Economic Survey 2008

Zeenews Bureau

New Delhi, Feb 28: Finance Minister P Chidambaram tabled the Economic Survey for 2007-08 in Parliament on Thursday. The outlook is positive in terms of investment, inflation rate is lower, but crude oil prices are applying pressure. While the scenario for investment is “full of optimism”, it will be difficult to retain 9% growth rate.

The minister, however, told the media after emerging from Parliament, "Given the solid foundation of domestic investment and savings, we are confident of meeting the 11th Plan target of 9% average growth." He added, "We will be able to mobilise the resources for meeting the growth target of 9%."

The FM further said the GDP had averaged 8.7% during the last five years, which indicated both stability and sustainability. The minister saw greater private consumption and a better supply of goods. He felt optimistic about controlling inflation while sustaining growth.

The rate of growth per capita GDP is at around 7.2% per year. This showed that the average income of the common man would double in a generation. What is required, he felt, is better targeting for the overall welfare of the society. The aim, he said, was that the benefit should percolate to the most marginalized strata.

The FM said that if the Economic Survey was to be described in one phrase, it would be “optimism with caution”. There are number of things that are going in our favour, but we need to respond to them to be able to reap benefits, while reacting to the developing economic situation, he concluded.

Major Highlights:

Economy

FY-08 growth estimate of 8.7% may be revised upwards
FY-08 GDP growth not a sign of lower growth trend
Need more reforms to push GDP growth to 10%
Growth deceleration FY-08 spread across most sectors
Maintaining 9% GDP growth a challenge
Rising rupee, slowdown in consumer goods a concern
Some cyclical fluctuation likely as econ grows rapidly
High interest rates have hit demand for consumer goods
Economy decisively moved to a higher growth phase
Need to overcome several challenges to sustain growth
Investment climate in India is "full of optimism"
Last five years "best" growth period since 1947
India macroeconomic fundamentals inspire confidence
Consumption growth slow vs income growth as savings up
Size of Indian economy to top USD 1 trillion this FY
India still among low-income nations
Growth in services sector continue to be broad-based
Faster economic growth leading to inclusive growth
Average GDP growth rate during 2004-2007 at 9%

Inflation

Inflation likely to remain moderate in coming months
FY-08 average inflation rate likely at 4.4%
Contained inflation despite high commodity prices
Auto fuel price hike may add 19 bps to WPI inflation
Policy intervention helped maintain price stability
Inflation on a "clear up trend" since October
Inflation management complex on changes in economic structure
Domestic supply management crucial to stabilise inflation
Inflation seen moderate on policy steps taken
Monetary policy has to manage stress from high FX flows
Price movement in farm price, consumption items crucial
Farm price movement crucial on rising per capita income, falling poverty
Global prices having more pronounced impact on local prices
Ability to meet shortfalls being eroded by global shortages, rising prices
Supply management also crucial for moderating upward wage revision pressure
Supply side pressure seen on farm sector on structural problems
Supply side pressure also seen in infrastructure sector
Containing inflation high on government`s agenda
Rupee rise had "salutary impact" on general prices post import price fall
Indian inflation is structural as well as monetary phenomenon
Market rigidity, regulatory failure supported inflationary expectations
M3, reference interest rates influenced aggregate demand, price levels
Prices rose FY-08 on build-up of inflationary, demand-supply mismatch
Large capital flows has been putting pressure on liquidity condition
Wheat, pulses, edible oil FY-07 shortfall increased demand-supply mismatch

Public Finance

Tariff cut on non-farm products needs to continue
Farm tariffs remain relatively high, stable
Buoyant revenue helping maintain fiscal consolidation
FY-08 FRBM targets "well within reach"
Not very difficult to achieve 3% fiscal gap by FY-09
Eliminating revenue gap by FY-09 remains a challenge
States` revenue surplus seen 0.3% of GDP FY-08
Continuously reviewing tax exemptions, incentives
Current trend shows FY-08 tax mop-up may top aim
Revenue buoyancy riding strong, globalised economy
Close monitoring of global econ remains critical
Revenue receipts up to Apr-Dec buoyant
Uptrend in direct tax-GDP ratio on tax reforms
Major subsidies comprise about 8% of govt spend
FY-08 fiscal consolidation on buoyant tax, prudent spend

External Sector

Slower India FY-08 growth may dampen capital inflows
Pressure on rupee rise may ease as capital flows slow
Fall in inflows may affect equity markets in short-term
Capital inflows putting pressure on prices
Capital inflow including FDI to continue medium-term
Current account deficit at little over 1% of GDP
Inflows far exceed current account financing need
US slowdown to impact Indian exports, imports
Capital flows as proportion of GDP on an up-trend
Exporters need to up productivity to tackle rupee rise
US economy expected to slow down in 2008
Can`t rule out more surprises from US sub-prime crisis
FY-08 trade gap to widen on rising commodity prices
FY-08 current account gap to remain at moderate levels
Invisibles to compensate rising current account gap FY-08
FY-09 export sector outlook not bright on lower world GDP forecast
Slowing global growth to affect prices of oil, other commodities
No one-to-one correlation between rupee rise, export growth
Textiles, handicrafts experienced low export growth on rupee rise
Share of India-US trade declined by 2.5% to 9.8% in FY-07
Import of gold, silver rises to 10% in Apr-Sep
Gross external commercial borrowing Apr-Sep at USD 14 billion, up 81.1% on year
Apr-Sep external assistance at USD 729 million, up 88.9% from year ago
Apr-Sep FY-08 short term trade credit USD 5.7 billion , suppliers` credit USD 1.9 billion
Non-resident deposits Apr-Sep FY-08 saw outflow because of lower rates
Excess of capital flows over current account gap Apr-Sep at 7.72% of GDP
Total inflows to foreign investments ratio at 43.4% Apr-Sep vs 33.5% FY-07
Apr-Sep net FDI flows USD 3.9 bln vs USD 8.5 bln FY-07
Net FII inflow Jan-Dec 2007 USD 2.42 bln
Apr-Sep "other capital" up at USD 3.7 bln
Import growth of gold, silver buoyant Apr-Sep on rise in domestic demand
Apr-Sep services exports 8.6% vs 36.9% FY-07
Services exports fell in Apr-Sep on drop in non-software services
Apr-Sep business service import down on low technical, business services