New Delhi, Jan 27: The Economic Survey released by the Government predicts an 8.1% growth rate for India, close to a level witnessed by East Asian countries before the take-off phase. It however cautions that growth needs to come from better reforms but says targets are likely to be met by March 2009. There is also a pressing need to get rid of oil subsidy midst growing need for energy.
Cautioning that the economy`s rosy outlook was not devoid of risks of inflation, hardening interest rate and fiscal deficit, the pre-budget economic survey today prescribed hastening tax and labour reforms and measures to remove infrastructure bottlenecks to sustain high growth.
The major highlights tabled in Parliament are:
Inflation, Interest rates
FY06 inflation rate likely to remain around 5%
Inflation likely to see declining trend in medium term
Hardening of interest rates may dampen investment
Rising global interest rates may hit local investment boom
Near, medium-term inflation risks appear manageable
Inflation to be within tolerable limit in medium term
Decline in inflation in FY06 on sound macro management
Danger of unexpected oil price hike `ever present`
Inflationary pressures successfully contained
Containing inflation high on government`s agenda
2005-end inflation rate at 4.7% Vs 6.5% year ago
Primary food items main driver of inflation in FY06
Domestic prices have remained at comfortable levels
Deceleration in manufacturing inflation continuing
Need to change inflation indices` base to recent year
To study possibility of new real estate price index
Planning switch over from WPI to PPI
Rise in steel prices in 2005-06 moderate Vs last year
Price stability continues to be monetary policy`s main task
Lower govt demand for credit helping benign interest rates
Need to appropriately price petroleum products
Continuance of incomplete fuel pass through not sustainable
Management of lingering oil crisis needs bold policy steps
Inflation due to oil prices impacts interest rate scenario
Economy
Indian economy projected to grow at 8.1% in 2005-06
Need to deepen reforms for higher savings, investment
8% growth in FY07 to give average 7.2% growth in 10th plan
Signs of new phase of economic cyclical upswing from FY04
Industrial recovery that started in 2002-03 continues
Industrial growth driven by manufacturing, construction
Buoyant import growth reflects higher domestic investment
Economic upturn maintained without undue rise in prices
Credit growth due to investment demand in economy
Signs of pickup in investment have strengthened in FY06 --"Odds loaded heavily in favour" of continuation of growth --"Virtuous cycle" of growth, saving to continue for some years
Banking
Utility of RBI Bank Rate as signal may have declined
Banks cut SLR(Statutory Liquidity Ratio) spend in FY06 to meet credit demand
Bank credit to companies main source of FY06 M3 growth
Feb 3 MSS (Market Stabalisation Scheme) outstanding 348 bln rupees Vs 789 bln in Sep
Revisit of instruments for managing liquidity needed
FY06 began with growth rebounding along with inflationary pressures
Accretion to forex reserves slowed in FY06
High global commodity, oil prices influenced domestic inflation
Millennium Deposits maturity was smooth on RBI`s prudent monetary measures
Total outflow for Millennium Deposits maturity was 320 bln rupees
Jan 20 money multiplier 4.77 Vs 4.61 in FY05, 4.59 in FY04
Apr-Jan 20 net forex assets up 25 bln rupees Vs 730 bln rise year ago
Bank Rate as monetary policy signal may have declined
Interbank liquidity comfortable, call largely near reverse repo in Apr-Oct
Call weighted average rate 6% in Dec Vs 5.96% Nov; 5.01% in Apr-Oct
Credit quality may fall on loan growth sans safeguard
Bank credit still needs push for growth, efficiency
Tackling credit price is challenge of monetary policy
Rate seen pressured up on slow forex flow, loan growth
MSS unwinding needed to ease pressure on rates
Balance between credit quality, risk needed for banks to lend
Banks` deposits grew 15.4% FY05 Vs 16.4% year ago
Big rise in net owned funds, borrowings to meet huge loan demand
Borrowings grew 227.49 billion rupees in FY05
Banks raised equity capital to keep pace with rise in risk weights
Banks` net interest margin rose to 2.92% in FY05 vs 2.88 year ago
Banks` operating profit fell 3.1% in FY05 Vs rise of 29.3% year ago
Banks` FY05 operating profit dropped on fall in non-interest income
Banks` investments rose 7.3% in FY05 Vs 23.8% year ago
Banks` FY05 investments in government bonds rose 9.1% Vs 23.8% year ago
NBFC deposits comprised 1.1% of total deposits in FY05
NBFC net NPAs rose to 3.4% in FY05 Vs 2.4% year ago
Commercial, regional rural banks outperformed farm growth target FY05
Public Finance
Fiscal consolidation under FRBM (fiscal responsibility and budget management)
to resume in 2006-07
Pause button on revenue deficit in 2005-06 "one-off" step
Need to unburden Indian industry from high tax levels
Likely to meet FY06 fiscal, revenue deficit targets
Expenditure compression to help govt meet deficit target
Govt likely to achieve FY06 gross tax revenue targets
Slippage seen in FY06 corporate, excise tax mop-up
High deficit, wasteful spending constraining economy
Fiscal consolidation critical for 8-10% GDP growth
High oil prices challenge to economic stability
Critical to raise tax-GDP ratio to 13% by FY09
