Zeenews Bureau
New Delhi, July 02: Finance Minister Pranab Mukherjee tabled the Economic Survey 2008-09 in Parliament on Thursday. The survey, a report card of the govt’s performance over the past year, saw an early revival of the Indian economy and said the worst of the recession was over.
The survey also set a disinvestment target of Rs 25000 cr, and called for allowing Foreign Direct Investment of upto 49% in key sectors like insurance and defence.
The Survey has asked for raising limit on foreign equity to 100% in specialised
segments like health and weather insurance.
"Raise foreign equity share in insurance to 49 per cent. In addition, consider allowing 100 per cent foreign equity in a special category of insurance companies that provide all types of insurance (e.g. health, weather) to rural residents and for all agriculture-related activities including ago-processing," said the Survey, tabled in Parliament.
This may help dispel fears of foreign equity in
insurance, it said.
The survey touched upon the major themes of the UPA govt’s economic vision, speedy and sweeping reforms in insurance, defence production, healthcare, and social sector schemes.
The survey indicated concern over the climbing rate of unemployment, and urged urgent investment in infrastructure.
The survey also indicated that a strict fiscal policy that limit deficit to 3% was necessary, especially after the stimulus measures undertaken by the govt earlier. But analysts still feel that the next budget may see an expansion of the deficit.
Though the Survey indicated that reforms, that had stalled due to political constraints during UPA’s last term would again pick up pace, analysts said any actual reforms would likely be gradual and the report should be treated as a signal of intent.
"It is wrong to assume everything will be announced in the budget. It is the strategic intent, a clear roadmap. The market should take it positively," said Amitabh Chakraborty, president for equities at Religare Securities in Mumbai.
The Survey said that inflation was no longer a concern with the (inflation is at -1.30).
Growth
Indian economy "may have weathered" worst of downturn
Economy "evinces early signs of turnaround"
India FY10 growth seen 7% if US economy bottoms out Sept
FY10 growth seen below 7% if global economy revives 2010
India GDP growth seen 8.5-9.0% in medium term
India GDP growth may see 'U-shaped' recovery this FY
Returning to high growth a medium-term challenge
Govt must revisit pending econ reforms to spur growth
Calibrated RBI policy for returning to high growth
Continued fiscal stimuli needed on global uncertainty
Objective is to restore econ to high growth path
India "merely had a moderation" in GDP growth in FY09
Uncertainty over revival of global economy remain
Risks from uncertainty in global markets persist
Global econ crisis leading to protectionist tendency
India growth forecast tricky on global uncertainty
Indian economy has withstood global recession
Economy facing contagion effects of global slowdown
India GDP moderated when big nations in recession
Global recession impact relatively low on service export
Decoupling argument proved wrong in global financial crisis
Extrapolating global growth trend to India erroneous
Situation warrants close watch on econ indicators
Econ "shock absorbers" to aid early growth revival
Rise in govt spend cushioned fall in FY09 econ growth
Prediction India growth will plunge to 4% proved wrong
Econ downturn accentuated need for govt intervention
Return to high growth linked to US recovery, reforms
Policy flexibility gave environment for high growth
RBI, fiscal policies had favourable real sector impact
Govt consumption spending rose to 32% FY09 vs 8% FY08
Rural demand strong; farm output prospects normal
External trade outlook in 2009 not very encouraging
Falling demand to impact export of goods, services
Capital formation up on optimistic growth outlook
Oil price rise may impact global recovery
Investor confidence revival a matter of satisfaction
FY09 export growth fairly robust despite Oct-Mar fall
Fiscal Policies
Review, phase-out Fringe Benefit Tax, STT
Review customs duty extensions
Examine possibility of nil fiscal gap
Govt must restore 3% fiscal gap target at earliest
Variable duties to be imposed if prices go beyond band
Quick reversal of expansionary policies critical
Falling trend in corporate tax mop-up to reverse Oct
Face challenge of coordinating fiscal, monetary tools
Subsidy reform an important fiscal policy agenda
GST to ensure sustained rise in indirect tax mop-up
Vital to return to fiscal consolidation at earliest
Should possibly return to FRBM target by FY11
Fiscal stimulus impact on demand to appear gradually
FY09 fiscal decline on global meltdown, high prices
Fiscal slippage also due to farm loan, wage hike
Relaxation in FY09 FRBM aim helped arrest growth fall
To pursue fiscal consolidation after global crisis
