The
economy is in a upward swing mode, with a growth of 8.1
per cent during 2003-04. It is in a resilient mode in
terms of growth, inflation and balance of payments. This
combination offers ample scope for consolidation of the
growth momentum with continued macro economic stability.
Industry and services also assisted the GDP growth along
with agricultural recovery of 9.1 per cent.
The
year also marked continued maintenance of relative stability
of prices. Inflation was 4.6 per cent at end March 2004,
compared to 5.5 per cent average. Manufacturing sector
somewhat contributed to rise in prices.
A
strong balance of payments position in recent years has
resulted in foreign exchange reserves reaching 119.3 billion
dollars by May 2004. The focus of monetary policy during
the period was on dealing with this surge in reserves.
The RBI moderated the impact of these inflows through
open market sale of Government's securities etc. Banks'
recovery management improved considerably with better
corporate debt restructuring.
The
combined fiscal deficit of the Centre and the States,
which had been decreasing in the early nineties, worsened
subsequently to reach a level of 10.1 per cent in the
Revised Estimates of 2002-03. The revenue deficit deteriorated
more sharply than the fiscal deficit.
The
Interim Budget for 2004-05 did not contain any fresh tax
proposals. Revenue and fiscal deficits were projected
at 2.9 and 4.4 per cent for 2004-05.
A
significant reform initiative taken by the central government
and some states has been the enactment of Fiscal Responsibility
Acts. This marked as an important landmark, provides greater
transparency in budget formulation and execution, and
a prudent fiscal policy stance. The states include Karnataka,
Kerala, Punjab, Tamil Nadu and Uttar Pradesh. Another
major institutional reform is the new pension system based
on defined contribution basis, operative from January
this year.
Gross
domestic savings registered a growth of 24.2 per cent
of GDP in 2002-03. Net domestic savings also increased
proportionately. The gross domestic capital formation
grew by 7.6 per cent, marginally higher with the improvement
coming from capital formation in private sector.
A
good monsoon helped to increase the level of food grains
production from 174.2 million tones in 2002-03 to 210.8
million tones in 2003-04, contributed by increase in the
production of both cereals and pulses. The prospects of
agricultural production in 2004-05 are considered bright
with the forecast of a normal monsoon.
Overall
growth in the industrial sector improved from 5.7 per
cent in 2002-03 to 6.9 per cent in 2003-04. Growth in
mining, electricity and manufacturing sector helped achieve
this.
The
poverty ratio has been declining considerably over the
years and taking this into view, the government has set
a target of reduction in poverty ratio by five percentage
points by 2007 and by 15 percentage points by 2012.
The
government has identified five major challenges facing
the economy. These are: (a) sustaining the growth momentum
and achieving an annual average growth of 7-8 per cent
in the next five years; (b) containing annual inflation
rate to single-digit; (c) boosting agricultural growth
through diversification and development of agro-processing
(d) expanding industry fast, by at least 10 per cent annually
to integrate not only the surplus labour in agriculture
but also the unprecedented number of women and youth joining
the labour force every year and (e) effecting fiscal consolidation
and eliminating the revenue deficit through revenue enhancement
and expenditure management.
The
centre has identified that through the demand-supply gaps
in areas such as telecom, roads and ports have been narrowing
down, the inadequate availability of these facilities
continues to hinder economic growth. Investment in infrastructure
has been grossly inadequate and in the absence of a strongly
enabling environment, the private sector has not been
able to compensate for the decline in public spending
in infrastructure.
Realizing
that social infrastructure is equally important as physical
infrastructure for enhancing welfare, the Government has
given priority to education and health in its National
Common Minimum Programme. Consequently, the public spending
on education and health to be increased to 6 and 2-3 per
cent of GDP from the Budget Estimates of 2003-04. This
is expected to go a long way in addressing problems in
the social sector, especially to improve the quality of
publicly funded basic education and health facilities.
The
government also decided to augment public investment in
agriculture, particularly in rural infrastructure, irrigation
and agricultural research and development. This is to
reverse the declining trend in the capital formation in
agriculture. The Centre also realized that the excess
agricultural labour need to be absorbed in other sectors
notably industry. For this agro-processing has been chosen
as an area for the shift.
Industry
needs to grow rapidly not only to boost the overall growth
rate of the economy but also to generate gainful employment
for the jobless, who are projected to add to the labour
force by about 2 per cent per annum.
One
of the most critical challenges confronting the Indian
economic policy has been devising strategies for sustained
industrial growth in excess of 10 per cent per annum to
move to double-digit growth.
In
a diverse range of industrial activities, several Indian
firms have succeeded in getting integrated into global
production chains
and realized rapid growth of exports. This experience
suggests that with appropriate scale, investment and technology,
rapid industrial growth is indeed possible.
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