Economic survey of india

By
ECONOMIC SURVEY OF
GAURAV SINHA
11116
INDIA
2011-12

We will discuss on the
following topics under the
heading economic survey 2011-
12
 What is economic survey ??

 Status of Indian economy for the year 2011-12.

 Conclusion or highlights of the survey.

What is economic survey??
 The Finance Ministry presents the Economic
Survey in the parliament every year, just before
the Union Budget. It is the ministry's view on the
annual economic development of the country. A
flagship annual document of the Ministry of
Finance, Government of India, Economic Survey
reviews the developments in the Indian economy
over the previous 12 months, summarizes the
performance on major development programmes,
and highlights the policy initiatives of the
government and the prospects of the economy in
the short to medium term. This document is
presented to both houses of Parliament during the
Budget Session

Under the topic status of Indian
economy we will discuss
 State of the Economy and Prospects
 Micro-foundations of Macroeconomic Policy
 Fiscal Developments and Public Finance
 Prices and Monetary Management
 Financial Intermediation and Markets
 Balance of Payments
 International trade.
 Agriculture and Food
 Industry
 Services Sector
 Energy, Infrastructure and Communications
 Sustainable Development and Climate Change
 Human Development
 India and the Global
Economy

State of the Economy
and Prospects
Managing growth and price stability are the major challenges of
macroeconomic
policymaking. In 2011-12, India found itself in the heart of these conflicting
demands.
The Indian economy is estimated to grow by 6.9 per cent in 2011-12, after
having
grown at the rate of 8.4 per cent in each of the two preceding years. This
indicates a
slowdown compared not just to the previous two years but 2003 to 2011
(except
2008-9). At the same time, sight must not be lost of the fact that, by any cross
country
comparison, India remains among the front-runners. With agriculture and
services continuing to perform well, India’s slowdown can be attributed almost
entirely
to weakening industrial growth. The manufacturing sector grew by 2.7 per cent
and
0.4 per cent in the second and third quarters of 2011-12. Inflation as measured
by
the wholesale price index (WPI) was high during most of the current fiscal year,

State of the Economy
and Prospects
has come down to around zero, with most of the remaining WPI inflation being
driven by non-food manufacturing products. Monetary policy was tightened by
the
Reserve Bank of India (RBI) during the year to control inflation and curb
inflationary
expectations. The slowing inflation reflects the lagged impact of actions taken
by
the RBI and the government. Reflecting the weak manufacturing activity and
rising
costs, revenues of the centre have remained less than anticipated; and, with
higher than-
budgeted expenditure outgo, a slippage is expected on the fiscal side. The
global
economic environment, which has been tenuous at best throughout the year,
turned
sharply adverse in September 2011 owing to the turmoil in the euro zone, and
questions
about the outlook on the US economy provoked by rating agencies. However,
for the
weakness in economic activity has bottomed out and a gradual upswing is

Micro-foundations of
Macroeconomic Policy
For the Indian economy this was a year of disappointing growth performance.
During each of the previous two years, 2009-10 and 2010-11, India’s gross
domestic
product GDP (at factor cost) grew by 8.4 per cent per annum. Further, in 2010-
11,
the GDP at market price grew by a remarkable 9.6 per cent. This performance,
coming in the wake of one of the biggest global recessions in history, was
outstanding.
It fed expectations that India’s short economic downturn in 2008-9, when the
GDP
grew by 6.7 per cent, was behind us and the economy was on its way to full-
fledged
recovery. That did not happen. The index of industrial production (IIP) dropped
sharply in April 2011 and it has, thereafter, been seven months of indifferent
performance. The services sector continued to do well and agriculture
recovered .

Micro-foundations of
Macroeconomic Policy
the mood in the economy was increasingly being set by the industrial
sector and, in particular, manufacturing, which constitutes 75.5 per
cent of industrial value added.
Overall GDP growth declined to 7.7 per cent in the first quarter (Q1)
and then to6.9 per cent in Q2 of 2011-12. The advance estimates of
the Central Statistics Office(CSO) has placed growth in real GDP at
6.9 per cent in 2011-12. This is a somewhat curious situation
because how we evaluate these numbers depends critically on the
analyst’s perch. Given the global despondency, and steadily
deteriorating global growth scenario, these numbers look good
rather than bad, especially if one’s perch were to be in Europe.
However, compared to how India has fared since 2003 and,
especially, since 2005, they are disappointing.

