Dr.
C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released
the document ‘Review of the Economy 2011-12’ at a Press Conference in New Delhi today. Following
are the highlights of the document:
Review of the Economy 2011-12
§
The rate of
growth in 2011-12 is now estimated at 7.1%, which is marginally higher than the
projection of 6.9% as per the Advance Estimates (AE). The Council projects a
slightly higher growth for agriculture and construction than the Advance
Estimates.
§
Investment
activity has slowed down and as a result the Gross fixed Capital formation (GFCF)
for 2011/12 has slipped to 29.3 per cent, a decline of almost 4 percentage
points over the last four years.
§
Global economic
and financial conditions likely to remain under pressure during the year.
§
Overall farm
sector GDP growth for 2011/12 will average 3 per cent, riding high on record
outputs for rice, wheat and strong trend growth in horticulture and animal
husbandry.
§
Mining and
quarrying sector likely to report negative growth for 2011/12 on account of
weak coal output growth, restrictions imposed on iron ore production, decline
in natural gas production and negative growth in crude oil output.
§
Electricity
sector has performed well. It is expected to grow at 8.3 per cent during
2011/12.
§
Manufacturing
and construction have been sluggish during the first three quarters of 2011/12.
This may show improvement in the last quarter. The overall growth rate will be
3.9 per cent and 6.2 per cent respectively.
§
Strong growth in
the services sector will continue with overall growth of 9.4 per cent for
2011/12.
§
For the year as
a whole the Balance of Payment (BoP) position will be tight, this clearly
indicates the need to keep the Current Account Deficit (CAD) within limits.
o
CAD has
weakened, averaging 3.6 per cent (annualized) of GDP in the first half of 2011/12.
o
CAD for the
2011/12 is projected to be 3.6 per cent.
§
Headline
inflation has shown decline since November 2011 and more strongly in January
2012. It is projected to be around 6.5 per cent at the end of March 2012.
Policies-both monetary and other public policies seem to have had the desired
effect.
§
Sustained high
food prices particularly on account of fruit, milk, eggs, meat & fish began
to get passed into the price behaviour of manufactured goods.
§
Year-on year
inflation for manufactured goods rose from around 5 per cent in September 2010
to 8 per cent in September and October 2011.
§
Expansion of the
fiscal deficit beyond its budgeted estimate of 4.6 per cent of GDP -an area of
concern. Government must strive to contain and improve the efficacy of subsidies.
Prospects for 2012/13
§
Economy is
likely to grow in the range of 7.5 to 8 per cent. Mining and manufacturing are
expected to show substantial improvement in 2012/13 over the previous year.
§
Inflationary
pressure will continue to ease through 2012/13 and will remain around 5-6 per
cent for the year.
§
Vigil to be kept
on food prices-focus on production as well as rolling out of adequate food
logistics network.
§
Greater need to
invest in the infrastructure for both capacity creation as well as operational
performance in coal, power, roads and railways.
§
Need to make
adjustments on sale of refined petroleum products to reduce the huge burden of
subsidy.
§
In the year
2012/13 CAD is projected to be around 3.0 per cent of GDP.
§
Efforts be made
to keep the CAD between 2.0 and 2.5 per cent of GDP over the medium term.
§
Capital inflows
particularly in the form of equity must be encouraged along with improved
domestic conditions for investment and growth.
§
Government must
effectively lay out a road map to achieve fiscal consolidation.
§
Government
borrowing programme must not affect the financing needs of the private sector.
§
For the overall
macroeconomic stability, attention must be paid to prices, exchange rate and
fiscal balances.
