Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released the document ‘Economic Outlook 2010-11’ at a Press Conference in New Delhi. Following are the highlights of the document:

  • Economy to grow at 8.5 per cent in 2010-11 and 9.0 % in 2011-12

o   Agriculture grew at 0.2% in 2009-10. Projected to grow at 4.5% in 2010-11 and 4.0% in 2011-12.

o   Industry grew at 9.3% in 2009-10. Projected to grow at 9.7% in 2010-11 and 10.3 % in 2011-12.

o   Services grew at 8.5% in 2009-10. Projected to grow at 8.9% in 2010-11 and 9.8% in 2011-12.

  • Slow recovery in global economic and financial situation
  • Rising domestic Savings and Investment chief engines of growth

o   Investment rate is expected to be 37% in 2010-11 and 38.4% in 2011-12.

o   Domestic savings rate is expected to be over 34% in 2010-11 and close to 36% in 2011-12.

  • Current Account deficit estimated at 2.7% of GDP in 2010-11 and 2.9% of GDP in 2011-12

o   Merchandise trade deficit projected to be $ 137.8 billion or 9% of the GDP in 2010-11 and $160 billion or 9.3% of GDP in 2011-12.

o   Invisibles trade surplus projected to be $ 96 billion or 6.3% of the GDP in 2010-11 and $109.7 billion or 6.4% in 2011-12.

  • Capital Flows can be readily absorbed by financing needs of the high growth of the Indian Economy.

o    Against the level of  $53.6 billion in 2009-10, the capital inflows projected to be  $ 73 billion for 2010-11 and $91 billion for 2011-12.

o   Accretion to reserves was $13.4 billion in 2009-10. Projected to be $30.9 billion in 2010-11 and $39.8 billion in 2011-12.

  • Inflation rate projected at 6.5 % by March 2011 due to expected normal monsoon combined with the base effect.

o   The provisional headline inflation was above 10% in June 2010.

o   Controlling high inflation rate essential for sustainable growth in medium term.

o   Available food stocks must be released to have a dampening effect on prices.

  • Monetary Policy to complete the process of exit and operate with bias toward tightening.

o   Credit off take picked up. Strong growth rate in the 1st quarter of 2010-11.

o   Fund flow from capital market to commercial sector quite strong. Bond issuance growth relatively higher than issuance of equity.

o   Liquidity conditions are taut enough for monetary policy signals to be appropriately transmitted to the financial sector. A bias toward tightening is necessary.

o   Exchange rate variations will remain within acceptable range.

  • Exit from the expansionary fiscal policy not only feasible but also necessary

o   High buoyancy in direct and indirect tax collections. Telecom auctions and decontrol of the petroleum products prices to provide additional cushion.

o   Fiscal deficit outturn may be lower than the budgeted consolidated fiscal deficit of 8.4% of GDP for 2010-11.

o   Revenue Deficit as a ratio of GDP expected to decline from 6.3% in 2009-10 to 4.6% in 2010-11.

o   Operationalization of Goods and Services Tax (GST) should be a priority.

o   Budgeted level of Fiscal Deficit and Revenue Deficit still beyond comfort zone.

o   Need to rationalize the food and fertilizer subsidies.

  • To sustain a growth rate of 9.0 per cent, focus is required on:

o   Containing inflation

o   Improving farm productivity

o   Closing the large physical infrastructure deficit, especially in the power sector.

