Economic Development

  • Forex inflows still a 'challenge': Survey

    Govt's annual report doubts ability to eliminate revenue deficit. Calling double-digit growth a tough task, the government today cited foreign capital inflow and inflation as the macroeconomic challenge to high sustained growth in its Economic Survey for 2007-08. "If you wish me to sum up in one phrase the outlook for 2008-09, I would say optimism but with caution is the watchword,' Finance Minister P Chidambaram told reporters after presenting the Survey in Parliament. The annual report card on the economy also said the target of bringing the revenue deficit down to zero by 2008-09 would "remain a challenge,' pointing to a step-up in expenditure as the Congress-led United Progressive Alliance prepares for general elections next year. Though bullish on growth, the Survey has sounded an unmistakable note of caution on the capital inflows that the country has seen in the last several months. As these inflows are substantially higher than what the country needs to cover its trade deficit, these funds threaten to raise prices, leading to a tighter monetary policy. This, in turn, is threatening to capital investments in the country. As the sub-prime crisis unfolds in the US and Europe, global investors are likely to be more risk-averse and are, therefore, likely to cut investments in emerging markets like India, the Survey says. However, this could be balanced out by the increased liquidity created by Western Central Banks to deal with the crisis. "On balance, the decline in capital inflows as a proportion of GDP in 2008 is likely to be modest,' the Survey notes. There could be a softening in global commodity prices because of the moderate slowdown in the world economy led by the sub-prime crisis in the US, the Survey says. However, the slowdown could hurt Indian exports, resulting in a modest increase in the country's deficit in trade of goods and services, unless the US slowdown turns into a severe recession, it adds. The Survey also lists radical policy reform options. These include allowing regulated private entry into coal mining, phasing out controls on sugar, fertiliser and drug industries, opening up all retail trade to foreign investment, raising foreign ownership of insurance companies from 26 per cent to 49 per cent (51 per cent for companies operating in the rural sector) and allowing foreign companies to set up fully-owned rural banks. Some of these options like opening retail and insurance sectors have been debated internally by the government in the past. However, opposition from its Communist allies has made it put these proposals on the backburner. The Survey does not mention how actively these options are being considered by the government. However, a finance ministry official told Business Standard that these are the policy reforms that need to be undertaken if the country wants to move to the high growth trajectory. "Hopefully, the inputs will be picked and debated for implementation. These are suggestions and not recommendations,' the official said. In addition, the Survey calls for amending the Factories Act that would allow companies to meet seasonal ups and downs in demand and new bankruptcy laws to facilitate the exit of old management as expeditiously as possible. It also lists an ambitious disinvestment programme of listing all closely-held public sector companies and auctioning all loss-making units that cannot be revived. For the first three years of its rule (2004-07), the government kept its word to the Left parties and did no disinvestment at all. It was only earlier this year that it decided to list all its power utilities.

  • Assessing the Budget

    Any Budget can be evaluated on a number of criteria. Here, briefly, is a check-list of benchmarks by which today's pronouncements can be scored. First, from the perspective of the finance ministry's own domain, we need to look at what it does on the fiscal front. Mr Chidambaram has shown complete commitment to the mandate of the Fiscal Responsibility and Budget Management (FRBM) Act, to cap the fiscal deficit while eliminating the revenue deficit. The latter is the greater challenge and his convergence towards the zero-deficit target will be a significant yardstick. Beyond the aggregate numbers, he has also indicated his commitment to taking the country to a full-fledged Goods and Services Tax (GST), which will involve a series of rate rationalisations and re-balancing as far as indirect taxes are concerned. These should be watched out for. Second, broadening the scope of evaluation to macro-economic performance, the Budget must be seen in terms of what it does to sustain rapid economic growth, especially in the context of the global as well as Indian slowdown that has set in. To deal with the cyclical effects, he needs to pump money into programmes that will quickly spend it, thus achieving pump-priming. Critical to longer-term growth is the stepping up of investment in infrastructure, not just in terms of financial commitments but also in creating effective vehicles for implementation in the public and private sectors. Even with all the good intentions of the government in play, the infrastructure gap is not narrowing. Third, the ruling coalition's emphasis on inclusive growth is beyond being a political slogan; inclusiveness is a critical component of a sustainable growth path. This needs to be tackled at several levels. Transfer payments to provide households a secure and minimum level of subsistence need to be combined with longer-term programmes that build capabilities and earning capacity. The Economic Survey has shown that, despite doubling social sector spending over the past four years, the country's position vis-

