Economic Resurgence

Economy tabBroad Policy

  •  Indian National Congress and the UPA is fully aware that the world economy faces the worst crisis in 50 years.
  • The average rate of economic growth during the self-declared India Shining period of the BJP was just 5.8% per year, as compared to 8.5% during the five year tenure of the Congress-led UPA government.
  • 2011-12 has proved to be a difficult year for growth, yet the Indian economy grew at about 7%, and subsequently grew at about 6% in 2012-13.
  •  The last 2 years have been difficult one for global economy and polity but with   India’s quest to strive for a better future for our multitudes continues unabated.
  • Green shoots in the economy are emerging after a series of Economic Reforms steps taken by the UPA – which includes – FDI in Retail, Pension, Aviation, Insurance, Media etc.
  •   Investors are showing renewed confidence in India’s strong fundamentals and policy measures coupled with participation of the private sector will spur growth
  • India’s agricultural output is on a record breaking path, service sector remains robust.
  •  UPA recognizes that policy measures are required to spur growth in Manufacturing and Trade, and is many concrete policy measures in this regard
  • UPA also feels that the current mood of pessimism can easily be reversed , It has reversed this trend in 2008-09  and 2009-10 when India recovered from  8.6% to 9.3% growth
  • To create opportunities for  youth to acquire education and skills that will get them decent jobs or self-employment that will bring them adequate incomes that will enable them to live with their families in a safe and secure environment.

Reforms  &  Targeted Actions

Growth

  • The strong post-financial-crisis stimulus led to stronger growth in 2009-10 and 2010-11 However, the boost to consumption, coupled with supply side constraints, led to higher inflation. Monetary policy was tightened, even as external headwinds to growth increased
  • Growth in 2011-12 and 2012-13 is on the lower side, in the context of the decadal averageof 7.9 per cent during 2003-04 to 2012-13. This is attributable mainly to weakening industrial growth in the context of tight monetary policy followed by the Reserve Bank of India (RBI) through most of 2011-12, and continued uncertainty in the global economy
  • Several measures announced in recent months are aimed at restoring the fiscal health of the government and shrinking the Current Account Deficit  as also improving the growth rate
  • Widespread reform measures initiated in recent months and the global economy poised for a moderate recovery in 2013-14, the Indian economy is expected to witness an improved outlook in 2013-14

Fiscal Consolidation

  •   In September, 2012, Government accepted the main recommendations of the Dr. Vijay Kelkar Committee.  A new fiscal consolidation path was announced. Red lines were drawn for the fiscal deficit at 5.3 percent of GDP this year and 4.8 percent of GDP in 2013-14.
  •  Measures including the increase in the price of diesel by  Rs 5 per litre, allowing oil marketing companies (OMCs) to raise diesel prices by small amounts regularly, and a cap on the number of subsidized LPG cylinders are expected to rein in the fiscal deficit.
  •  Government expenditure boosts aggregate demand and it has both good and bad consequences.  Wisdom lies in finding the correct level of government expenditure. We took a dose of bitter medicine.  It seems to be working.  We also took some policy decisions that had been deferred for too long, corrected some prices, and undertook a review of certain tax policies.  We have retrieved some economic space

Investment – Infrastructure

  • The 12th Plan projects an investment of USD 1 trillion or Rs 55,00,000 crore in infrastructure The Plan envisages that the private sector will share 47 % of the investment.
  • Infrastructure Debt Funds (IDF) have been encouraged.  These funds raise resources and, through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for infrastructure projects.
  • India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank, offers credit enhancement to infrastructure companies that wish to access the bond market to tap long term funds.
  •  In the last two years, a number of institutions were allowed to issue tax free bonds.  They raised Rs 30,000 crore in 2011-12 and are expected to raise about Rs 25,000 crore in 2012-13 Budget 2013-14 proposes to allow some institutions to issue tax free bonds strictly based on need and capacity to raise money in the market, upto a total sum of Rs50,000 crore.
  • NABARD operates the Rural Infrastructure Development Fund (RIDF).  RIDF has successfully utilised 18 tranches so far.  Budget 2013-14 proposes to raise the corpus of RIDF-XIX in 2013-14 to Rs 20,000 crore.
  • Budget 2013-14 proposes Rs 5000 crore will be made available to NABARD to finance construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors
  • Government has decided to constitute a regulatory authority for the road sector
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Investment – Infrastructure

  • Bottlenecks stalling road projects have been addressed and 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14.
  • The Cabinet Committee on Investment (CCI) has been set up to monitor investment proposals as well as projects under implementation, including stalled projects, and guide decision-making in order to remove bottlenecks and quicken the pace of implementation
  • To attract new investment and to quicken the implementation of projects, Budget 2013-14 proposes to introduce an investment allowance for new high value investments. A company investing Rs 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment.
  • The Delhi Mumbai Industrial Corridor (DMIC) project has made rapid progress.  Plans for 7 new cities have been finalised and work on 2 new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14
  • The Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai Bengaluru Industrial Corridor.  The corridor will be developed in collaboration with the Governments of Tamil Nadu, Andhra Pradesh and Karnataka.
  •  The next corridor will be the Bengaluru Mumbai Industrial Corridor on which preparatory work has started.
  •  The strong post-financial-crisis stimulus led to stronger growth in 2009-10 and 2010-11 However, the boost to consumption, coupled with supply side constraints, led to higher inflation. Monetary policy was tightened, even as external headwinds to growth increased
  • Growth in 2011-12 and 2012-13 is on the lower side, in the context of the decadal averageof 7.9 per cent during 2003-04 to 2012-13. This is attributable mainly to weakening industrial growth in the context of tight monetary policy followed by the Reserve Bank of India (RBI) through most of 2011-12, and continued uncertainty in the global economy
  • Several measures announced in recent months are aimed at restoring the fiscal health of the government and shrinking the Current Account Deficit  as also improving the growth rate
  • • Widespread reform measures initiated in recent months and the global economy poised for a moderate recovery in 2013-14, the Indian economy is expected to witness an improved outlook in 2013-14

