The Indian Growth Trajectory

Last year the Economic Survey declared that India had moved into the East Asian growth trajectory. The FM settles all debate this time by saying that the economy has moved decisively to a higher growth phase. The Survey continues to emphasise what it did last time - managing macro-economic growth even while containing inflation. It remains sanguine about economic growth even in the face of a slowing US and global economy and notes that the economy is likely to remain domestic demand driven in the medium term. Even while the Survey talks of effective delivery systems at the state and the local level, it remains to be seen how the budget addresses the issue of effective delivery and of managing and measuring outcomes.

This time, it latches on to Per Capita Income and Investment to perhaps make the point that the high GDP growth has trickled down to the Aam Aadmi . It proudly notes that the rate of growth of per capita income has sharply climbed to 7.2% per annum - implying that average income of the Aam Aadmi can virtually double in a decade. It also points that out private final consumption expenditure at per person level is up and so are the saving rates.

Interestingly, it also points to the limited capability of state governments to deliver goods and services to people. It suggests a Smart Card based System to enhance the delivery and efficiency of government schemes such as NREGA, Public Distribution System etc. The management of supply is also being viewed as a critical aspect for inflation management.

The Eco Survey also indicates that the targets for revenue and fiscal deficits for the year 2007-08 appear well within reach. But, it also strikes a cautionary note by saying that the current revenue buoyancy is riding on the performance of an economy more globalised than before. Thus, global developments that have a bearing on India's domestic economy would need to be watched. It also applauds the move by 26 states to a rule based programme for fiscal reforms.

On Inflation, the survey notes that the change in the structure of the economy has made inflation management a more complex task. It mentions that monetary policy mechanisms - particularly to tackle inflation arising of capital inflows-have become important. Even while it acknowledges that agricultural import tariffs remain high, it is unlikely to do much to reduce these rates in an election year, particularly when a sensitive constituency like agriculture needs to be addressed.

It sees agriculture as an important sector to push GDP growth upwards and to make growth more inclusive and biased in favour of women. It also sees higher farm incomes providing equitable growth. Even here, it stresses on the need to build outcome oriented perspective in the implementation of public programmes. Increasing productivity in the face of limited area of cultivation is important, it says.

It expects capital inflows as a proportion of GDP to decline, but, feels that the decline will be modest but enough to take the pressure on reserve accumulation and exchange rate appreciation.

It sees the country continuing to attract significant cross-border portfolio inflows as India is expected to continue to remain a relatively attractive investment destination. It notes the importance of insurance and pension funds for both the equity and the debt markets and hints at further initiatives to expand and deepen both the Government Securities and the Corporate Bond markets. It also sees the debt markets as a critical financing mechanism for the infrastructure sector.

Even while it expects pressure on the rupee to weaken, the Survey is not optimistic about exports on account of world GDP and world imports. It says that he outlook for exports in the year 2008-09 is not as bright as it was in the years before. Policy changes and relief measures for export oriented sectors can be expected.

Employment is a key area of focus for the UPA government; its flagship NREAGA programme is meant to address precisely this issue. The survey notes that while employment growth actually rose to 2.62% per annum in the period 1999-2000 to 2004-05, unemployment actually rose as an absolute measure on account of a faster increase in the labour force. The share of agriculture in total employment is still declining. The survey also points out an improvement in important social indicators but stresses on the need for better governance and improved service delivery at the local level.

Economic Survey 2007-08: Petroleum Sector

With international crude oil prices touching an all-time high of 102 dollars a barrel, the Economic Survey on Thursday advised privatisation of old oil fields to raise output and reduce India's import dependence.

State-run firms Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) have seen oil output fall from old fields like those in Gujarat and Assam, and new technology will be needed to raise recovery.

India, which spent 48.389 billion dollars to import its crude oil needs in 2006-07, has already spent 48.02 billion dollars on crude imports in the first nine months of the current fiscal because of rise in international oil prices.

"The international price of crude oil and petroleum products has increased phenomenally in recent months. The crude oil price of the Indian basket touched an all-time high of 92.13 dollars per barrel on November 26, 2007," it said.

The surge in global oil prices had "a significant impact on the oil marketing companies and the Indian economy as India imports about 72 per cent of the crude oil requirement."

The Government this month raised price of petrol and diesel by Rs 2 per litre and Re one a litre respectively, that could contribute 0.19 per cent increase in inflation.

The pre-Budget survey that was tabled in Parliament today, suggested: "Sell old oil fields to private sector for application of improved/enhanced oil recovery techniques."

Besides stepping up domestic production, the remaining deficit would have to be bridged by entering into strategic geo-political alliances to access energy assets in the region, the Survey said, pointing to the need of making investments in energy chain in Middle-East and Africa.