeum term prospects of economic growth “really strong”

• India could be fastest growing economy in next four years

• Expect GDP growth to breach 9% mark in 2011-12

• Risk of second dip recession in advanced nations

• India seems to be returning to pre-crisis growth rate

• India medium, long-term growth prospects excellent

• No reason why India can’t achieve double-digit growth

• Clear Sign of recovery in industrial output

• Largely contained risk to growth from poor monsoon

Food Prices

• Food subsidy must be given directly to households

• Food coupons must replace existing PDS system

• Must identify poor for effective food coupon system

• Possible to switch to food coupons system by 2012

• India has ample stocks of wheat, rice

• Wheat prices may moderate on hope of better harvest

• Vegetable prices started to ease on rabi crop arrival

• Food suibsidy must be given directly to households

• Food coupons must replace existing PDS systems

Inflation

• Concern of higher than expected inflation in coming months

• Rapidly rising food inflation cause for concern

• WPI inflation in FY10 out of sync with trend in previous years

• Near-term supply pressure driving inflation outlook

• WPI inflation expected to stabilize due to government steps

• Signs food, fuel inflation spreading to other items

• Current petroleum prices not viable in long run

• Inflation largely due to supply-side bottlenecks

• Supply crunch in some commodities on poor monsoon

• Poor rain prevented seasonal food price fall post October

• Hype about khariff failure exacerbated WPI expectation

• Base effect, mild manufacturing WPI helped recovery

• Divergence between WPI, CPI inflation rates declining

• Food inflation may have peaked in December, seen easing

• What, rice price rise on inflationary expectations

• Low demand causing price moderation in mining FY10

Agriculture

• Agriculture sector continues to be cause of concern

• Need policy initiatives to raise farm growth to 4%

• Likely to end FY10 with sufficient wheat stocks

• Fear of pulses shortage may be causing price spurt

• Higher sowing area of pulses may tame prices

• Local sugar supply shortage causing price surge

• Global sugar price rise likely on big imports by India

• High inflation in milk from coarse cereals, oil cakes

• FCI should be allowed to keep flexible buffer norms

• Need to improve govt strategy for food releases

• Govt shouldn’t have any dealing with fertiliser companies

• Fertiliser companies should be allowed pricing freedom

• Provide fertiliser subsidy to farmers

• Introduce coupon system to subsidise fertilisers

• Hype about kharif failure encouraged hoarding

• Delay in release of imported sugar aided price rise

• High food grain stock putting stress on fiscal health

• Efficient stock management needs urgent attention

• Govt food grain stocks adequate to meet PDS needs

• FY10 farm GDP fall seen only 0.2% despite poor rains

• Apr-Dec rice, wheat off take 35.8 mln tn, up 43% on ry

• High MSP has potential to raise open market prices

• Support price benefit to small farmers doubtful

• Balancing needs to small farmers, consumers a challenge

• Govt wheat buy cost seen 1,504.39 rupee/100 kg FY10

• Govt rice buy cost seen 1,893.71 rupee/100 kg 2009-10

• Wheat open market sale scheme helped stabilise price

• Fall in sugar output put pressure on prices

• 2009-10 sugar output seen 16 mn tones

• 2009-10 edible oil import seen 10.1 mn tones

• India 2009-10 edible oil supply seen 18.3 mn tones

• India 2009-10 edible oil requirement seen 13.8 mln tn

• Apr-Dec farm futures volume 38% of commodity trade

• Kharif crop output loss may be partly made up in rabi

• Grain yield increase not enough to meet rising demand

• Research, better farm methods key to high crop yield

• Need to focus on states with low crop productivity

• Output, yield of pulses, oilseeds a growing concern

• Scope of pulses import limited to tight global supply

• Falling private investment in agriculture a concern

• Cheap, timely credit must to up private investment in farming

• Research on high yield seeds must to counter drought

• Food security, stock management priority areas

• Multi-cropping, raising yield key to higher output