  • Sustaining 9 p.c. growth will be tough: Survey

    Favours partial sale of profit-making non-navaratna PSUs, and tackling of inflationary impulses Holding out a warning that the current slowdown in the U.S. would have an effect on the Indian economy, the Economic Survey 2007-08 maintained that sustaining a high GDP growth of nine per cent while reining in inflation would be a tough challenge. Tabled in Parliament by Finance Minister P. Chidambaram on Thursday, the Government's pre-Budget annual economic progress report said that in the current uncertain scenario, an increase in the overall growth to double digits would entail additional reforms and came out with a policy prescription. Among the various measures suggested to sustain the high growth momentum, the Survey favoured partial sale of the identified profit-making non-navaratna public sector undertakings (PSUs), phasing out control on sugar, fertilizer and drugs, sale of old oilfields to the private sector, a higher share for foreign equity in retail trade and further opening up of the banking and insurance sectors to foreign direct investment (FDI). With the economy projected to grow at 8.7 per cent during the current fiscal, the Survey pointed out that the lower growth represented a deceleration from the unexpectedly high growth of 9.4 and 9.6 per cent in the preceding two years. "Maintaining growth rate at nine per cent will be a challenge and raising it to two digits will be an even greater one,' the Survey said. Linking the huge accumulation of foreign capital inflows as the reason for the pressure building up on prices, the Survey said that inflationary impulses from global commodity prices must be tackled through use of fiscal and trade policy instruments. Inflation this fiscal is projected to return to the earlier level of 4.4 per cent, down from 5.4 per cent in 2006-07. Deceleration in growth this fiscal appears to have spread across all sectors except electricity, community service and services such as trade, hotels, transport and communications. More significantly, the slowdown in the farm sector growth is attributed to the sluggish trend witnessed in rabi crops. Also, other sectors like manufacturing and construction which grew at 12 per cent in 2006-07 dropped by 2.5 percentage points in the current year. "The slower growth of consumer durables was the most important factor in the slowdown of manufacturing,' the Survey said. As for the external sector, the U.S. economy is expected to slow down in 2008 as a fall-out of the sub-prime mortgage crisis. In fact, most projections of global economies anticipate a moderate and not severe slowdown. "This will impact all countries including India, depending on the importance of the slowdown in different countries and importance of the country in our exports,' the Survey concluded, while pointing out that a further fall in exports to the U.S. might be unavoidable but would be relatively modest. On the flip side, the Survey viewed that one of the implications of the U.S. sub-prime crises would be increased capital inflows into India and other emerging markets. "Thus the situation of excess inflows is likely to remain, though the pressure on reserve accumulation and exchange rate appreciation is likely to ease. Any reduction in excess capital flows from the high levels in 2007 may affect the equity markets in the short-term, but will make the task of monetary management easier,' it said.

  • Cautious optimism

    The central theme of Economic Survey 2007-08 is maintaining the strong economic growth momentum of the recent period. With the annual GDP growth exceeding 8 per cent since 2003-04, the economy has moved decisively to a higher trajectory. The official forecast of 8.7 per cent for 2007-08 accords with this trend. But the figure suggests a slight deceleration, considering that the first six months of the year recorded a growth of 9 per cent or more. For 2008-09, most official forecasts have pegged the rate at 8.5 per cent or less. The key task is to regain the upward push so that the economy averages a 9 per cent or even higher growth towards the end of the 11th Plan. There are both positive and negative factors that would shape the near-term outlook. Macroeconomic fundamentals continue to inspire confidence. A sharp acceleration in the domestic investment and savings rates has sustained the high growth. Buoyant tax revenues have helped in fiscal consolidation so far. The budget will show if the government's finances are on track to meet the goals set under the Fiscal Responsibility and Budget Management Act. Inflation however remains a major worry. Over the past year global factors, notably the high prices of oil, food and other commodities as also the turmoil in financial markets have clouded the external environment. Appreciation of the rupee and a slowdown in specific segments of industry as well as in infrastructure are some of the other major areas of concern. For sustaining economic growth at high levels, policy makers are up against several challenges. Additional reforms are obviously needed. Capital inflows, especially those relating to direct investment, are expected to continue in the medium-term. Combating inflation has become more complex in the context of recent structural changes in the economy and its increasing globalisation. Among the important factors to be reckoned with are the high tariffs on agricultural products, the large share of food in the consumption basket, and the slow modernisation of agriculture and allied activities. Inadequate availability of infrastructure continues to be a major constraint on the supply side. Highlighting the need to improve social sector and human development outcomes at the level of the States, the Survey lays stress on improved delivery mechanisms for the success of programmes such as the NREGP and Bharat Nirman. In a departure from the past, Survey 2007-08 has sought to provide a more rigorous analysis and a conceptual framework, and has added a new chapter that covers subjects of topical interest. That along with the proposal to release background papers will help in disseminating timely economic information to a larger audience.

