Dr. C. Rangarajan, Chairman,
Economic Advisory Council to the Prime Minister released the document ‘Economic
Outlook 2012-13’ at in New Delhi 0n August 17.
Following are the
highlights of the document:
Ø Economy to grow at 6.7 per cent in 2012/13
o
Farm sector GDP projected to grow at 0.5 per cent in 2012/13 due
to the impact of weak monsoon on agriculture and the current reservoir storage
position in 2012/13.
o
Manufacturing sector projected to grow at 4.5 per cent. Electricity,
automotive, steel and cement sector have shown improvement in the period of
April-June. Because of the benefits of the low base, manufacturing sector will
show improved performance in the second half of this year.
o
Mining sector for the year as a whole expected to grow at 4.4 per
cent due to growth in the coal and lignite sector, and some recovery in iron
ore.
o
Electricity generation expected to continue to
grow at an average pace of around 8 per cent.
o
Construction expected to show some improvement compared to last
year as evidenced by the recent increase in the output of steel and cement.
o
In Services
sector, some improvement expected particularly in the large transport,
trade and communications sector.
Ø Global Situation: There
is a dark mood in the advanced economies; especially in Europe. The slower
growth in the US and in the EU will have an adverse impact on the expansion of
these markets for India’s exports, both of goods and services.
Ø Structural Factors:
o Gross Domestic Fixed Capital Formation as a proportion of GDP has fallen
from its highest level of 32.9% in 2007/08 to 30.4 % in 2010/11 and to 29.5 per
cent in 2011/12. Projected to be 30.0% in 2012/13.
o
Domestic saving rate has declined from 32.0% in 2010/11
to 30.4% in 2011/12 and projected to be at 31.7% in 2012/13.
Ø External Sector:
o
Current Account Deficit was $78.2 billion (4.2% of
GDP) in 2011/12 and projected at 67.1 billion (3.6% of GDP) in 2012/13.
§ The merchandise trade deficitwas$189.8 billion (10.2 per cent of GDP) in
2011/12 and projected at $181.1 billion (9.7 per centof GDP) in 2012/13.
§ Overall the net balance on invisibles was $111.6 billion(6.0% of GDP) in
2011/12 is expected to grow at $114 billion (6.1% of GDP) in 2012/13.
o
Capital flows were $67.8
billion (3.7% of GDP) in 2011/12 and projected at $73.2 billion (3.9% of GDP)
in 2012/13. This would be adequate to service the projected CAD of $67 billion
for the year as a whole.
o
Accretion to reserves projected at $4 billion
in 2012/13
Ø Inflation:
o
Deficient SW monsoon likely to have an adverse impact
on the prices of primary food items, especially on those where the ability of
government stocks to play a moderating role is not there.Inflation rate
expected to be within the range of 6.5 to 7.0 per cent at the end of 2012-13.
Ø Expanding fiscal imbalance continues to be a major
area of policy concern.
o
The fiscal deficit for the Centre was 5.89% of GDP in
RE 2011/12 and is estimated at 5.06% in BE 2012/13.
o
In some contrast to the Centre’s finances, the fiscal
health of the States is better.
o
The consolidated fiscal deficit of the Centre and the
State governments for 2011/12 (RE) was 8.2 per cent of GDP. The consolidate
deficit based on Budget Estimates for 2012/13 is estimated to be 7.2 per cent.
o
The containment of the fiscal imbalance at the Centre
rests on our managementofthe subsidy bill, especially that on refined petroleum
products and by increasing the Tax-GDP ratio.
o
Introduction of the General Sales Tax on Goods &
Services (GST) would be a very important milestone in the path of tax reform.
It requires considerable negotiations, bargaining and preparatory work in
relation to both the structure and operation of the tax.
Ø Reforms in Agriculture sector:
Reforms in Agriculture sectorneed
focused attention on liberalizing tenancy arrangements, reforming domestic
markets for agricultural produce and, reducing input subsidies.
Ø Measures to accelerate the Economic growth:
o
Integrated decision-making on high-impact
infrastructure projects
For
Projects costing in excess of a minimum threshold, say Rs 5,000 crore, a
Cabinet Committee comprising of ministers in charge of concerned departments
should take an integrated view. The Cabinet
Committee on Infrastructure could be recast as the Cabinet Committee for
Sustainable Development of Infrastructure for this purpose, and its composition
as well as powers under the rules of business modified accordingly.
o
Permitting FDI in multi-brand retail
For channelling transfer
of capital and technology, FDI in multi-brand retail up to 49 per cent may be
allowed to attract investment in this sector. Such of the states as are
receptive to the idea may implement this.
o
FDI and other reforms in the Aviation sector
FDI in civil aviation may now
be allowed to the existing extent of 49 per cent for foreign airlines as well.
o
Containing petroleum products subsidies
Given the huge subsidy
projection for the current financial year, priority consideration may be given to
(i) a suitable increase in the price of diesel in one or more steps, and (ii) a
cap on the level of consumption of subsidised domestic LPG close to what is
currently being consumed by poorer households, i.e., 4 cylinders.
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We need to focus further on the following issues:
o
Policy predictability: There
is need to specifically focus and address the apprehensions that have been
occasioned by perceptions of arbitrary actions on tax and other fronts.
o
Clearing payments:
Outstanding payments for infrastructure projects need to be cleared on time.
o
Promoting savings:Given
the declining trend in domestic saving rate, we need to make financial products
more attractive.
o
Containing inflation:
§ Taming inflation is critical for sustained growth. Need to take steps to
contain high inflation in primary food which is mostly linked to the antiquated
system of marketing and absence of modern handling and storage facilities for
perishable products.
o
Improving the CAD:
§ Some amelioration through price reform in case of diesel could serve to
contain demand.
§ To contain the import of gold, an improvement in the return as well as
the regulatory regime in which mutual funds and life insurance products are
sold areof utmost importance.
§ Significant improvement required in the approach of government to a
number of issues to make IT-related export business much more competitive.
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