Fiscal consolidation of states impressive
Strong fiscal performance by states to continue
Need to continue cut in duties for export sector
Need to have low tax regime with few exemptions
Need to plug leakages in present subsidy regime
Balance of payment situation continues to be resilient
Interim Budget put FY10 stimulus at 2.8% of GDP
GST to give more headroom for financing 5-yr plan
Cut in fertiliser, oil subsidy to lower fiscal gap
Cut in excise duty, svc tax can always be reversed
Government's market borrowing 66.8% of FY09 internal liabilities
Indian econ continues to face wide ranging challenges
Infrastructure
Core projects need 20.6 trln rupee investment 2007-12
Added 3454MW power capacity in FY09 vs 9263MW yr ago
Added 29 mn tn refinery capacity FY09, up 148% on yr
Added 2203 km NHAI road in FY09 vs 1683 km yr ago
Added 23.6 mln tn port capacity FY09 vs 27.3 mln FY08
Core sector saw "drastic slowdown" in H2 of FY09
Rail freight corridor to cost 280 bn rupees
Railways may lease surplus optical fibre capacity
Private entry into passenger train/railway services
should be allowed
North-south, East-west road corridor seen over by Dec
NHDP road projects faced with several constraints
Fuel cess main source of finance for NHAI projects
Aim of 500 mln phone connections by 2010 within reach
Aim for 600 mln phone connections by Mar-2012
Bangalore metro rail project seen complete Dec 2011
Cleared Bus Rapid Transport plans worth 45 bn rupees
45-bln-rupee Bus Rapid Transport project for 9 cities
Taxes
Introduce new Income Tax code
Phase out Tax Surcharges
Review Customs Duty exemptions
Govt should decontrol petrol and diesel prices
Separate telecom licenses from spectrum allocation
Eliminate inverted duty structure
Farm
Decontrol sugar, fertiliser industry
Mull more "interventions" if sugar prices rise
Suggests pre-determined price band for food products
Favours free import, export of food pdts within price band
FY09 foodgrain output seen 229.8 mln tn vs 233 mln aim
Clear need to improve crop productivity
Need to factor in climate change impact in farm policy
Need to address farm supply concerns in medium term
India 2008-09 sugar output seen 15 mln tn vs 22.5 mln demand
Variability in cane area, yield a matter of concern
Pulses output not keeping pace with requirement
Need more market support to cut farmer-user price gap
Need to bring more farmers under formal credit
Need to design new financial products to help farm sector
Mull smart cards to target food, farm subsidies
Industry
Target 250 bln rupee via divestment every year
Sell all loss-making PSUs that can't be revived
Float initial public offer of all unlisted PSUs
3G spectrum must be freely tradable
Signs of Indian industry moving towards recovery
FY09 FDI flows show investor confidence in India
Allow FDI in multibrand retail starting with food
Oil companies encouraged to pursue opportunities overseas
Raise FDI in insurance, defence sectors to 49%
Allow increased FDI in banks
Align voting rights in banks with equity holding
Indian banks financially sound, well capitalised
Indian banks "had little" to do with subprime investment
High bank deposit rates hampering sharp lending rate cuts
Growth in bank credit "high on agenda"
Success of pension reform key for long-term savings
Non-life insurance penetration lags Asian trend
Bank credit biggest industrial finance source FY09
Sharp dip in growth of private consumption key concern
Favours private sector participation in coal sector
Decontrol pharma prices, except essential drugs
Industry may have weathered part of meltdown shock
Global scenario pose major challenge to industry
Indian industry unlikely to face price deflation
Fall in input, interest cost to up companies' profits
Coal, telecom exceptions in general slowdown
FY09 manufacturing down on low domestic, export demand
Assam Gas Cracker project to be operational Apr 2012
Govt examining revival of Hind Fertiliser Corp, Fertiliser Corp
Mulling financial package for Madras Fertilisers
Exploring setting up JVs for overseas fertilizer projects
Industrial output showed clear sign of revival in April
Indian companies in fertiliser JV talks in Jordan, Morocco
Capital goods industry facing import surge form China
FY09 IT, ITeS growth significantly lower than FY 08
FY09 automobile sector turnover 2.19 tn rupees
FY09 automobile sector exports 317.82 bn rupees
Crude oil rise spiked petroleum sector debt in FY09
Tied up $150 mn ADB aid for khadi reform programme
Need to ensure infrastructure invest fructify fast
Need to facilitate labour-intensive industries
Job loss
More than 6,00,000 Indians lost jobs in four months from October 2008
About 5,00,000 people lost their jobs in the October-December 2008 period, while over 1,00,000 were shed in January this year.
The sectors most hit by the financial turmoil are gems and jewellery, transport and automobiles.