  • Chidambaram hopeful of 9 p.c. growth

    Union Finance Minister P. Chidambaram after presenting the Economic Survey 2007-08 in Parliament on Thursday. With the country's economic fundamentals strong and investment climate full of optimism, Finance Minister P. Chidambaram on Thursday exuded confidence on achieving an average GDP growth of nine per cent during the Eleventh Plan period (2007-08 to 2011-12) while reining in inflation alongside. As for the outlook for 2008-09, Mr. Chidambaram said: "Optimism, but with caution, is the watchword' while commenting on the policy prescriptions of the Economic Survey 2007-08 which projected a lower GDP growth of 8.7 per cent for the current fiscal and, in that light, viewed sustenance of a high growth as a daunting task. Speaking to newspersons immediately after tabling the Survey in Parliament, Mr. Chidambaram pointed out that the country was required to respond to the evolving global economic situation so as to ensure that its growth was not affected and this, he said, could be achieved by capitalising on the opportunity arising from the "favourable' conditions. "I am optimistic about growth and containment of inflation in the coming year [2008-09],' he said, while noting that his priority was to provide a conducive investment climate and manage the macro economy to facilitate non-inflationary growth. Reading out from a prepared statement which was later released to the press, Mr. Chidambaram said: "Keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09.' He noted that the current slowdown and possible recession in the global economy posed risks to growth. On the rise in domestic savings and investment, the Finance Minister said: "We are confident of meeting the 11th Plan target of 9 per cent average growth.' The high GDP growth, he said, had benefited the common man as well, as this was reflected by a near doubling of the annual growth rate of per capita consumption to 5.1 per cent in 2007-08 compared to 2.6 per cent for the previous 11 years. "If the rate of growth of per capita GDP continues at the five-year average of 7.2 per cent per year, the average income would now double in a decade instead of a generation or more, earlier,' he said. Expressing concern over the slow pace of growth in the farm sector and bottlenecks in infrastructure development, he stressed the need for mobilising public and private resources for "inclusive' growth. In a note of confidence, the Finance Minister said: "I am optimistic about growth and containment of inflation in the coming year. It will be my priority to continue to provide a conducive investment climate and manage the macro economy to facilitate non-inflationary growth. We have to ensure that the benefits of this growth percolate to the most marginal and vulnerable segments of society.'

  • Due allocation for education still an elusive goal

    Not only is the United Progressive Alliance far from delivering on its National Common Minimum Programme (NCMP) promise of allocating six per cent of the Gross Domestic Product to education but the allocation also dipped in percentage terms in 2007-08 compared to the preceding year. According to the Economic Survey 2007-08, the Budget Estimates of the expenditure on education stood at 2.84 per cent of the GDP in the current fiscal. In 2006-07, the expenditure as per the Revised Estimates was 2.88 per cent. Though the expenditure on education as a percentage of the GDP in the past two years was higher than the first two years of the UPA rule, it still falls short of the 2.9 per cent achieved in 2002-03 during the National Democratic Alliance regime. In the NCMP, the UPA pledged to raise public spending on education to at least six per cent of the GDP in a phased manner. Starting lower than 2.74 per cent of the GDP in the last year of NDA rule (2003-04), the allocation in 2004-05 was 2.67 per cent. Though it went up to 2.69 in 2005-06 and stood at 2.88 per cent in the Revised Estimates for 2006-07, the allocation is still below the halfway mark of the promised target. Last year the Planning Commission, in fact, said India could hope to achieve the target

  • Face infrastructure challenges squarely to sustain growth'

    While pointing out that the overall performance of the infrastructure sector of late has been

