New Delhi, October 19, 2011
The Union Finance Minister, Mr. Pranab Kumar Mukherjee today told the Economic Editors Conference (EEC) that India’s growth rate in 2011-12 will be less than what was projected in the budget of February this year. Even if India’s growth rate slides, we will still be among the 10 or so fastest growing nations in the world, he asserted.
Even ten years ago, Mr. Mukherjee said, it was projected that India would grow by 8 per cent and it would be reason for celebration. The fact that we feel disappointed that India may grow by only 8 per cent shows more than anything else how our yardstick for evaluating India has changed.
Good News
This to me is good news, Mr. Mukherjee said while making a detailed presentation on how the slowdown in the world economy, which economists are calling the coming of the 2nd recession, is impacting India, which was being considered the growth engine for the world along with China.
Both international and domestic events have impacted India’s economy. International crude oil prices have continued to remain at or above US $105 per barrel, against our budgetary expectation of about 90 and 95 dollars. The sharp rise has placed an unexpected burden on us. Other commodity prices have been volatile as also the capital flows. The monetary policy tightening and the increase in the interest rates along with the global uncertainty have not helped the industry to go in for fresh investments.
Global Slowdown
The Finance Minister stressed that there was a global slowdown. In the second quarter of calendar 2011, the US economy grew by 1.6% and the European Union by 1.7%. “ If you look at the growth rate in the first and second quarters of this calendar year, among the G20 countries there is only one nation, Australia, which had faster growth rate in the second quarter, when it achieved a growth rate of 1.4%. Indonesia had the same growth rate in both quarters. All other nations had slower growth in the second quarter. “
Policy Initiatives & FDI Doubles
Mr. Mukherjee said that government taking a number of policy measures. And fortunately the long-run indicators look robust. Net FDI this year has doubled from last years. In 2010-11 from April to August we received 6.5 billion dollars of FDI. This year over the corresponding period we have received 16.8 billion dollars.
Credit off take is healthy. Last year from April to September Bank credit grew by 19.2%. This year the growth was 19.5%. Revenue collections have kept pace and there could be potential upside. Services have done well and agriculture is expected to grow at 3%.” I am sure that these factors would help sustain growth. Wait for the Mid-Year Review when I will present to parliament in early December the actual forecast. “ he said.
Inflation
Turning to Inflation, he said it remained sticky around 9 per cent during the first half of current financial year. The WPI inflation for the month of September 2011 is reported at 9.72 per cent as against 9.78 per cent last month. The inflationary pressure in recent times emanated from multiple sources, the most important being the global rise in commodity prices and liquidity enhancing policies adopted by central banks in industrialized nations. There were also some seasonal factors that created upward pressure on prices.
Food inflation has significantly dropped from a peak of 20 per cent in February 2010 to about 8 per cent June-July 2011. However, the sources of inflation have now switched to non-food; much of it, Mr. Mukherjee said, was due to imported global commodity inflation. “ I expect overall WPI inflation to decline from December and I am hoping that we will end the fiscal year around 7 per cent. “
Agricultural Production
The Finance Minister said during since the southwest monsoon brought above normal rainfall, advance estimates by Agriculture Ministry estimates production of kharif food grains during 2011-12 at 123.88 million tonnes compared to about 120 million tonnes in 2010-11. In the kharif season 2011-12, the country is likely to achieve production of 87.10 million tonnes of rice, 20.89 million tonnes oilseeds and 36.10 million bales (170 kg. each) of cotton. This augurs well for supply side response to arrest inflation in food items.
Industrial Growth
On industrial growth, Mr. Mukherjee said, the industrial sector did not do well since the third quarter of 2010-11, mainly on account of the lower levels of growth in the manufacturing sector. As per CSO estimates, industrial sector grew by 4.1 per cent as compared to the growth rate of 4.5 percent recorded in August 2010. The cumulative growth during April-August 2011-12 has been 5.6 per cent as compared to 8.7 per cent during the corresponding months of 2010-11.
Monetary Situation
The Reserve Bank tightened the Monetary policy to contain inflation and anchor inflationary expectations since March 2010. The policy repo rate was raised cumulatively by 325 basis points since then. The steady rise in policy rates was reflected in borrowing as well as lending rates with a lag. Though reserve money growth evinced a deceleration, broad money growth remained above the indicative trajectory in the current fiscal. Credit growth, which had accelerated in 2010-11, moderated in the first quarter of 2011-12 on a year-on-year basis. Non-food credit growth remained close to the indicative trajectory of RBI.
Financial Markets
The Finance Minister said the Indian financial markets remained orderly even in the face of corrections taking place in global financial markets and fragile financial conditions in some Euro Area countries.
Significant developments took place in the Capital Markets. “ We raised FII limit on investments in corporate long-term infra bonds from US $ 5 Billion to US $ 25 Billion. US $ 5 billion was carved out of this for more liberal treatment. In the auction in the first week of October 2011, the entire US $ 5 billion has been subscribed to by the FIIs. “
Qualified Foreign Investors (QFIs) have been allowed to invest a total of US $ 10 Billion in mutual fund equity schemes. QFIs have also been allowed to invest upto US $ 3 Billion in mutual fund debt schemes. Government has liberalized External Commercial Borrowings (ECBs). A separate treatment has been given for Infrastructure Debt Fund under ECB. Automatic approval route has been liberalized. For the first time, Renminbi (RMB) has been approved as an acceptable currency for raising ECB upto US $ 1 Billion. ECB for refinancing rupee loans on infrastructure has been opened up.
Balance of Payments
Capital flows to the tune of US$ 23.5 billion was received during the first five months of the current fiscal. Net capital flows stood at US$ 20.9 billion during the first quarter of 2011-12 as against a level of US$ 16.8 billion in Q1 of 2010-11. Thus Current account deficit was placed at US$ 14.2 billion in the first quarter of 2011-12 as against US$ 12.1 billion in the previous years.
Exports Scenario
India’s merchandise exports reached a level of US $ 160 billion during April-September 2011 reflecting an increase of 52 per cent over the corresponding period last year. Seen in the context of the uncertainty and slow down in the US and EU markets, our endeavor is to support our manufacturers and exporters in their efforts of diversification”, he said.
During the same period, the imports were at US $ 233.5 billion; growth of 32.4 per cent. Consequently, trade deficit stood at US $ 73.5 billion, during the same period.