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Chapter 1

Chapter 1

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General Review
Review of developments
Macroeconomic overview
In a robust demonstration of its nascentstrengths, the Indian economy, after growingat 8.5 per cent and 7.5 per cent in the twoprevious years, is projected to grow at 8.1 percent in the current year 2005-06. Growth ofGross Domestic Product (GDP) at constantprices in excess of 8.0 per cent has beenachieved by the economy in only five years ofrecorded history, and two out of these five arein the last three years. After dipping below1.0 per cent in 2004-05, mostly on account oferratic rainfall, agricultural and allied sector’sgrowth in 2005-06 is projected at 2.3 per cent.With a good kharif and bright rabi prospects,foodgrain production is expected to increaseby 5 million tonnes (MT) in 2005-06. Somesignificant dimensions of the dynamic growthin recent years are: a new industrialresurgence; a pick up in investment; modestinflation in spite of spiraling global crude prices;rapid growth in exports and imports with awidening of the current account deficit; layingof some institutional foundations for fasterdevelopment of physical infrastructure;progress in fiscal consolidation; and thelaunching of the National Rural EmploymentGuarantee (NREG) Scheme for inclusivegrowth and social security.1.2According to the national income datareleased by the Central Statistical Organisation(CSO) on February 7, 2006, the advanceestimate (AE) for growth of GDP at factor costat constant (1999-2000) prices in 2005-06 at8.1 per cent was up 0.6 percentage pointsover the 7.5 per cent growth recorded in2004-05 (Table 1.1). The CSO has changedthe base year for calculation of national incomeaggregates at constant prices from 1993-94to 1999-2000 (Box 1.1). The revised growthrate with base 1999-2000 is the same as orless than the rate with base 1993-94 for eachof the four earlier years ending in 2003-04.For 2004-05, with the availability of detaileddata at the sectoral level rather than someindicators that were available at the time whenthe advance estimate was made, growth ofGDP at factor cost at 1999-2000 prices is7.5 per cent (according to the quick estimate),up from the 6.9 per cent for GDP at factor costestimated on February 7, and June 30, 2005.1.3Against the annual average growth rateof 8.0 per cent envisaged in the Tenth FiveYear Plan (2002-03 to 2006-07), the averagerate is estimated to have been 7.0 per cent inthe first four years ending in 2005-06.Excluding the first year of the Plan (with amuch lower growth of 3.8 per cent) results inan average growth rate of 8.0 per cent in theremaining three of the first four years.Maintenance of growth at or above 8 per centin 2006-07 will yield a plan period annualaverage growth rate of at least 7.2 per cent.1.4The growth trend for the last three yearsappears to indicate the beginning of a newphase of cyclical upswing in the economy from2003-04. The initial momentum to this newphase of expansion, in 2003-04, was providedby agriculture. After a somewhat subduedimpetus from the farm sector in 2004-05, thereis a moderate recovery in agricultural growthin 2005-06 (Table 1.2). This is partly becauseof a change in the rainfall pattern from erraticto a near-normal distribution.
1
 
2
Economic Survey 2005-2006 
Table 1.1 : Key indicators
2002-032003-042004-052005-062002-032003-042004-052005-06ItemsAbsolute valuespercentage change over previous period
Gross domestic product (at factor cost)(Rs. thousand crore)At current prices2255.62543.4P2843.9Q3200.6A7.512.8P11.8Q12.5AAt 1999-2000 prices2052.62226.0P2393.7Q2586.6A3.88.5P7.5Q8.1AGDP–Agriculture and alliedsectors (Rs. thousand crore)(at 1999-2000 prices)448.7493.7P497.4Q508.6A-6.910.0P0.7Q2.3AGross national product (at factor cost)(Rs.thousand crore)At current prices2238.92525.1P2826.0Q3178.8A7.812.8P11.9Q12.5AAt 1999-2000 prices2033.82208.2P2376.7Q2566.8A3.98.6P7.6Q8.0AIndex of agriculturalproduction(1)150.4181.0179.2P-15.920.3-1.0PFoodgrains production174.8213.5204.6+209.3++-17.922.1-4.2P2.3++(million tonnes)Index of industrial176.6189.0204.8215.4^5.87.08.47.8^production(2)Electricity generated(in billion kwh)531.6558.3587.4458.6^3.25.05.24.7^Wholesale price index(3)172.3180.3189.5196.2#6.54.65.14.1#Consumer price index forindustrial workers(4)487504525550$4.13.54.25.6$Money supply (M
3
)(5)(Rs. thousand crore)1718.02005.72250.42551.9(6)14.716.712.216.4(6)Imports at current prices(in Rs. crore)2,97,2063,59,1084,90,5324,81,339***21.220.836.624.1***(in US $ million)61,41278,1491,09,1731,08,803***19.427.339.726.7***Exports at current prices(in Rs. crore)2,55,1372,93,3673,61,8793,31,771***22.115.023.416.5***(in US $ million)52,71963,84380,54074,978***20.321.126.218.9***Foreign currency assets(7)(in Rs. crore)3,41,4764,66,2155,93,1215,89,526*37.136.527.29.1*(in US $ million)71,8901,07,4481,35,5711,33,770*40.849.526.28.2*Exchange rate(Re./US $) (8)48.4045.9544.9344.25@-1.55.32.32.1@
Note:Gross domestic product and Gross national product figures are at factor cost (new series base 1999-2000).P-Provisional;Q-Quick estimates;A-Advance estimates;@ Average exchange rate for April-January, 2005-06.* At the end of January, 2006** At the end of December, 2004*** April-January, 2005-06# As on February 4, 2006.$ As on December, 2005.+ 4th advance estimates 2004-05^April-December, 2005++ 2nd advance estimates 2005-061.Index of agricultural production (of 46 crops, including plantations) with base triennium ending 1981-82=100 (revised).2.Index of industrial production; (base 1993-94=100).3.Index (with base 1993-94 = 100) at the end of fiscal year.4.Index (with base 1982 =100) at the end of fiscal year.5.Outstanding at the end of financial year.6.As on Janauary 20, 2006, year-on-year growth (net of conversion of a non-banking entity into a banking entity from October11, 2004).7.Outstanding at the end of financial year.8.Percent change indicates the rate of appreciation (+)/depreciation (-) of the Rupee vis-á-vis the US Dollar.
 
