Review of the Economy 2010-11 - H I G H L I G H T S

• Economy expected to grow at 8.6 per cent in 2010-11 and 9.0 % in 2011-12
• Agriculture expected to grow at 5.4% in 2010-11 and 3.0% in 2011-12.
• Industry expected to grow at 8.1% in 2010-11 and 9.2% in 2011-12.
• Services expected to grow at 9.6% in 2010-11 and 10.3% in 2011-12.
•  Slow recovery in global economic and financial situation.
• Rising domestic savings and investment chief engines of growth
• Investment rate expected to be 37.0% in 2010-11 and 37.5% in 2011-12.
• Domestic savings rate expected to be over 34% in 2010-11 and 34.7% in 2011-12.
• Current Account deficit estimated at 3.0% of GDP in 2010-11 and 2.8% of GDP in 2011-12

Capital Flows can be readily absorbed by financing needs of the high growth of the Indian Economy.

• Against the level of $47.8 billion in 2009-10, the capital inflows projected to be $ 64.6 billion for 2010-11 and $76.0 billion for 2011-12.
• Against accretion to reserves of $13.4 billion in 2009-10, projected to be $12.1 billion in 2010-11 and $20.2 billion in 2011-12.

Inflation rate projected at 7.0 % by March 2011

•  The declining trend in food prices particularly that of the vegetables will result in lower food inflation.
• Manufactured goods inflation has remained low. Considerable care from the policy side has however to be taken to ensure that the manufactured goods inflation remains below 5 per cent in 2011/12.

Monetary Policy to complete the process of exit and operate with bias toward tightening.

• Liquidity conditions are taut enough for monetary policy signals to be appropriately transmitted to the financial sector.
• Monetary and fiscal policies have to be appropriately tight to protect the economy from inflation.
• Monetary policy has an important role to play even in situations where inflation is triggered by supply constraints.

Current year fiscal adjustment may not be a problem, the challenge is of adhering to the Finance Commission's targets with credible expenditure management.

• Total Central revenues registering an increase of 62.9 per cent in (April –Dec) 2010-11 over the corresponding period last year.
• Capital Expenditure registered a sharp increase of 64.6 per cent (April –Dec) in 2010-11.
• Fiscal deficit outcome for 2010-11 could be marginally better than the budget estimates.
• The consolidated fiscal deficit is likely to be 7.5 to 8 per cent of GDP for 2010-11. 
• There is considerable urgency in the implementation of goods and services tax (GST).
• Budgeted level of Fiscal Deficit and Revenue Deficit still beyond comfort zone.

 To sustain a growth rate of 9.0 per cent, steps required are:

•  Containing inflation by focusing both on monetary and fiscal policies and supply side management.
• The pace of infrastructure creation has to be stepped up with renewed focus on the power sector
• Continue efforts to contain Current Account Deficit (CAD) at 2-2.5 per cent of GDP and in parallel encourage flow of external investments into the country.
• Greater attention to agriculture including on seed development, management of water and soil fertility and improving delivery system.