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Hurdles on the highway

While the economy is largely on track, Inflation, Inclusion & Infrastructure are key concerns for the government. Economy Survey

business Updated: Feb 25, 2011 23:50 IST

The government warns of tougher times ahead
New Delhi:
Cooling prices without upsetting the growth momentum will be the biggest policy challenge for the government as the political unrest in the Middle East and the rise in global commodity prices will have a bearing on inflation in India, the Economic Survey 2010-11 has said.

"The policy challenge of maintaining the growth momentum in the economy with price stability is going to remain a key focus area for monetary policy and macro-economic management," said the government’s annual report, card tabled in Parliament on Friday.

India’s wholesale price index (WPI)-based inflation was at 8.23 % in December, reflecting price shocks in essential commodities. Food inflation stood at 11.49% for the week-ended February 12.

The Reserve Bank of India has raised policy rates 7 times this fiscal, making loans costlier.

"Non-food manufacturing inflation has remained sticky, reflecting buoyant demand conditions," the survey said. "Domestic food price situation could be exacerbated by the increase in global prices."

Projects lagging, funds a problem, telecom the silver lining
New Delhi:
The Economic Survey has expressed concern over the lack of progress in key infrastructure projects, especially in roads, power and railways.

The Survey noted that more than half the Central projects have been delayed, resulting in higher costs. Of the 559 projects costing R150 crore or more, the Survey noted that 293 are behind schedule; 117 were on target, and a mere 14 projects were ahead of schedule.

The telecom sector continues to do well and most of the projects were on schedule.

Timely completion of infrastructure projects remains the top priority for sustaining growth momentum, the Survey said, and called for streamlining land acquisition and environment clearance for core sector projects.

Quoting a plan panel assessment, the survey noted that the infrastructure sector needs Rs 41 lakh crore in investments in the 12th Plan period, and at least half would have to be come from the private sector.

Survey bats for FDI in multi-brand retail
New Delhi:
The Economic Survey has made out a case for allowing foreign direct investment (FDI) in multi-brand retail, arguing the move could help both the consumers and farmers and help bring technical know-how to supply chains.

"Permitting FDI in retail in a phased manner beginning with metros and incentivising the existing retail shops to modernise could help address the concerns of farmers and consumers," the Survey said.

India permits upto 51% FDI in single brand retail and 100% in ‘cash and carry’ wholesale. No FDI is allowed in multi-brand.

"FDI in retail may also help bring in technical know-how to set up efficient supply chains which could act as models of development," the Survey said.

Allowing FDI in multi-brand retail chains has been a contentious issue, as its opponents fear it could impact the sales of local kirana shops. India’s sector is estimated at around R22 lakh crore, of which organised sector is around 5%.

Uphill task for farming, unless Green Revolution II shows up
New Delhi:
The Economic Survey indicated a break-point coming up on the farm front: higher incomes, rising food costs, shifting demands (especially for high-end foods), slower supplies and missing market linkages — all point to a system about to stop breathing.

"Today India ranks high in production of several commodities… However, the sector in India is at a crossroads. The technology breakthrough achieved in the 1960s is gradually waning. The need for a second green revolution is being experienced more than ever before," said the survey, authored by chief economic adviser Kaushik Basu.

Farm growth is currently a robust 6.5%, well above the government’s target of 4%. By this financial year’s end, it will grow at 5.4%, the survey said.

However, to achieve the 4% growth target for the entire plan period, the sector needs to grow at 8.5% this year alone, which is impossible unless agriculture is treated as an industry.

Reforms, policy framework needed to sustain output growth
New Delhi:
The industrial sector need another round of multifaceted reforms and a policy framework overseeing it, to sustain a double-digit output growth and reduce vulnerabilities in the sector over the medium-to-long term, the Economic Survey said.

Of the 17 industrial groups covered under the manufacturing sector, nine registered a double-digit cumulative growth rate while only 5 witnessed less than 5% growth. Overall manufacturing output growth dipped from a peak 18% in April 2010 to 1% in December, indictating a similar pattern in the index of industrial production. The survey however attributed the slowdown mainly to a high base effect.

"Production of core industries has gone up marginally so far this year, but there is a huge gap in the required capacity addition needed to catch up with the projected demand in some sectors," the survey said. "Capacity addition in core sectors and removal of infrastructure bottlenecks would spur industrial sector output."

Financial inclusion
Broaden savings, integrate it into system to boost growth
The government has highlighted the need to increase financial inclusion and mobilise higher savings, and the need to dovetail these efficiently into the system to finance investment and growth.

Acceleration of financial inclusion, deepening capital markets, lowering of fiscal deficit and continuance with the regulatory overhaul are the four-point agenda for financing higher investment and growth outlined by the government in the economic survey.

The savings rate at 34% is healthy, but “the need is for the efficient conversion of this saving into investment,” it said.

Since large part of these savings are in low yielding assets like bank deposits and traditional insurance, it has emphasised on the need for financial literacy of the new savers, investors and consumers.

The survey batted for two types of banking licenses: NBFCs and MFIs for basic banking, and another license that covers all aspects of a commercial bank.

Fiscal deficit
Introduction of GST crucial to raise revenues, narrow gap
New Delhi:
India’s fiscal deficit is likely to be 4.8% for 2010-11, lower than the 5.5% projected in the last Union Budget, primarily due to the 3G spectrum auction and buoyancy in revenues, the Economic Survey said.

Though the survey said fiscal consolidation was on track with the partial withdrawal of incentives given to the industry in 2008 and 2009, pending reforms would be key to give it a further push in the medium term.

The Survey also stressed the need to introduce the goods and services tax (GST), expected to raise revenues and strengthen fiscal consolidation. "It is critical to anchor expenditure reforms... A beginning has already been made with reforms announced in subsidies, some of which have already been implemented," the survey said.

Fiscal deficit in 2009-10 had surged to 6.3% of the GDP, primarily driven by stimulus spending to battle the financial slowdown in wake of the global economic crisis.

Human development
Strike free: a year of relative peace in industrial relations
New Delhi:
The year 2010 saw the least disturbance in industry, the Survey said: 2010-11 had the least number of strikes and lockouts in at least five years.

The strikes came down by half to 79 in 2010 (provisional) from 157 in 2009. The lockouts became 1/10th – 20 compared to 192 of the preceding year.

Even the man-days lost — the estimation of productivity lost due to industrial disruptions — also went down to 17 lakh from 91.6 lakh days lost in 2009.

The Survey noted that several labour laws and policies like the Factories Act and contract labour are awaiting modifications 'to make them in tune with the changing economic and worker profile in the country'.