Growing Faster, Improving Stability, Progressing on Structural Challenges. The Indian economy this year (2010-11) has been characterized by robust economic growth and steady fiscal consolidation. Inflation continues to be high even though it has come down markedly from where it was at the start of the fiscal year. There are structural challenges that we face, concerning economic governance, efficiency in delivery of subsidies and building up infrastructure. Policies formulated to take care of these can help moderate inflation, accelerate economic inclusion, boost investment and infrastructure, and enable agriculture, which has revived remarkably well this year, to be on a sustained high growth path.
The economy has emerged with remarkable rapidity from the slowdown caused by the global crisis, with growth of 8.6 percent (advance estimate) in 2010-11 and an expected 9 percent next year. This growth is also broader: agriculture is rebounding, manufacturing continues its momentum, and private services is picking up. Fundamentals are also stronger: savings and investment are up, exports are rising rapidly, and inflation is falling, after a prolonged hiatus.
Inflation, especially of food was very high in February 2010 (at 20.22 percent), declined steadily, with a small spurt in November and December and now stands at 9.3 per cent. This is a vast improvement but still a matter of concern.
A shift in the stance in macroeconomic management is underway. Now that growth is firmly in place, fiscal consolidation is progressing rapidly, and monetary policy has reverted to a stronger focus on moderating inflationary pressures, while ensuring adequate liquidity and credit growth.
With stronger growth, a widening of the current account deficit over several quarters became a concern; however, developments in the last two quarters show a falling current account deficit as a result of fast-rising exports, higher net services, and moderating imports.
Considering the critical role of agriculture, there is need to invest much more in agriculture, stepping up to a second green revolution to address the yield gaps.
The slowdown in the IIP index is partly due to base effect of very fast growth last year, however, the growth momentum remains strong and broad based.
Services have been India’s engine of growth and employment. Policies to promote further opportunities may be essential, especially given vast opportunities in new areas in global demand.
Infrastructure services are deepening rapidly, as are service delivery standards, thanks to rising and accelerated investment (with rates roughly doubling over the Eleventh Plan period)---from aviation, roads and telecommunications to ports, railways and power.
In terms of human development parameters, India has performed below its potential. The Government is addressing exclusion much more broadly---with accelerated schemes for traditionally excluded households (among SCs STs and OBCs) and regions (e.g., North East). Social protection has taken a massive jump with the expansion of the MNREGE. Progress on the NHRM, Sarva Shiksha Abhiyaan and others continues apace. There is stepped up spending (as well as its monitoring) on social programmes by over 5 percentage points of GDP over the past five years. On climate change, similarly, the Government is engaged more intensively, with expanded financing of programs, better policies, and accelerated engagement with the global community.
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