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Highlights of Economic Survey 2009-10

Finance Minister Pranab Mukherjee Thursday 25 Februar, 2010 tabled a cautious but optimistic Economic Survey 2009-10 in Parliament, which predicted 7.2 percent growth for the current fiscal and a full recovery in 2011-12, while remaining concerned over inflation and fiscal deficit.

The Survey said Indian economy is well on a recovery track and is expected to expand by 8.25-8.75 percent in 2010-11 and even exceed 9 percent the year after.

Survey Highlights
Growth
● Economy seen growing 8.25-8.75 % in 2010-11
● Economy expected to return to 9% growth in medium term
● India FY11 growth seen 100 bps more than FY10
● Medeum term prospects of economic growth “really strong”
● India could be fastest growing economy in next four years
● Expect GDP growth to breach 9% mark in 2011-12
● Risk of second dip recession in advanced nations
● India seems to be returning to pre-crisis growth rate
● India medium, long-term growth prospects excellent
● No reason why India can’t achieve double-digit growth
● Clear Sign of recovery in industrial output
● Largely contained risk to growth from poor monsoon



Food Prices
● Food subsidy must be given directly to households
● Food coupons must replace existing PDS system
● Must identify poor for effective food coupon system
● Possible to switch to food coupons system by 2012
● India has ample stocks of wheat, rice
● Wheat prices may moderate on hope of better harvest
● Vegetable prices started to ease on rabi crop arrival
● Food suibsidy must be given directly to households
● Food coupons must replace existing PDS systems

Inflation● Concern of higher than expected inflation in coming months
● Rapidly rising food inflation cause for concern
● WPI inflation in FY10 out of sync with trend in previous years
● Near-term supply pressure driving inflation outlook
● WPI inflation expected to stabilize due to government steps
● Signs food, fuel inflation spreading to other items
● Current petroleum prices not viable in long run
● Inflation largely due to supply-side bottlenecks
● Supply crunch in some commodities on poor monsoon
● Poor rain prevented seasonal food price fall post October
● Hype about khariff failure exacerbated WPI expectation
● Base effect, mild manufacturing WPI helped recovery
● Divergence between WPI, CPI inflation rates declining
● Food inflation may have peaked in December, seen easing
● What, rice price rise on inflationary expectations
● Low demand causing price moderation in mining FY10

Agriculture
● Agriculture sector continues to be cause of concern
● Need policy initiatives to raise farm growth to 4%
● Likely to end FY10 with sufficient wheat stocks
● Fear of pulses shortage may be causing price spurt
● Higher sowing area of pulses may tame prices
● Local sugar supply shortage causing price surge
● Global sugar price rise likely on big imports by India
● High inflation in milk from coarse cereals, oil cakes
● FCI should be allowed to keep flexible buffer norms
● Need to improve govt strategy for food releases
● Govt shouldn’t have any dealing with fertiliser companies
● Fertiliser companies should be allowed pricing freedom
● Provide fertiliser subsidy to farmers
● Introduce coupon system to subsidise fertilisers
● Hype about kharif failure encouraged hoarding
● Delay in release of imported sugar aided price rise
● High food grain stock putting stress on fiscal health
● Efficient stock management needs urgent attention
● Govt food grain stocks adequate to meet PDS needs
● FY10 farm GDP fall seen only 0.2% despite poor rains
● Apr-Dec rice, wheat off take 35.8 mln tn, up 43% on ry
● High MSP has potential to raise open market prices
● Support price benefit to small farmers doubtful
● Balancing needs to small farmers, consumers a challenge
● Govt wheat buy cost seen 1,504.39 rupee/100 kg FY10
● Govt rice buy cost seen 1,893.71 rupee/100 kg 2009-10
● Wheat open market sale scheme helped stabilise price
● Fall in sugar output put pressure on prices
● 2009-10 sugar output seen 16 mn tones
● 2009-10 edible oil import seen 10.1 mn tones
● India 2009-10 edible oil supply seen 18.3 mn tones
● India 2009-10 edible oil requirement seen 13.8 mln tn
● Apr-Dec farm futures volume 38% of commodity trade
● Kharif crop output loss may be partly made up in rabi
● Grain yield increase not enough to meet rising demand
● Research, better farm methods key to high crop yield
● Need to focus on states with low crop productivity
● Output, yield of pulses, oilseeds a growing concern
● Scope of pulses import limited to tight global supply
● Falling private investment in agriculture a concern
● Cheap, timely credit must to up private investment in farming
● Research on high yield seeds must to counter drought
● Food security, stock management priority areas
● Multi-cropping, raising yield key to higher output
● 2009-10 kharif grain area 66.8 mln ha, gown 4.6 mln on yr
● Fertiliser use at 128.6 kg/ha in 2008-09
● Oct-Dec post monsoon rains 8% above normal
● NAFED oilseed buy 64,802 tn till Jan 4 on govt account
● 2009-10 coffee output seen 290,000 tn, up 10.6% on yr
● Coconut palm insurance scheme to continue FY