  • Striking a note of caution

    India's growth is unlikely to slip below the 9% rate in the next few years, says the finance ministry's Economic Survey, but the downside risks have become stronger this year. Among those risks are the international subprime crisis and a slackening of growth in agriculture and manufacturing within the country. The other is the political opposition, because of which the Survey tabled in Parliament by finance minister P Chidambaram on Thursday has had to tuck away its 12-point list of reforms in a box, outside the main narrative. The more significant of these reforms are in the financial sector: allowing the public float of at least 10% in all public sector units, permitting FDI in retail, raising the FDI cap in insurance, besides 100% foreign investment in greenfield rural agricultural banks. The Survey says if the current growth trend persists "

  • Unemployment as a global economic malady

    Unemployment is a common global economic malady, the level of which distintly varies between developed and under developed nations with Keynesian involuntary and frictional type in respect of developed nation and structural type as regard to under developed country like India which contributes to maximum growth of population and insignificant economic growth. Under employment or disguised employment has intensified its dimensions mainly in the rural sector where despite having capacity and willingness, persons fail to avail any gainful activities and as such job seekers out-number the job availability creating a major wastage of manpower. Unemployment in our country is partly due to overwhelming growth of population which has occurred in view of immigration from earstwhile East Pakistan and partially due to non-availability of land, less productivity, lack of industrial infrastructure, haphazard growth of educational institutions and expansion of education which is responsible for cropping up of new entrants in an already over crowded labour market. Agriculture being a seasonal activity fails to provide employment to rural masses throughout the year while perennial activity is not available in reality owing to excessive pressure of population. Exodus from rural areas coupled with slow pace of industrialisation has proved to be a constrain in providing employment opportunity to the growing urban population. Rapid expansion of general education mingted with slow growth of technical and vocational facilities has resulted in a peculiar educated unemployment problem. Accurate estimation of unemployment has become a tough task in view of ever increasing unemployment and under employment and failures of employment exchanges in recording correct figures. While unemployment in this State as a percentage of labour force has become double as compared to the country within 1985-2000 as per NSSO report, it is estimated to be 10.9% of total labour force with a total of 13 lakh (71%) registered educated job seekers, HSLC passed (51%) out-numbered HSSLC passed (30%) and graduates (16%) while technical and post graduate job seekers constitute a very minimal (3%) percentage. Placement of job seekers increased to 16% in between 2004 and 2005 constituting minimal (0.5%) increase in public sector and 9.3% increase in private sector with nearly 31% women employment in organised sector. Rural and women unemployment has become three times to all-India rate having acute unemployment among educated. Most of the self employed or partially employed youth bother a little to inform the employment exchange about their absorption which is also responsible for non-capturing of accurate employment situation. According to the NSSO report, the number of unemployed in this State is 18 and 24 per 1000 respectively in rural and urban area as against only 9 and 19 respectively in national level indicating a greater dimension of the problem in this State. According to the task force, the rate of unemployment in this State increased from 7.96 in 1993-94 to 8 per cent in 1999-2000 which is quite high compared to all India (nearly 7%), 2.93% of Himachal Pradesh and 3.06% of Rajasthan. Youths in this State are mostly interested in Government jobs in lieu of self employment or employment in private venture, which has enhanced the demand for jobs leading to major corruption in the recruitment policy. Ban on creation of posts and restriction on filling up vacancies has created mounting unemployment problem resulting in a grave political, economic and social disorder. Despite shooting up of GDP, employment growth in the State declined significantly within 15 years in agriculture. The call of the hour is to generate job opportunities through filling up vacancies considering intellectual achievement. It is necessary to locate certain sectors where unemployed youths can be accommodated suitably leaving aside Govt assignment. According to a study, the employment elasticity of various sectors varied significantly with primary sector of elasticity 0.74, manufacturing sector 0.19, trade and commerce 0.37 with overall average of 0.45. ILO having its goal of promoting opportunities for both the sex and ensuring security, freedom and dignity depicted persistent unemployment and dismal scenario of the world's employment situation in its

  • PC budgets for early elections

    Rs 60k-crore farm loan waiver, I-T exemption limit raised. P Chidambaram unveiled a Budget cleverly designed to win him many popularity contests. There were concessions on the income tax, reductions in customs and excise duties, and the mother of all farm loan waivers. While playing to multiple galleries, the finance minister also managed to reduce the fiscal deficit to lower than the target set under the fiscal responsibility law, and showed progress on the revenue deficit. Along the way, he designed his announcements so as to attack the twin problems confronting the economy: inflation (the excise and customs cuts will help lower prices) and falling consumer demand (lower tax rates for small cars and two-wheelers, and more money in people's pockets from the income tax concessions). Keeping in mind the Congressman's favoured

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