Fiscal Developments
and Public Finance
Rapid fiscal consolidation was effected in 2010-11 with fiscal deficit dropping
to
4.8 per cent of gross domestic product (GDP) from 6.5 per cent of GDP in
2009-10.
The Budget for 2011-12 estimated a further reduction to 4.6 per cent of GDP to
be
achieved through a 16 per cent growth in tax revenue, disinvestment receipts
of
` 40,000 crore and moderation in growth in expenditure to 4.9 per cent.
Economic
developments in the current fiscal have panned out very differently than was
envisaged at the time of budget formulation. With a sharp deceleration in real
GDP
growth, particularly in the industry sector and continued high levels of prices in
key
commodities, a slippage is likely in the deficit targets envisaged at the time of
Budget
Estimates. However, with states performing better in overall terms, the
combined

Prices and Monetary
Management
Wholesale price index (WPI) inflation, after remaining in an elevated zone at
over
9 per cent through the year, has been falling sharply since December 2011,
aided
by lower food prices, a global economic slowdown, and the impact of nearly
two
years of domestic monetary policy tightening and other measures put in place
by
the government. Monetary policy remained focused on controlling inflation and
anchoring inflationary expectations, with 13 adjustments in policy rates since
March
2010, which has slowed growth. These effects, coupled with a favourable base
effect
in prices and continued global slowdown, are expected to moderate inflation to
around 6.5 to 7.0 per cent by March 2012; inflation is expected to come down
further during 2012-13. The global economy witnessed fresh spells of crisis
during
2011-12, with domestic business and consumer confidence dampening on the
back

Prices and Monetary
Management
particularly those of food and metals, softened from high levels, even as crude
oil
prices remain elevated and are a major source of uncertainty and risk. All
emerging
and developing economies (EDEs) witnessed higher inflationary pressures
with
consumer price inflation for EDEs rising to 7.2 per cent for 2011, while that for
advanced economies (AEs) was 2.7 per cent. Looking ahead, vigilance is
called for
in getting back to a low-inflation/sustained high-growth path in India, by
renewed
focus on supply-side measures and improved fiscal consolidation, including
stepped-up
regular adjustments in domestic energy prices. High levels of food stocks and
producer responses to higher protein and other food prices should help
maintain
overall price stability ahead.
PRICES
4.2

Financial Intermediation
and Markets
Financial markets in India have acquired greater depth and liquidity over the
years.
Steady reforms since 1991 have led to growing linkages and integration of the
Indian
economy and its financial system with the global economy. Weak global
economic
prospects and continuing uncertainties in the international financial markets
therefore,
have had their impact on the emerging market economies. Sovereign risk
concerns,
particularly in the euro area, affected financial markets for the greater part of
the
year, with the contagion of Greece’s sovereign debt problem spreading to India
and
other economies by way of higher-than-normal levels of volatility.
The funding constraints in international financial markets could impact both the

Financial Intermediation
and Markets
availability and cost of foreign funding for banks and corporates. Since
the Indian
financial system is bank dominated, banks’ ability to withstand stress is
critical to
overall financial stability. Indian banks, however, remain robust,
notwithstanding
a decline in capital to risk-weighted assets ratio and a rise in non-
performing asset
levels in the recent past. Capital adequacy levels remain above the
regulatory
requirements. The financial market infrastructure continues to function
without any
major disruption. With further globalization, consolidation,
deregulation, and
diversification of the financial system, the banking business may
become more
complex and riskier. Issues like risk and liquidity management and
enhancing skill