Industry
● Industry sector “revival” evident post economic slowdown
● Indian industrial outlook “bright” in medium term
● Downward trend in IIP growth stands reversed
● Growth in capital goods segment below pre-2007 level
● Growth in consumer durables aiding industrial revival
● Textile exports continue to lag
● Fertilizer output hit by raw material availability
● Local steel industry revived from global slowdown
● Local steel outlook for 2010 remains positive
● Local steel demand back on “stable footing”
● Local steel demand seen up on real estate, auto growth
● FDI inflow in farm sector services grew highest in 2009-10
● Services sector attracted highest FDI inflow FY 10
● Govt mulling overseas urea, ammonia projects
● Contribution of food products in manufacturing WPI seen down
● Capacity addition in power, road sectors “lagging”
● Infrastructure impediment hampering industry growth

Fiscal Policies● Indian economy has shown ‘V’-shaped recovery
● Broad-base revival gives room for gradual stimulus cut
● Fundamentals justify optimism for India in long run
● Consider Finance Ministry panel suggestion to shape FY11 fiscal goals
● Job losses seem to have reversed in recent months
● Expect domestic oil output to grow on new discoveries
● Food market condition, improved capital flow encouraging
● Manufacturing sector showing buoyancy in recent months
● Too early to say if buoyancy in manufacturing a trend
● Seen substantial pick-up in corporate earnings, margin
● Pace, shape of global recovery remains uncertain
● Global recovery losing steam on stimulus cut
● Transmission of monetary policy remains sluggish
● Higher government borrowing raised banks’ SLR investments
● Saving, investment rate good for medium term growth
● Savings rate expected to rise further
● Government should promote transparency in commodity futures
● Impact of current subsidy system questionable

Monetary
● RBI policy stance transmission to real sector critical
● Fiscal rectitude important for Indian economy
● Need to monitor credit flow to productive sectors
● Need to ensure medium, long-term growth on even keel
● RBI policy aims at expanding credit at viable rates
● RBI stance aimed at steady growth via credit quality
● States Market Borrowing Rs 106000 cr up to Jan 15
● Money market mostly orderly in FY 10 on high liquidity
● CBLO volumes over 80% of total money market volume FY 10
● Liquidity condition remained comfortable in 2010
● RBI’s Rs 57000 cr OMO buys FY 10 aided liquidity
● Monetary easing main theme of liquidity management FY 10
● RBI actively held apt liquidity via OMO, LAF, MSS FY 10

Banking
● Growth in bank credit remained low in FY 10
● Public sector banks better than private in credit growth
● Growth in food credit low so far in FY 10
● Need more transparency in micro-finance functioning
● Computerisation of banking sector in completion stage
● Rise in risk appetite increased capital inflows in 2009

Financial Institutions
● Need to extend NPS to central, state autonomous bodies
● Pension reforms made significant progress in India
● Challenge to expand distribution network of NPS
● Pension reforms to facilitate long-term savings
● Interdependence of corporate, MFs rising concern

Markets
● Govt intervention in markets should be minimal
● Govt shouldn’t impose outright commodity futures ban
● Equity market showed signs of recovery after April
● Regulatory steps taken to make markets sound, stable
● Seen revival in secondary market following stimulus
● Volumes in currency futures on BSE not significant
● Trading volumes in interest rate futures low
● Retail investor participation limited in corporate debt market
● Retail investor participation limited in mutual funds

Miscellaneous
● Unique identity system to come into0 effect in 2012
● Labour law reforms can improve Labour demand

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