Gross tax revenue likely to grow at average rate of 22%
Need to converge social sector schemes with similar goals
Savings, investment rates rising in centre, states
Fiscal policy under FRBM aiming revenue led consolidation
Govt aims to bring most goods to median CENVAT rate of 16%
Service tax to be a "buoyant source" of revenue
Average cost of FY06 govt borrowing budgeted at 8.1% Vs 8.4%
Cutting borrowing cost, interest outgo critical for growth
Oil companies` revenue loss likely at 400 bln rupees in FY06
Need to create modern, sustainable pension system
Retired person likely to draw pension for at least 17 yrs
Need to phase out central sales tax
Industry
Need to liberalise FDI restrictions in coal mining
Passenger car output likely to top one mln mark in 2005-06
Capital goods sector growth to increase in FY06
Improvement in domestic, foreign investment scenario
Power sector cause for concern on poor pvt investment
Overall industrial recovery seen continuing in FY06
Strategy needed for more equitable regional FDI flows
FY07 auto sector investment seen at 800 bln rupees
Automobile export potential yet to be fully tapped
Turnaround in textile growth more visible
National Steel policy to be implemented soon
Gas pipeline network needs to be increased
Agriculture
Terms of trade to be in favour of agriculture in FY06
India FY06 farm growth seen 2.3% Vs 0.7% yr ago
Bias in MSP favouring grains distorting crop pattern
Bias in MSP in favour of grains needs correction
Recommends shift from MSP, public procurement policy
2005-06 grain output seen 209.3 mln tn Vs 204.6 mln tn
Pulses, oilseed output below domestic consumption
India Apr-Oct farm exports at $4.8 bln, up 17% on year
India Apr-Oct farm imports at $76.4 bln vs $56.7 bln
Infrastructure
Infrastructure limitation limiting industrial resurgence
Infrastructure investment remains far below requirement
India`s infrastructure can absorb $150 bln FDI in 5 yrs
Plans to increase scope of national highway project
Substantial completion of Golden Quadrilateral by June
Apr-Nov fuel cess adds 24 bln rupees for highway plan
Govt to involve pvt parties for future road projects
Model concession pact to help complete road projects
North-South, East-West Corridors` completion by Dec 2008
Award of contract for NHDP Phase-II by March
Govt plans model concession pacts for ports
Port Connectivity `soft underbelly` of port sector
Port connectivity to up freight movement in mid term
Govt to set independent Airport Economic Regulator
Hyderabad, Bangalore airports to be ready by 2008
In-principle approval for new airport in Goa
New airports at Navi Mumbai, Kannur, Sikkim, Ludhiana
Advisors for 10 non-metro airports appointed
15 more non-metro airports to be developed
Techno economic feasibility study for 5 new airports
Total of 35 non-metro airports to be developed
Revised air services agreement signed with US
Pact signed with 18 countries for air services
FY06 domestic air traffic up 24% on yr, global by 18%
Pvt airlines account for 68.9% of domestic traffic
International cargo records 11.7% growth in Apr-Dec
Domestic cargo records 6.6% growth in Apr-Dec
Govt plans model concession pacts for airports --Total number of phones seen at 250 mln by 2007-end
FDI approved in telecom till Sep 05 415.51 bln rupees
Bharat Nirman Nov 07 aim 66,822 village public phones
User charges cover 75% of cash costs in postal system
Postal deficit may rise to 14.49 bln rupees in FY06
5,232 computerised post offices as on Mar 31
One-stop post office proposed for financial services
Coal demand-supply imbalance matter of concern
Gas demand for power plants outstripping supply
Power capacity seen up 34,000 MW in 10th Plan
10th Plan likely power capacity addition 83% of target
Dabhol power project likely to start by mid-2006
Unutilized hydro-power potential over 150,000 MW
5 sites being identified for 4,000 MW power plants
Power at 1.60-1.80 rupees/kwh from ultra-mega plants
All India power grid envisaged to be set up by 2012
External Sector
IMD(India Millennium Deposits ) outflow, weak dollar, widening deficit hit forex reserve
Outflow from forex reserve so far Vs $28 bln accrual in FY05
Textile export growth not satisfactory despite quotas
Apr-Sep 2005 services export up 75% at $32.8 bln
Apr-Sep 2005 software export up 32% at $10.3 bln
Services export rises by 75% in to $32.8 billion in Apr-Sep 2005
Software services export rises by 32% to $10.3 billion in first half FY06
High growth in export of engineering goods, gems & jewellery
High growth in export of chemicals & related products
Notable 91% growth in export of petroleum products in 2004-05
Petroleum products export up on enhanced refining capacity, tariffs structure
Ores & minerals` export growth rapid; induced by strong demand, high prices
Rise in export of poultry, dairy products, fruit & vegetable seeds
Textiles export growth not satisfactory despite quotas
Low scale of textile mfg deprived India of comparative advantage in labour
Imports of fertiliser, ores & scraps, iron & steel up steeply in Apr-Oct 2005
Total share of 11 major trading partners not changed much since 2000-01
US largest trading partner but its share falls in 2004-05 & Apr-Oct 2005
Share of trade with China & Hong Kong rises to 9.4% in 2005-06
Bureau Report
India Inc gives thumbs-up to Economic Survey
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