Balance of Payments
No country in today’s globalized world can be fully insulated from what
happens
in the global economy and India is no exception to the rule. As the country is
increasingly integrated into the world, it cannot remain impervious to
developments
abroad. The unfolding of the euro zone crisis and uncertainty surrounding the
global
economy have impacted the Indian economy causing drop in growth, higher
current
account deficit (CAD) and declining capital inflows. As in 2008, the
transmission
of the crisis has been mainly through the balance-of-payments (BoP) channel.
Export
growth has decelerated in the third quarter of fiscal 2011-12, while imports
have
remained high, partly because of continued high international oil prices. At the
same time, foreign institutional investment flows have declined, straining the
capital
account and the rupee exchange rate that touched an all-time low of ` 54.23

International Trade
Just when the world economy and trade, reeling under the jolt given by
the 2008
global economic crisis started recovering with output and trade in
many developed
and emerging economies reaching pre-crisis levels and in some
countries even
surpassing pre-crisis trends, came the second shock in the form of the
crisis in the
euro area and slowdown in the US. The structural sovereign debt crisis
in the euro
zone area and the fiscal imbalance in the US which led to the present
setback
emanated from the earlier crisis. The tumultuous recession-ridden
years of 2008
and 2009 seem to be re-emerging with fall in world trade being steeper
than the
decline in real gross domestic product (GDP). India’s exports which
had surpassed

Agriculture and Food
Agriculture has been a way of life and continues to be the single most
important
livelihood of the masses. Agricultural policy focus in India across
decades has been
on self-sufficiency and self-reliance in food grains production.
Considerable progress
has been made on this front. Food grains production rose from 52
million tonnes in
1951-52 to 244.78 million tonnes in 2010-11. The share of agriculture
in real GDP
has fallen given its lower growth rate relative to industry and services.
However,
what is of concern is that growth in the agricultural sector has quite
often fallen
short of the Plan targets. During the period 1960-61 to 2010-11, food
grains
production grew at a compounded annual growth rate (CAGR) of
around 2 per

Agriculture and Food
growth rate of 2.44 per cent and 2.30 per cent respectively compared to 4.72
per
cent during Eighth Five Year Plan. During the current Five Year plan,
agriculture
growth is estimated at 3.28 per cent against a target of 4 per cent. The
Approach
Paper to the Twelfth Five Year Plan emphasizes the need to “redouble our
efforts to
ensure that 4.0 per cent average growth” is achieved during the Plan if not
more.
Without incremental productivity gains and technology diffusion across
regions,
achieving this higher growth may not be feasible and has implications for the
macroeconomic stability given the rising demand of the 1.2 billion people for
food.
Achieving minimum agricultural growth is a pre-requisite for inclusive growth,
reduction of poverty levels, development of the rural economy and enhancing
of
farm incomes.

Industry
Industrial growth in the country has, in terms of long run trend, remained
aligned
with the growth rate of gross domestic product (GDP). The long-term average
annual
growth of industries comprising mining, manufacturing, and electricity, during
the
post-reform period between 1991-2 and 2011-12, averaged 6.7 per cent as
against
GDP growth of 6.9 per cent. Inclusion of construction in industry raises this
growth
to 7.0 per cent. The share of industry, including construction, in GDP remained
generally stable at around 28 per cent in the post-reform period. Standard
deviation
of the average share was very small and the coefficient of variation under 5
per cent
validates this stability. The share of manufacturing, which is the most dominant
sector within industry, also remained in the 14-16 per cent range during this
period.
The share is modest when compared to that of China (above 40 per cent) and

Services Sector
The services sector has been a major and vital
force steadily driving growth in the
Indian economy for more than a decade. The
economy has successfully navigated
the turbulent years of the recent global economic
crisis because of the vitality of this
sector in the domestic economy and its
prominent role in India’s external economic
interactions.

