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Madam Speaker
,I rise to present the Union Budget for 2012-13.For the Indian economy, this was a year of recovery interrupted. Whenone year ago, I rose to present the Budget, the challenges were many, but therewas a sense that the world economy was on the mend. The Budget was presentedin the first glimmer of hope. But reality turned out to be different. The sovereigndebt crisis in the Euro zone intensified, political turmoil in Middle East injectedwidespread uncertainty, crude oil prices rose, an earthquake struck Japan andthe overall gloom refused to lift.
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While I believe that there should be no room for complacency, nor anyexcuse for what happens in one’s own country, we will be misled if we ignorethe ground realities of the world. The global crisis has affected us. India’s GrossDomestic Product (GDP) is estimated to grow by 6.9 per cent in 2011-12, afterhaving grown at the rate of 8.4 per cent in each of the two preceding years.Though we have been able to limit the adverse impact of this slowdown on oureconomy, this year’s performance has been disappointing. But it is also a factthat in any cross-country comparison, India still remains among the front runnersin economic growth.
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For the better part of the past two years, we had to battle near double-digit headline inflation. Our monetary and fiscal policy response during thisperiod was geared towards taming domestic inflationary pressures. A tightmonetary policy impacted investment and consumption growth. The fiscal policyhad to absorb expanded outlays on subsidies and duty reductions to limit thepass-through of higher fuel prices to consumers. As a result growth moderatedand the fiscal balance deteriorated.
4.
But there is good news in the detail. With agriculture and servicescontinuing to perform well, India’s slowdown can be attributed almost entirelyto weak industrial growth. While we do not have aggregate figures for the last
Budget
 
2012-2013
Speech of 
Pranab Mukherjee
 Minister of Finance
March 16, 2012
 
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quarter of 2011-12, numerous indicators pertaining to this period suggest thatthe economy is now turning around. There are signs of recovery in coal,fertilisers, cement and electricity sectors. These are core sectors that have animpact on the entire economy. Indian manufacturing appears to be on the cuspof a revival.
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We are now at a juncture when it is necessary to take hard decisions. Wehave to improve our macroeconomic environment and strengthen domesticgrowth drivers to sustain high growth in the medium term. We have to acceleratethe pace of reforms and improve supply side management of the economy.
6.
We are about to enter the first year of the Twelfth Five Year Plan whichaims at “faster, sustainable and more inclusive growth.” The Plan will be launchedwith the Budget proposals for 2012-13. In keeping with the stated priorities, Ihave identified five objectives that we must address effectively in the ensuingfiscal year. These are:•Focus on domestic demand driven growth recovery;•Create conditions for rapid revival of high growth in privateinvestment;•Address supply bottlenecks in agriculture, energy and transportsectors, particularly in coal, power, national highways, railwaysand civil aviation;•Intervene decisively to address the problem of malnutritionespecially in the 200 high-burden districts; and•Expedite coordinated implementation of decisions being takento improve delivery systems, governance, and transparency; andaddress the problem of black money and corruption in publiclife.
7.
Today, India has global responsibilities of a kind that it did not haveearlier. Our presence at the high table of global economic policy makers is amatter of some satisfaction. It, however, places new responsibilities on ourshoulders. If India can continue to build on its economic strength, it can be asource of stability for the world economy and provide a safe destination forrestless global capital.
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I know that mere words are not enough. What we need is a credibleroadmap backed by a set of implementable proposals to meet those objectives.In my attempt to do so, I have benefited from the able guidance of Hon’blePrime Minister, Dr. Manmohan Singh, and strong support of the UPA ChairpersonSmt. Sonia Gandhi.
 
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I would now begin with a brief overview of the economy.
Overview of the Economy
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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.
10.
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.
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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.
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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.
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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.
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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.
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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.
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