General Review 
3
Box 1.1 : New Series of National Accounts Statistics
The Central Statistical Organisation (CSO), mandated to prepare and release estimatesof national income, consumption expenditure, saving and capital formation, prepared thefirst official estimates of national income with base year 1948-49 in 1956. To take into accountthe structural changes taking place in the economy, the base year has been shifted fivetimes so far to 1960-61, 1970-71, 1980-81, 1993-94 and 1999-2000.The choice of the latest base year 1999-2000 coincides with the year of the 55th roundof the quinquennial survey on employment and unemployment by the National Sample SurveyOrganisation (NSSO). Besides using the 56th, 57th and 58th rounds of NSSO surveys onUnorganized Manufacturing, Services Sectors and Housing Conditions respectively, thenew 1999-2000 series also uses All India Livestock Census, 2003, Population Census,2001, and All India Census of Small Scale Industries, 2001-02. With a widening of thecoverage, improvement in procedures and inclusion of long-term survey results, the changein base has resulted in some changes in the GDP estimates according to the New Series.
(Rs. crore)
At curent pricesAt constant prices
NewOldDifferenceNewOldGrowth inseries,series,inseries,series,per centYearbasebaseper centbasebaseNewOld1999-20001993-941999-20001993-94seriesseries
1999-200017,92,29217,61,8381.717,92,29211,48,3672000-0119,30,18419,02,9991.418,70,38811,98,5924.44.42001-0220,97,44620,81,4740.819,78,05612,67,9455.85.82002-0322,55,57422,54,8880.020,52,58613,18,3623.84.02003-0425,43,39625,19,7850.922,26,04114,30,5488.58.52004-0528,43,89728,30,4650.523,93,67115,29,4087.56.9
Gross Domestic Product at factor cost: New and Old Series
There are no major changes in the overall growth rates of GDP at constant (1999-2000)prices with the change in the base year, although there are changes in growth rates atsectoral level.1.5In contrast to the sharp fluctuations inagriculture, industry and services havecontinued to expand steadily. Indeed, sincethe beginning of the Tenth Plan in 2002-03,with annual growth of 7.0 per cent or more(Table 1.2), industry and services have actedas the twin engines propelling overall growthof the economy. Over a somewhat longerhorizon, in the six years between 2000-01 and2005-06 (AE), on average, services with ashare of 52.0 per cent of GDP, contributed65.0 per cent of GDP growth, and increasedits share in GDP from 49.8 per cent to 54.1per cent. During the same reference period,on average, with a share of 25.8 per cent ofGDP, industry, by contributing 28.0 per centof GDP growth, increased its share in GDPfrom 25.9 per cent to 26.2 per cent.1.6Overall industrial recovery thatcommenced from the second quarter of2002-03 continues. After an acceleration ofgrowth of industrial GDP at factor cost atconstant 1999-2000 prices from 7.0 per centin 2002-03 to 7.6 per cent and 8.6 per cent inthe next two years, the industrial resurgenceis manifest in the projected step up in its growthto 9.0 per cent in the current year. In the currentyear, industrial growth is driven by robustperformances from manufacturing and

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