Energy, Infrastructure
and Communications
The Eleventh Five Year Plan emphasized the need for removing
infrastructure
bottlenecks for sustained growth. It, therefore, proposed an investment
of US $500
billion in infrastructure sectors through a mix of public and private
sectors to
reduce deficits in identified infrastructure sectors. As a percentage of
the gross
domestic product (GDP), investment in infrastructure was expected to
increase to
around 9 per cent. For the first time the contribution of the private
sector in total
investment in infrastructure was targeted to exceed 30 per cent. Total
investment
in infrastructure during the Eleventh Plan is estimated to increase to
more than 8
per cent of GDP in the terminal year of the Plan --higher by 2.47
percentage

Sustainable Development and
Climate Change
This new chapter in the Economic Survey reflects the growing
challenges of
sustainable development and climate change. Pressures on land, air,
water, forests
and loss of plant and animal habitat are growing. At the same time, a
warming
planet is already causing adverse effects, such as more frequent
extreme weather
events. The science and evidence of climate change are compelling.
Both India and
the world are reviewing the challenges ahead. The Earth Summit in
Rio in June
2012 will take stock of sustainable development priorities globally. The
Durban
meeting in December 2011 has set some directions for appropriate
responses to
climate change. And closer to home, the Twelfth Five Year Plan,
commencing in

Human Development
The principal objective of development planning is human development and
the
attainment of higher standard of living for the people. This requires a more
equitable
distribution of development benefits and opportunities, better living
environment
and empowerment of the poor and marginalized. There is special need to
empower
women who can act as catalysts for change. In making the development
process
inclusive, the challenge is to formulate policies and programmes to bridge
regional,
social and economic disparities in as effective and sustainable a manner as
possible.
The Eleventh Five Year Plan sought to address this challenge by providing a
comprehensive strategy for inclusive development, building on the growing
economic
strength of the economy in the past decades. This strategy has to be
continued and

India and the Global
Economy
The big story of the last decade for India has been its arrival on the
global
scene. The Indian economy had broken free of the low-growth trap
from the
early 1980s. By the mid-1990s, following the economic reforms of
1991-3, India
began to appear as a player of some significance in the global
economy. Then,
following the East Asian crisis of the late 1990s, and from the first
years of the
first decade of the 21st century there was no looking back. India’s
exports began
to climb, its foreign exchange reserves, which for decades had
hovered around
5 billion dollars, rose exponentially after the economic reforms and in
little
more than a decade had risen to 300 billion dollars. Indian
corporations that

Conclusion or highlights of
economic survey 2011-12
 Following are the highlights of Economic Survey 2011-12 :
Rate of growth estimated to be 6.9%. Outlook for growth and
stability is promising with real GDP growth expected to pick up to
7.6% in 2012-13 and 8.6% in 2013-14.
 Agriculture and Services sectors continue to perform well. 2.5 %
growth in Agro sector forecast. Services sector grows by 9.4 %, its
share in GDP goes up to 59%.
 Industrial growth pegged at 4-5 percent, expected to improve as
economic recovery resumes.
 Inflation on WPI was high but showed clear slow down by the year-
end; this is likely to spur investment activities leading to positive
impact on growth.
 WPI food inflation dropped from 20.2% in February 2010 to 1.6% in
January 2012; calibrated steps initiated to rein-in inflation on top
priority.
 India remains among the fastest growing economies of the world.
Country’s sovereign credit rating rose by a substantial 2.98 percent
in 2007-12.
 Fiscal consolidation on track - savings & capital formation expected

Conclusion or highlights of
economic survey 2011-12
 Exports grew @ 40.5% in the first half of this fiscal
and imports grew by 30.4%. Foreign trade
performance to remain a key driver of growth. Foreign
reserves enhanced - covering nearly the entire
external debt stock.
 Central spending on social services goes up to 18.5%
this fiscal from 13.4% in 2006-07.
 MNREGA coverage increases to 5.49 crore
households in 2010-11.
 Sustainable development and climate change
concerns on high priority.
 Summary of Economic Survey
 Survey Pegs GDP Growth At 6.9% in 2011-12
 Outlook Brighter for Next Fiscals

References
 http://indiabudget.nic.in
 www.wikipedia.com
 http://www.youtube.com/watch?v=0HziikcUT6
8 (finance minister shri pranab mukherjee
speech on budget 2012)

Economic survey of india

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