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Economic Survey predicts GDP growth at 8.7% for 2007-08
New Delhi, February 29, 2008
Pushing for reforms, the
Economic Survey said inflationary impact of foreign funds
flow, a slowdown in the US, an appreciating rupee and sluggish
infrastructure sector were major challenges before economy.
"The new
challenge is to maintain growth at these levels, not to speak
of raising it further to double digit levels," stated the
Survey, a report card on the economy, presented in Parliament
on Thursday.
The Survey,
considered to be a report card of the government, outlined
several concerns like impact of US sub-prime crisis, loss of
dynamism in agriculture, appreciating rupee eroding India's
export competitiveness, deceleration in industrial growth and
managing capital inflows.
The Survey,
tabled by Finance Minister P Chidambaram in the Lok Sabha,
suggested a slew of reform measures that alone could help
raise the growth to an ambitious double digit level.
"Raising
growth to double digit... will require additional reforms."
These include
opening retail to FDI, hiking FDI in insurance to 49 per cent,
allowing 100 per cent FDI in new private rural agricultural
banks, selling up to 10 per cent equity of Navratna
(cash-rich) PSUs.
"There is an
urgent need for a regime that supports predictable user
charges, a financial system that allocates risk
efficiently...," it said.
The document
stated that the recent hike in fuel prices would add 19 basis
points to the inflation rate projected at 4.4 per cent for the
year 2007-08.
"Of late, the
change in the structure of the economy and its more globalised
nature has made management of inflation a complex task," it
said, adding that the rising capital inflows will require
monetary policy to play a more decisive role.
While the
macro economic fundamentals continue to boost confidence, the
decisive change in growth trend also shows that the economy
was "perhaps not fully prepared for the different set of
challenges that accompany fast growth".
The rupee
appreciation of 8.9 per cent between April 3, 2007 and
February 6, 2008 affected exports in some sectors with low
import intensity. Besides the rupee impact, the US slowdown is
also expected to hit the exports.
"The US
economy is expected to slow down in 2008, consequent to the
sub-prime crises. Most projections of the world economy
suggest a moderate but not severe slowdown in world growth.
This will
impact both the demand for India's exports and the value of
imports," the Survey stated.
It said the
sub-prime crisis in the US may lead to additional capital
flows into India and other emerging markets.
"The
situation of excess inflows is likely to remain, though the
pressure on reserve accumulation and exchange rate
appreciation is likely to ease," the Survey said.
In the longer
term, the solution to excess capital inflows lies in deepening
productivity gains and addressing the root causes like
interest differential and build-up of expectations on the
rupee.
The policy
reforms options listed in the Survey also included allowing
regulated private entry into coal mining, phasing out control
on sugar, fertiliser and drugs and selling old oil fields to
private sector.
It suggested
private corporate investment in nuclear power, subject to
regulation, and added that the state electricity regulatory
commissions should notify rational and credible cross-subsidy
for open access.
Following are the Highlights of pre-Budget
Economic Survey 2007-08 :
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FY'08 economic growth at 8.7%, against 9.6% a year ago
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Inflation rate to decline from 5.6% in FY'07 to 4.4% in '08
-
Holding 9% growth a challenge, two digit growth even greater
-
Inflation and infrastructure biggest growth challenges
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Skill dearth causing attrition, wage hike; pushing inflation
-
Farm growth in FY'08 seen at 2.6%, against 3.8% a year ago
-
Foodgrain output seen at 219.3 MT against 217.3 MT in FY'07
-
Acceleration in domestic investment, savings drove growth
-
Macroeconomic fundamentals continue to inspire confidence
-
Investment climate full of optimism
-
Industrial growth slower at 9% in first 9 months of FY'08
-
Costly rupee, sluggish consumer goods and infra a concern
-
Rupee rose by 8.9% against USD during current fiscal.
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Average credit growth slowed to 26.8% in FY'07, down in '08
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Forex reserves up by $91.6 bn to $290.8 bn on Feb 8, 2008
-
GDP projected at Rs 46,93,602 crore (mkt price) in 2007-08 *
Inflation reined despite higher commodity prices & surge in
capital inflows
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Growth deceleration spread across most sectors, barring
power, community services and composite category of trade,
hotels, transport and communications
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Cumulative increase in non-food credit by Jan 4, 2008 was
11.8% as against 17.5% a year ago
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Capital inflows rise to 7.7% of GDP in first half of FY'08
as against 5.1% in FY'07
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FDI inflows reach $11.2 bn, outward investments surge to
$7.3 bn in April-September
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Exports reach $111 bn in first 9 months of FY'08; Imports
grow 25.9%
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Surge in capital inflows, including FDI, to continue in
medium term
-
Complete the process of selling 5-10% equity in previously
identified profit making non-navratna PSUs
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Phase out control on sugar, fertiliser, drugs
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Sell old oil fields to private sector
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Allow a share for foreign equity in all retail trade
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Raise foreign equity in insurance to 49 per cent
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Allow 100 per cent FDI in greenfield private agri banks
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State Electricity Regulatory Commissions should notify
rational, credible, cross subsidy to make open-access viable
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Increase work week to 60 hours from 48 hours and daily limit
to 12 hours.
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