Economic Survey of India 2012-13 – Highlights

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Economic Survey of India 2012-13 Highlights

March 5, 2013

The Economic Survey of India, presented by the Finance Minister P Chidambaram on February 27, 2013 expects theGDP to grow by 6.1-6.7 percent in the new financial year that begins from April 1, 2013. The survey also notes that whileglobalization of the Indian economy has helped raise growth; it has also meant greater vulnerability to external shocks.

Here are a few highlights of the survey:

GDP growth at 6.1 6.7 percent in 2013-2014

Indias GDP growth in the last decade has come mainly from the services sector, which constitutes 65 percent of the totaleconomy, while the industry and agriculture sectors have been 27 percent and 8 percent, respectively. Against thisbackground, the survey reiterates the need for strong growth in all sectors. It notes that while agriculture accounts for asmall percent of the economy, strong growth in agricultural has distinguished years of strong GDP growth from years of moderate growth. The survey also cites the positive impact of a partial recovery in the global economy and recent policyreforms like the opening up of sectors including retail and aviation to foreign investment and the deregulation of the priceof subsidized fuel. At the same t ime, it highlights poor infrastructure, low growth in agriculture production and industrialactivities, and the gap between energy supply and demand as key obstacles to growth. Considering all these factors, thesurvey expects GDP growth for the next fiscal to be between 6.1 6.7 percent.

Fiscal deficit for the current fiscal at between 5.1-5.3 percent
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The survey says that India is on track to meet its fiscal deficit target of between 5.1-5.3 percent of GDP for the currentfiscal and targets a fiscal deficit of 4.8 percent of GDP for the next financial year. The fiscal deficit for the current fiscalwidened due to high subsidy payments on fuel, food and fertilizers and slow economic growth. To bring the fiscal deficitdown, the government has deregulated the price of subsidized fuel and plans to cut expenditure further, in order to bringdown the budget gap, steadily, to 3 percent of GDP by March 2017.

Current account deficit for the current fiscal expected to be around 4.2 percent

The survey expects current account deficit for the 2012-13 financial year to be around US $87.9 billion or 4.6 percent of GDP. It recommends the curbing of gold imports and market determination of domestic oil prices. According to the survey,the global financial crisis has resulted in a steep rise in commodity prices, especially for gold. Global gold prices, asdenominated in US$ have doubled since 2008, and increased three times as denominated in Indian rupees. India, havingbeen a major absorber of world gold, has seen a substantial rise in gold imports (the value of gold imports increased ninetimes between January 2008 and October 2012), contributing significantly to the current account deficit, along with oilimports.

Inflation to ease, but supply side responses are required to reduce inflation in the long term

The survey underlines the need to focus on fiscal measures to tackle inflation that has persistently remained above 7percent since December 2009, as measured by the Wholesale Price Index (WPI). Between March 2010 and October

2011, the Reserve Bank of India (RBI) has raised interest rates 13 times by a total of 3.75 percentage point to control thisinflation and also outlined RBIs limitations in controlling Indias largely structural inflation. The survey said that whilemonetary measures can work in the short term, supply side responses are required to reduce inflation in the long term.The report expects inflation to ease and pegs the monthly inflation rate to be between 6.2-6.6 percent by the end of March2013.


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Agricultural production to decline

Agricultural production is expected to decline by 3.5 percent in the current fiscal to 250.1 million tons. While agricultureaccounted for only 14.1 percent of GDP in 2011-12, it employs over half of the nations population and, therefore, thisdecline is significant. The long-term outlook on agriculture production is also dismal and the survey identifies low yields,low productivity, soil degradation, climate change and lack of market linkages as the main factors affecting production.The report also acknowledges that allowing more foreign direct investment in retail could help the countrys agriculturesector through the introduction of new technology and improved infrastructure.

Reduce waste in social spending

The study notes that reducing waste in social spending should be prioritized through projects like direct-cash transfers tothe poor. Expenditure on social services has increased considerably in the Twelfth Five-Year Plan (2012-2017), with theeducation sector accounting for the largest share, followed by health. As a proportion of GDP, expenditure on socialservices has increased from 5.9 percent in 2007-08 to 6.8 percent in 2010-11 and further to 7.1 percent in 2012-13.

According to the survey, in the last few years public expenditure on social programmes increased dramatically. In theEleventh Plan period nearly US $140 billion has been spent on the 15 major flagship programmes. A number of legislativesteps have also been taken to secure the rights of people, like the Right to Information Act, the Mahatma Gandhi NationalRural Employment Guarantee Act (MGNREGA), the Forest Rights Act, and the Right to Education (RTE). However, thereare also pressing governance issues like programme leakages and funds not reaching the targeted beneficiaries thatneed to be addressed. Direct benefit transfer (DBT) with the help of the Unique Identification (UID) number can help plugsome of these leakages.

India lost 10 percent share in global BPO market to emerging countries

India has lost about 10 per cent share of the global Business Process Outsourcing (BPO) market in the last five years todestinations like China, the Philippines and Brazil, raising concerns for the US $20 billion Indian BPO industry. Accordingto the survey IT services would account for US $50 billion in the current fiscal, while Business Process Management(BPM or BPO) and Engineering services would contribute US $20 billion and US $10 billion, respectively. In terms of competition, though China faces challenges like language proficiency, it is making large investments to increase Englishproficiency. The Philippines, which is the second largest destination for outsourcing, is also a serious competitor havingdeveloped both the hardware and software segments of IT. The survey acknowledges that in the overall IT and IT-enabled services space, new competitors like China, Israel and the Philippines have emerged in recent years to competewith India.


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The survey focuses on job creation

Lastly, the study has a special focus on job creation. The survey expects over half of the people joining the Indian labor force from 2011 to 2030 to be in the 30-49 year age group and says that India needs to create jobs in manufacturing andservices.

The central long-run question facing India is where will good jobs come from? Productive jobs are vital for growth. And agood job is the best form of inclusion. More than half our population depends on agriculture, but the experience of other countries suggests that the number of people dependent on agriculture will have to shrink if per capita incomes inagriculture are to go up substantially. While industry is creating jobs, too many such jobs are low productivity non-contractual jobs in the unorganized sector, offering low incomes, little protection, and no benefits. Service jobs arerelatively high productivity, but employment growth in services has been slow in recent years. Indias challenge is tocreate the conditions for faster growth of productive jobs outside of agriculture, especially in organized manufacturing and in services, even while improving productivity in agriculture. The benefit of rising to the challenge is decades of strong inclusive growth.

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Economic Survey of India 2012-13 – Highlights