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P. 1
Economic Survey 2013: Chapter One

Economic Survey 2013: Chapter One

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Published by Firstpost
Finance Minister P Chidambaram tabled the Economic Survey in the Lok Sabha on Wednesday. Here is the first chapter.
Finance Minister P Chidambaram tabled the Economic Survey in the Lok Sabha on Wednesday. Here is the first chapter.

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Published by: Firstpost on Feb 27, 2013
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CHAPTER
1
G
ROWTH
 
OF
GDP
AND
 
OTHER
M
ACRO
A
GGREGATES
1.2Following the slowdown induced by the globalfinancial crisis in 2008-09, the Indian economyresponded strongly to fiscal and monetary stimulusand achieved a growth rate of 8.6 per cent and 9.3per cent respectively in 2009-10 and 2010-11(Table 1.1). However, with the economy exhibitinginflationary tendencies, the Reserve Bank of India(RBI) started raising policy rates in March 2010.High rates as well as policy constraints adverselyimpacted investment, and in the subsequent twoyears viz. 2011-12 and 2012-13, the growth rateslowed to 6.2 per cent and 5.0 per cent respectively.Nevertheless, despite this slowdown, the compoundannual growth rate (CAGR) for gross domesticproduct (GDP) at factor cost, over the decade ending2012-13 is 7.9 per cent.1.3The moderation in growth is primarilyattributable to weakness in industry (comprisingthe mining and quarrying, manufacturing, electricity,gas and water supply, and construction sectors),
hile India's recent slowdown is partly rooted in external causes, domestic causesare also important. The strong post-financial-crisis stimulus led to stronger growthin 2009-10 and 2010-11. However, the boost to consumption, coupled with supply-side constraints, led to higher inflation. Monetary policy was tightened, even asexternal headwinds to growth increased. The consequent slowdown, especially in2012-13, has been across the board, with no sector of the economy unaffected. Fallingsavings without a commensurate fall in aggregate investment have led to a wideningcurrent account deficit (CAD). Wholesale price index (WPI) inflation has been comingdown in recent months. However, food inflation, after a brief slowdown, continuesto be higher than overall inflation. Given the higher weightage to food in consumer price indices (CPI), CPI inflation has remained close to double digits. Anotherconsequence of the slowdown has been lower-than-targeted tax and non-tax revenues.With the subsidies bill, particularly that of petroleum products, increasing, the dangerthat fiscal targets would be breached substantially became very real in the current year. The situation warranted urgent steps to reduce government spending so as tocontain inflation. Also required were steps to facilitate corporate and infrastructureinvestment so as to ease supply. Several measures announced in recent months areaimed at restoring the fiscal health of the government and shrinking the CAD asalso improving the growth rate. With the global economy also likely to recoversomewhat in 2013, these measures should help in improving the Indian economy'soutlook for 2013-14.
State of the Economyand Prospects
http://indiabudget.nic.in
 
2
Economic Survey
 
2012-13
0.1 KEY INDICATORS
Data categories and componentsUnits2007-082008-092009-102010-112011-122012-131.GDP and Related Indicators
GDP (current market prices)
 ` 
Crore4987090563006364778277795313
2R
8974947
1R
100,28,118
 AE
Growth Rate%16.112.915.120.315.111.7GDP (factor cost 2004-05 prices)
 ` 
Crore3896636415867645160714937006
2R
5243582
1R
5503476
 AE
Growth Rate%9.36.78.69.36.25.0Savings Rate% of GDP36.832.033.734.030.8naCapital Formation (rate)% of GDP38.134.336.536.835.0naPer Capita Net National Income(factor cost at current prices)
 ` 
358254077546249541516156468747
2.Production
Food grainsMillion tonnes230.8234.5218.1244.5259.3250.1
a
Index of Industrial Production
b
(growth)%15.52.55.38.22.90.7
c
Electricity Generation(growth)%6.32.76.65.58.14.6
c
3.Prices
Inflation (WPI) (average)%change4.78.13.89.68.97.6
d
Inflation CPI (IW) (average)%change6.29.112.410.48.410.0
d
4.External Secto
Export Growth ( US$)%change29.013.6-3.540.521.3-4.9
d
Import Growth (US$)%change35.520.7-5.028.232.3-0.0
d
Current Account Balance (CAB)/GDP%-1.3-2.3-2.8-2.8-4.2-4.6
e
Foreign Exchange ReservesUS$ Bn.309.7252.0279.1304.8294.4295.5
 Average Exchange Rate
 ` 
/US$40.2645.9947.4445.5647.9254.47
g
5.Money and Credit
Broad Money (M3) (annual)%change21.419.316.816.015.611.2
h
Scheduled Commercial Bank Credit(growth)%change22.317.516.921.515.915.1
h
6.Fiscal Indicators (Centre)
Gross Fiscal Deficit% of GDP2.56.06.54.85.7
i
5.1
 j
Revenue Deficit% of GDP1.14.55.23.24.3
i
3.5
 j
Primary Deficit% of GDP-0.92.63.21.82.6
i
1.9
 j
7.Population
Million1138115411701210
k
nanana: not available.1R: 1
st
Revised Estimates, 2R: 2
nd
Revised Estimates, AE: Advance Estimates.
a
Second advance estimates.
b
The Index of Industrial Production has been revised since 2005-06 on base (2004-05=100).
c
 April-December 2012.
d
2012-13 (April-January).
e
CAB to GDP ratio for 2012-13 is for the period April-September 2012.
 At end January, 2013.
g
 Average exchange rate for 2012-13 (April 2012- January 2013).
h
Provisional (up to December 28, 2012).
i
Fiscal indicators for 2011-12 are based on the provisional actuals (unaudited).
 j
Budget estimates.
k
Census 2011.
http://indiabudget.nic.in
 
