Growing Faster, Improving Stability, Progressing on
Structural Challenges. The Indian economy this year
(2010-11) has been characterized by robust economic
growth and steady fiscal consolidation. Inflation continues
to be high even though it has come down markedly from
where it was at the start of the fiscal year. There
are structural challenges that we face, concerning economic
governance, efficiency in delivery of subsidies and
building up infrastructure. Policies formulated to take
care of these can help moderate inflation, accelerate
economic inclusion, boost investment and infrastructure,
and enable agriculture, which has revived remarkably
well this year, to be on a sustained high growth path.
The economy has emerged with remarkable rapidity from
the slowdown caused by the global crisis, with growth
of 8.6 percent (advance estimate) in 2010-11 and an
expected 9 percent next year. This growth is also broader:
agriculture is rebounding, manufacturing continues its
momentum, and private services is picking up. Fundamentals
are also stronger: savings and investment are up, exports
are rising rapidly, and inflation is falling, after
a prolonged hiatus.
Inflation, especially of food was very high in February
2010 (at 20.22 percent), declined steadily, with a small
spurt in November and December and now stands at 9.3
per cent. This is a vast improvement but still a matter
of concern.
A shift in the stance in macroeconomic management is
underway. Now that growth is firmly in place, fiscal
consolidation is progressing rapidly, and monetary policy
has reverted to a stronger focus on moderating inflationary
pressures, while ensuring adequate liquidity and credit
growth.
With stronger growth, a widening of the current account
deficit over several quarters became a concern; however,
developments in the last two quarters show a falling
current account deficit as a result of fast-rising exports,
higher net services, and moderating imports.
Considering the critical role of agriculture, there
is need to invest much more in agriculture, stepping
up to a second green revolution to address the yield
gaps.
The slowdown in the IIP index is partly due to base effect
of very fast growth last year, however, the growth momentum
remains strong and broad based.
Services have been Indias engine of growth and
employment. Policies to promote further opportunities
may be essential, especially given vast opportunities
in new areas in global demand.
Infrastructure services are deepening rapidly, as are
service delivery standards, thanks to rising and accelerated
investment (with rates roughly doubling over the Eleventh
Plan period)---from aviation, roads and telecommunications
to ports, railways and power.
In terms of human development parameters, India has
performed below its potential. The Government is addressing
exclusion much more broadly---with accelerated schemes
for traditionally excluded households (among SCs STs
and OBCs) and regions (e.g., North East). Social protection
has taken a massive jump with the expansion of the MNREGE.
Progress on the NHRM, Sarva Shiksha Abhiyaan and others
continues apace. There is stepped up spending (as well
as its monitoring) on social programmes by over 5 percentage
points of GDP over the past five years. On climate change,
similarly, the Government is engaged more intensively,
with expanded financing of programs, better policies,
and accelerated engagement with the global community.
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