GDP Growth – Actual & Projected

Unit: per cent

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
QE Rev f f
Year-on-year Growth Rates
1 Agriculture & allied activities 5.2 3.7 4.7 1.6 0.2 4.5 4.0
2 Mining & Quarrying 1.3 8.7 3.9 1.6 10.6 8.0 8.0
3 Manufacturing 9.6 14.9 10.3 3.2 10.8 10.0 10.5
4 Electricity, Gas & Water Supply 6.6 10.0 8.5 3.9 6.5 7.5 9.0
5 Construction 12.4 10.6 10.0 5.9 6.5 10.0 11.0
6 Trade, Hotels, Transport, Storage & Communication 12.1 11.7 10.7 7.6 9.3 10.0 10.0
7 Finance, insurance, real estate & business services 12.8 14.5 13.2 10.1 9.7 9.5 10.5
8 Community & personal services 7.6 2.6 6.7 13.9 5.6 6.0 7.5
9 Gross Domestic Product at factor cost 9.5 9.7 9.2 6.7 7.4 8.5 9.0
10 Industry (2 + 3 + 4 + 5) 9.3 12.7 9.5 3.9 9.3 9.7 10.3
11 Services (6 + 7 + 8) 11.1 10.2 10.5 9.8 8.5 8.9 9.6
12 Non-agriculture (9 – 1) 10.5 11.0 10.2 7.7 8.8 9.2 9.8
14 GDP (factor cost) per capita 7.8 8.1 7.7 5.2 6.2 7.0 7.5
Some Magnitudes
15 GDP at factor cost – 2004/05 prices in Rslakh crore (or Trillion) 32.5 35.6 38.9 41.5 44.6 48.4 52.8
16 GDP market & current prices in Rslakh crore (or Trillion) 37.1 42.8 49.5 55.7 62.3 70.3 79.2
17 GDP market & current prices in US$ Billion 837 947 1,231 1,222 1,317 1,529 1,722
18 Population in Million 1,106 1,122 1,138 1,154 1,170 1,186 1,203
19 GDP market prices per capita current prices 33,512 38,182 43,479 48,305 53,258 59,305 65,867
20 GDP market prices per capita in current US$ 757 844 1,082 1,059 1,126 1,289 1,432

Note:      QE refers to the Quick Estimates for National Income released on 29 Jan 2010. Rev refers to the Revised Estimate for National Income released on 31 May 2010.

f stands for forecasts made by the Council.

Balance of Payments

Unit: US$ billion

2004/05 2005/06 2006/07 2007/08 2008/09 2009 / 10 2010/11 2011/12
Merch. Exports 85.2 105.2 128.9 166.2 189.0 182.2 216.1 254.0
Merch. Imports 118.9 157.1 190.7 257.6 307.7 299.5 353.9 414.3
Merchandise Trade Balance –33.7 –51.9 –61.8 –91.5 –118.7 –117.3 –137.8 –160.3
–4.7% –6.2% –6.5% –7.4% –9.7% –8.9% –9.0% –9.3%
Net Invisible Earnings 31.2 42.0 52.2 75.7 89.9 78.9 96.0 109.7
4.3% 5.0% 5.5% 6.2% 7.4% 6.0% 6.3% 6.4%
o/w ITES 14.7 23.8 27.7 37.2 44.5 41.3 46.2 53.1
Private Remittances 20.5 24.5 29.8 41.7 44.6 52.1 58.3 67.0
Investment Income –4.1 –4.1 –6.8 –4.4 –4.0 –6.4 –6.5 –6.5
Current Account Balance –2.5 –9.9 –9.6 –15.74 –28.7 –38.4 –41.8 –50.7
–0.3% –1.2% –1.0% –1.3% –2.4% –2.9% –2.7% –2.9%
Foreign Investment 13.0 15.5 14.8 45.0 3.5 52.1 55.0 65.0
o/w FDI (net) 3.7 3.0 7.7 15.4 17.5 19.7 30.0 30.0
Inbound FDI 6.0 8.9 22.7 34.2 35.0 31.7 50.0 55.0
Outbound FDI 2.3 5.9 15.0 18.8 17.5 12.0 20.0 25.0
Portfolio capital 9.3 12.5 7.1 29.6 –14.0 32.4 25.0 35.0
Loans 10.9 7.9 24.5 41.9 4.1 11.9 16.8 24.5
Banking capital 3.9 1.4 1.9 11.8 –3.2 2.1 0 0
Other capital 0.7 1.2 4.2 9.5 4.5 –12.7 0 0
Capital Account Balance 28.0 25.5 45.2 108.0 8.7 53.6 72.8 90.5
3.9% 3.0% 4.8% 8.8% 0.7% 4.1% 4.8% 5.3%
Errors & Omissions 0.6 –0.5 1.0 1.2 1.1 –1.7
Accretion to Reserves 26.2 15.1 36.6 92.2 –18.9 13.4 30.9 39.8
3.6% 1.8% 3.9% 7.5% –1.5% 1.0% 2.0% 2.3%

Click here for full text (pdf). . .

for more reading. .