The Economic Survey 2010-11 is positive on the macroeconomy without glossing over the challenges. The economy’s resilience is seen in its ability to withstand two shocks in quick succession. The ripple effects of the global economic crisis (2007-09) that devastated world growth, trade, and finances have persisted in the form of the European fiscal crisis. On the domestic front, the farm sector that saw a negative growth in 2008-09 was further hit by erratic monsoons, severe drought, and unseasonal rains in two successive years. Despite this, the economy is poised to grow at rates seen during the pre-crisis period. On top of an estimated 8.6 per cent growth during the current year, the economy is projected to grow at 9 per cent during 2011-12. The optimistic forecasts as well as the downside risks are in line with the assessment of the Prime Minister’s Economic Advisory Council. The services sector, for long “the power house of the economy”, with a more than 57 per cent share of the GDP in 2009-10, has started gaining momentum. That should augur well for the medium term growth prospects. Another favourable feature is that India’s demographic dividend is yet to peak. The growing trend in savings and investment rates should benefit from the gradual withdrawal of stimulus measures by the government. In a message that could be a pointer to the strategy in the Budget, the Survey notes that once the economy operates around full capacity, it is not the savings and investment rates that will drive growth but skills development and innovation.
The major downside risks to growth are weather, a disproportionate spike in petroleum prices, and a slowdown in the advanced economies. Inflation and a large current account deficit are major concerns. The Survey cautions that higher growth and a faster monetisation of the economy, through financial inclusion, may mean increased money supply and hence more inflationary pressures. It has recommended a phased entry of foreign direct investment in multi-brand retail, apparently in response to the concerns of farmers and consumers. That should also add to stable capital flows. Given its upbeat tone on growth, the Finance Minister is expected to meet the fiscal targets. As part of its reform agenda, the Survey calls for a streamlining of land acquisition and environment clearance procedures, using smart cards to target subsidy payments and issuance of basic banking licences. There should be an unrelenting thrust on infrastructure development. None of these is new or visionary but the Survey has stressed the doable and underlined the priorities in a way that demonstrates pragmatism.