3
State of the Economy and Prospects
Table 1.1 : Growth in GDP at Factor Cost at 2004-5 prices (per cent)
2005-062006-072007-082008-092009-10
3R
2010-11
2R
2011-12
1R
2012-13
AE
 Agriculture, forestry & fishing5.14.25.80.10.87.93.61.8Mining & quarrying1.37.53.72.15.94.9-0.60.4Manufacturing10.114.310.34.311.39.72.71.9Electricity, gas, & water supply7.19.38.34.66.25.26.54.9Construction12.810.310.85.36.710.25.65.9Trade, hotels, & restaurants, transport &communication12.011.610.97.510.412.37.05.2Financing, insurance, real estate &business services12.614.012.012.09.710.111.78.6Community, social & personal services7.12.86.912.511.74.36.06.8
GDP at factor cost9.59.69.36.78.69.36.25.0
 
Source
: Central Statistics Office (CSO).
Notes
: 1R : First Revised Estimate, 2R: Second Revised Estimate, 3R: Third Revised Estimate, AE : AdvanceEstimate.
which registered a growth rate of only 3.5 per centand 3.1 per cent in 2011-12 and 2012-13 respectively.The rate of growth of the manufacturing sector waseven lower at 2.7 per cent and 1.9 per cent for thesetwo years respectively. Growth in agriculture has alsobeen weak in 2012-13, following lower-than-normalrainfall, especially in the initial phases (months of June and July) of the south-west monsoon.1.4After achieving double-digit growth continuouslyfor five years and narrowly missing double digits inthe sixth (between 2005-06 and 2010-11), the growthrate of the services sector also declined to 8.2 per cent in 2011-12 and 6.6 per cent in 2012-13. In 2011-12 the sector that particularly slowed within theservices sector was Trade, Hotels, and Restaurants,Transport and Communications, and its growth further declined in 2012-13. Activities in this sector, beingforms of derived demand, tend to grow at a slower rate with the slowdown of economic activity in theindustry and agriculture sectors.1.5Why has the economy slowed down so rapidlydespite recovering strongly from the global financialcrisis? A number of factors are responsible.
First 
,the boost to demand given by monetary and fiscalstimulus following the crisis was large. Finalconsumption grew at an average of over 8 per centannually between 2009-10 and 2011-12. The resultwas strong inflation and a powerful monetaryresponse that also slowed consumption demand.
Second 
, starting in 2011-12, corporate andinfrastructure investment started slowing both as aresult of investment bottlenecks as well as the tighter monetary policy.
Thirdly 
, even as the economyslowed, it was hit by two additional shocks: a slowingglobal economy, weighed down by the crisis in theEuro area and uncertainties about fiscal policy inthe United States, and a weak monsoon, at least inits initial phase.1.6As growth slowed and government revenuesdid not keep pace with spending, the fiscal deficitthreatened to breach the target. With governmentsavings falling, and private savings also shrinking,the CAD--which is the investment that cannot befinanced by domestic savings and has to be financedfrom abroad--also widened. In the rest of this chapter,the statistical underpinnings of the macroeconomyare analysed followed by the rationale behind thegovernment's policy for macroeconomic stabilizationand restoring growth, in addition to themacroeconomic outlook and possible risks to theoutlook.1.7The Economic Survey does not just analysethe economy; it is also a detailed record of major developments in the economy. So themacroeconomic analysis will be followed by asummary tour of the other chapters in the Survey.
A
SPECTS
 
OF
G
ROWTH
1.8In the last decade, growth has increasinglycome from the services sector, whose contributionto overall growth of the economy has been 65 per cent, while that of the industry and agriculture sectorshas been 27 per cent and 8 per cent respectively.Figure 1.1 shows the contributions of these sectorsto the overall growth of the economy from 2003-04to 2012-13.
http://indiabudget.nic.in

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