• 2009-10 kharif grain area 66.8 mln ha, gown 4.6 mln on yr

• Fertiliser use at 128.6 kg/ha in 2008-09

• Oct-Dec post monsoon rains 8% above normal

• NAFED oilseed buy 64,802 tn till Jan 4 on govt account

• 2009-10 coffee output seen 290,000 tn, up 10.6% on yr

• Coconut palm insurance scheme to continue FY

Industry

• Industry sector “revival” evident post economic slowdown

• Indian industrial outlook “bright” in medium term

• Downward trend in IIP growth stands reversed

• Growth in capital goods segment below pre-2007 level

• Growth in consumer durables aiding industrial revival

• Textile exports continue to lag

• Fertilizer output hit by raw material availability

• Local steel industry revived from global slowdown

• Local steel outlook for 2010 remains positive

• Local steel demand back on “stable footing”

• Local steel demand seen up on real estate, auto growth

• FDI inflow in farm sector services grew highest in 2009-10

• Services sector attracted highest FDI inflow FY 10

• Govt mulling overseas urea, ammonia projects

• Contribution of food products in manufacturing WPI seen down

• Capacity addition in power, road sectors “lagging”

• Infrastructure impediment hampering industry growth

Fiscal Policies

• Indian economy has shown ‘V’-shaped recovery

• Broad-base revival gives room for gradual stimulus cut

• Fundamentals justify optimism for India in long run

• Consider Finance Ministry panel suggestion to shape FY11 fiscal goals

• Job losses seem to have reversed in recent months

• Expect domestic oil output to grow on new discoveries

• Food market condition, improved capital flow encouraging

• Manufacturing sector showing buoyancy in recent months

• Too early to say if buoyancy in manufacturing a trend

• Seen substantial pick-up in corporate earnings, margin

• Pace, shape of global recovery remains uncertain

• Global recovery losing steam on stimulus cut

• Transmission of monetary policy remains sluggish

• Higher government borrowing raised banks’ SLR investments

• Saving, investment rate good for medium term growth

• Savings rate expected to rise further

• Government should promote transparency in commodity futures

• Impact of current subsidy system questionable

Monetary

• RBI policy stance transmission to real sector critical

• Fiscal rectitude important for Indian economy

• Need to monitor credit flow to productive sectors

• Need to ensure medium, long-term growth on even keel

• RBI policy aims at expanding credit at viable rates

• RBI stance aimed at steady growth via credit quality

• States Market Borrowing Rs 106000 cr up to Jan 15

• Money market mostly orderly in FY 10 on high liquidity

• CBLO volumes over 80% of total money market volume FY 10

• Liquidity condition remained comfortable in 2010

• RBI’s Rs 57000 cr OMO buys FY 10 aided liquidity

• Monetary easing main theme of liquidity management FY 10

• RBI actively held apt liquidity via OMO, LAF, MSS FY 10

Banking

• Growth in bank credit remained low in FY 10

• Public sector banks better than private in credit growth

• Growth in food credit low so far in FY 10

• Need more transparency in micro-finance functioning

• Computerisation of banking sector in completion stage

• Rise in risk appetite increased capital inflows in 2009

Financial Institutions

• Need to extend NPS to central, state autonomous bodies

• Pension reforms made significant progress in India

• Challenge to expand distribution network of NPS

• Pension reforms to facilitate long-term savings

• Interdependence of corporate, MFs rising concern

Markets

• Govt intervention in markets should be minimal

• Govt shouldn’t impose outright commodity futures ban

• Equity market showed signs of recovery after April

• Regulatory steps taken to make markets sound, stable

• Seen revival in secondary market following stimulus

• Volumes in currency futures on BSE not significant

• Trading volumes in interest rate futures low

• Retail investor participation limited in corporate debt market

• Retail investor participation limited in mutual funds

Miscellaneous

• Unique identity system to come into0 effect in 2012

• Labour law reforms can improve Labour demand