Fiscal Consolidation

  • In September, 2012, Government accepted the main recommendations of the Dr. Vijay Kelkar Committee.  A new fiscal consolidation path was announced. Red lines were drawn for the fiscal deficit at 5.3 percent of GDP this year and 4.8 percent of GDP in 2013-14.
  • Measures including the increase in the price of diesel by Rs 5 per litre, allowing oil marketing companies (OMCs) to raise diesel prices by small amounts regularly, and a cap on the number of subsidized LPG cylinders are expected to rein in the fiscal deficit.
  • The main reasons for the high CAD, as pointed in Budget 2013-14 are increasing imports of coal, oil and gold and decreasing exports.
  • The specific measure suggested to reduce coal imports is to have private participation in coal mining through public-private partnership (PPP) with Coal India Limited (CIL), the public sector monopolist.
  • To increase oil exploration, a new exploration policy is now formulated where revenue sharing will be required instead of profit sharing as is done now.
  • To reduce gold imports, a new investment instruments has been introduced that will be preferred by those who currently buy gold as a hedge against inflation and for capital gains.
  • Petrol has been deregulated under UPA
  • Subsidies on diesel have been moderated, not eliminated. Diesel Prices are being increased at about 50p per litre every month
  • Subsidies on  LPG moderated and has been replaced by cash transfers to the really needy by Aadhaar Based DBT

Inflation

  • The battle against inflation must be fought on all fronts.  Our efforts in the past few months have brought down headline WPI inflation to about 7.0 % (2012-13)  and core inflation to about 4.2 % (Feb 2013)

Exhibits

  • Following the slowdown induced by the global financial crisis in 2008-09, the Indian economy responded strongly to fiscal and monetary stimulus and achieved a growth rate of 8.6 % and 9.3 % respectively in 2009-10 and 2010-11
  • Despite Slowdown Gross Domestic Product (GDP) at factor cost, over the decade ending 2012-13 is 7.9 %

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Exhibits

  • Global economic growth slowed from 3.9 percent in 2011 to 3.2 percent in 2012.
  • India is part of the global economy: our exports and imports amount to 43 percent of GDP and two-way external sector transactions have risen to 108 percent of GDP.
  • We are not unaffected by what happens in the rest of the world and our economy too has slowed after 2010-11
  •  In 2013-14 the CSO has estimated growth at 5 percent while the RBI has estimated growth at 5.5 percent.  Whatever may be the final estimate, it will be below India’s potential growth rate of 8 percent
  •  Even now, of the large countries of the world, only China and Indonesia are growing faster than India in 2012-13.
  • In 2013-14, if we grow at the rate projected by many forecasters, only China will grow faster than India.
  • Between 2004 and 2008, and again in 2009-10 and 2010-11, the growth rate was over 8 percent and, in fact, crossed 9 percent in four of those six years
  • The average for the 11th Plan period, entirely under the UPA Government, was 8 percent, the highest ever in any Plan period.
  • Agricultural GDP growth accelerated in the Eleventh Plan, to an average rate of 3.3. per cent, compared with 2.4 per cent in the Tenth Plan, and 2.5 per cent in the Ninth Plan.
  • The percentage of the population below the poverty line declined at the rate of 1.5 percentage points (ppt) per year in the period 2004-05 to 2009-10, twice the rate at which it declined in the previous period 1993-94 to 2004-05

India’s Macroeconomic Performance

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  •  The rate of growth of real consumption per capita in rural areas in the period 2004-05 to 2011-12 was 3.4 per cent per year which was four times the rate in the previous period 1993-94 to 2004-05.
  • The rate of unemployment declined from 8.2 per cent in 2004-05 to 6.6 per cent in 2009-10 reversing the trend observed in the earlier period when it had actually increased from 6.1 per cent in 1993-94 to 8.2 per cent in 2004-05.
  •  Rural real wages increased 6.8 per cent per year in the Eleventh Plan (2007-08 to 2011-12) compared to an average 1.1. per cent per year in the previous decade, led largely by the government’s rural policies and initiatives.
  • Complete immunization rate increased by 2.1 ppt per year between 2002-04 and 2007-08, compared to a 1.7 ppt fall per year between 1998-99 and 2002-04.
  • Institutional deliveries increased by 1.6 ppt per year between 2002-04 and 2007-08 higher than the 1.3 ppt increase per year between 1998-99 and 2002-04.
  • Net enrolment rate at the primary level rose to a near universal 98.3 per cent in 2009-10.  Dropout rate (classes I-VIII) also showed improvements, falling 1.7 ppt per year between 2003-04 and 2009-10, which was twice the 0.8 ppt fall between 1998-99 and 2003-04.

 

 

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