I would now begin with a brief overview of the economy.
Overview of the Economy
Yesterday, I laid on the table of the House the Economic Survey2011-12, which gives a detailed analysis of the economy over the past 12 months.India’s GDP is estimated to grow at 6.9 per cent in real terms in 2011-12. Thegrowth is estimated to be 2.5 per cent in agriculture, 3.9 per cent in industry and9.4 per cent in services. There is a significant slowdown in comparison to thepreceding two years, primarily due to deceleration in industrial growth, morespecifically in private investment. Rising cost of credit and weak domesticbusiness sentiment, added to this decline.
The headline inflation remained high for most part of the year. It wasonly in December 2011 that it moderated to 8.3 per cent followed by 6.6 per centin January 2012. Monthly food inflation declined from 20.2 per cent in February2010, to 9.4 per cent in March 2011 and turned negative in January 2012. Thoughthe February 2012 inflation figure has gone up marginally, I expect the headlineinflation to moderate further in the next few months and remain stable thereafter.
India’s inflation is largely structural, driven predominantly by agriculturalsupply constraints and global cost push. Evidence suggests that prolonged periodsof high food inflation tend to get generalised. Fortunately, steps taken to bridgegaps in distribution, storage and marketing systems to strengthen food supplychains have helped us in a more effective management of inflation and led to adecline in food inflation.
The developments in India’s external trade in the first half of the currentyear were encouraging. During April-January 2011-12, exports grew by 23 percent to reach US Dollar 243 billion, while imports at US Dollar 391 billionrecorded a growth of over 29 per cent. What is heartening is that India hassuccessfully achieved diversification of export and import markets. The share of Asia, including ASEAN, in total trade increased from 33.3 per cent in2000-2001 to 57.3 per cent in the first half of 2011-12. This has helped us weatherthe impact of global crisis emanating from Europe and to a lesser extent fromUSA.
The current account deficit as a proportion of GDP for 2011-12 is likelyto be around 3.6 per cent. This, along with reduced net capital inflows in thesecond and third quarters, put pressure on the exchange rate.
Taking a bird’s eye view of the entire economy and keeping in mind thedifficult global environment, I expect India’s GDP growth in 2012-13 to be 7.6per cent, +/- 0.25 per cent.
I expect average inflation to be lower next year. I also expect the currentaccount deficit to be smaller, aided by improvement in domestic financial savings.