Employment in these sectors declined by 8.58 per cent, 4.03 per cent and 2.42 per cent, respectively during the period (October to December 2008)
Inflation
Face challenge of trade-off between inflation, growth
Inflation no longer an area of concern
Period of negative inflation to end before Dec
Wide WPI, CPI gap show supply unable to match demand
Abatement in inflation providing comfort on costs
FY09 unusual yr; marked by extreme price movements
Govt, RBI steps helped curb inflation FY09
Food price inflation much higher than WPI inflation
Continuing food inflation may hurt inclusive growth
Decline in CPI inflation has been slow
Prefer modified WPI in absence of uniform CPI
Question on apt inflation index due to CPI-WPI divide
A rational long-term framework needs to be developed,
which balances the concern of poor consumers and producers
Monetary Moves
To use calibrated RBI policy steps in coming months
Monetary policy first line of defence in open econ
Concern over lags in RBI policy transmission
Investments being deferred on hopes of more rate cuts
Link small savings rate with gilts/bank deposits
Small saving deposit rates "sticky on downward" side
Need to ensure adequate liquidity, credit
Need to unwind excess liquidity in an orderly manner
To unwind excess liquidity once growth picks up
Liquidity condition improved significantly by March-end on RBI steps
Liquidity condition eased in Apr reflecting fall in govt cash balance
Special market operations were liquidity neutral in nature
Special market ops geared to alleviate lumpy demand in FX market
Tight liquidity Sep-Oct 2008 co-terminus with emerging global turmoil
Call money rate mostly hovered in lower end of LAF during Q4 FY 09
SLR cut not fully translated to up liquidity as banks holding above 24%
Fall in RBI net FX assets FY09 due to moderation in capital inflows
Recent FX rate policy guided without band target
Comfortable FX reserves eased oil price spurt impact
Recent ECB inflow aided by improved global liquidity
Allow repo, derivatives in corporate debt
Credit market working normally; no dearth of liquidity
FX reserve comfortable; external debt in comfort zone
Gilt market mood worsened Jan, Feb on high govt borrow despite rate cut
Liquid secondary market key to effective govt debt mgmt
CRR cut by 250bps from Oct 11, 2008 aided fall in gilt yields
Synchronisation of market expectation with govt critical
Capital Markets
FIIs may have returned to Indian market in last 2 months
FDI flow points to investor confidence in India
FY09 FDI equity inflows $27.31 bln, 11% on yr
Stock market may have picked up early signs of rebound
Money markets generally remained orderly in FY09
Developed bond market must to supplement bank credit
Capital market 2008 downturn on overseas market volatility
Capital market revival matter of satisfaction
Fund raising through equity route declined in FY09
India shares 2008-end valuation high among emerging market
Retail investor participation 15% of capital market
2008 total equity issuance 495 bln rupee, down 15.7%
IPOs raised 183.9 bln rupee in 2008, down 45.8%
Number of IPOs 37 in 2008 vs 100 in 2007
2008 mean IPO size 4.97 bln rupees vs 3.39 bln rupee
India market capitalisation down 48-55% in 2008
India market volatility up significantly in 2008
India market 2008 volatility higher vs US' S&P 500, Korea's Kospi
Companies raised 1.75 trln rupee in 2008 via private placement
Companies raised 62.71 bln rupees in 2008 via ADRs, GDRs
Impact cost for Nifty at 0.11% in 2008 vs 0.08%
Nifty Junior 2008 impact cost at 0.19% vs 0.14%
NSE spot mkt 2008 turnover up at 31.88 tn rupees, BSE dn at 13.24 tn
NSE F&O 2008 turnover down at 116.5 tn rupees, BSE down at 751.8 bn
NSE spot 2008 turnover 174% of market capitalisation
NSE F&O 2008 turnover 635% of total market capitalisation
2008-end registered FIIs 1,591 vs 1,219 2007-end
2008-end registered FIIs sub accts 4,864 vs 3,644 2007-end
FII net equity investment $5.4 bln in Apr-May
See big scope for expansion of mutual fund industry
Turnaround also seen in mutual fund industry
MF inflow turned negative in 2008 on mkt volatility
Private mutual funds saw heavy redemption in 2008
Private mutual funds 2008 net outflow 125 bln rupees
MF inflow turned negative in 2008 on mkt volatility
Private mutual funds saw heavy redemption in 2008
Private mutual funds 2008 net outflow 125 bn rupees
UTI saw net redemption of 27.04 bln rupees in 2008
Public sector MF, excl UTI, mopped 146 bln rupee 2008
Energy
Limit LPG subsidy to 6-8 cylinder per household a year
Eased crude an opportunity to decontrol fuel price
Power output to be poor if coal remains PSU monopoly
Need to revisit fuel, fertiliser price norm as inflation low
Subsidy sharing for oil products revenue loss imperfect
Capacity limit, coal shortage hitting power output
Major change in crude oil prices bound to impact India
FY09 power plant load factor 77.2% vs 78.6% yr ago
Plan to add 78,700MW power capacity in 2007-12
Bulk of hydro-power potential in country untapped
$10 bn investment commitment for NELP blocks
Need to align fuel, fertiliser prices with market prices
FY09 coal import by power plants 16.1 mln tn
FY09 gas shortage for power plants 29.2 mcmd
First Published: Thursday, July 02, 2009, 09:43