The mid-year review of the economy is on predictable lines. Based on the economic performance during the first half of the current fiscal, it is optimistic that it is possible to achieve a real GDP growth of 7.75%, though the review admits that it would be accompanied by a resurgence of inflationary pressures.
On the fiscal front, the government strikes a congratulatory note, pointing out that, budgetary trends in the first half have broadly conformed to the budget for 2009-10; however, the deviations in the revenue deficit and fiscal deficit from the benchmarks spelt out in the Fiscal Responsibility and Budget Management Act - to 49.3% and 58.4% as against the stipulated 45% in both - have been glossed over with a rather unconvincing alibi.
Noting that the year had opened on a none-too-bright outlook, the review avers
that the accommodative stance in the fiscal and monetary policies have started yielding results.
In the first and second quarters, economy has advanced by 6.1% and 7.9% respectively and, though the full impact of the setback in kharif harvest would be felt in the remaining two quarters, signs of a broad-based recovery are evident.
In agriculture, the deficit monsoon has made a big debt in the harvest of foodgrains and other major crops like oilseeds and sugarcane.
It projects the shortfall during this year in relation to the preceding season at 21 million tones for foodgrains, 2.64 million tonnes in oilseeds and 24.4 million tonnes in sugarcane.
Nevertheless, the recovery in industry and robust showing in services would help accelerate the tempo of growth. However, the kharif setbacks remains a source
of concern because of the large dependence on agriculture in terms of income and employment.
The review also implicitly links the spurt in prices to this fact, saying that, though in the short-term, imports and monetary measures may help, coupled with administrative measures, “ultimately, it is a structural problem.”
“A long-term and sustainable solution , therefore, lies in increasing productivity and levels of agricultural production across the country in agricultural products.”
The Review points out though, even now, headline inflation based on wholesale price index is subdued, food items have become dearer and the rise has been in double-digits in recent months. It also remarks that the decline in the base period has boosted the current inflation figures.
Much of what it has to say on other aspects of the economy is old hat, such as the tepid performance in exports and imports, the lower current account deficit, the robust private transfers and the surging capital inflows which is attributed to the confidence of overseas investors in India.
The appreciation in the rupee vis-a-vis the dollar has been dwelt at some length. While the world output in 2010 is envisaged to rise by a mere 3.1%, India is forecast to buck this trend with an anticipated 6.4%.
The accommodative stance of the Reserve Bank of India has been alluded to in the Review, and also the fact, that credit growth is a laggard - 12.6% in the first half as against last year’s 25.2%.
The Centre, it says in this context, has front-loaded and managed its borrowing programme in a manner designed not to disrupt the market.
Remarking that the current period represents a cross-road for the economy, the Review lists major challenges facing the government. Inflation is one such looming problem. Boosting credit to productive sectors is another.
The third is what it describes as “ the challenge of mutually contending trinity- maintaining the balance between the objectives of price stability, exchange rate stability and capital mobility”. The return to fiscal consolidation in the medium term is stressed.
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