Highlights of Economic Survey 2007-08 tabled in Parliament

[K.Karthik Raja]

Highlights of Economic Survey 2007-08 tabled in Parliament

NEW DELHI - Following are highlights of the Economic Survey
2007-08 (Apr-Mar), tabled in Parliament by Finance Minister P.
Chidambaram today:

ECONOMY, GROWTH
* FY08 growth estimate of 8.7% may be revised upwards
* FY08 GDP growth not a sign of lower growth trend
* Need more reforms to push GDP growth to 10%
* Growth deceleration FY08 spread across most sectors
* Maintaining 9% GDP growth a challenge
* Rising rupee, slowdown in consumer goods a concern
* Some cyclical fluctuation likely as econ grows rapidly
* High interest rates have hit demand for consumer goods
* Economy decisively moved to a higher growth phase
* Need to overcome several challenges to sustain growth
* Investment climate in India is "full of optimism"
* Last five years "best" growth period since 1947
* India macroeconomic fundamentals inspire confidence
* Consumption growth slow vs income growth as savings up
* Size of Indian economy to top $1 trln this FY
* India still among low-income nations
* Growth in services sector continue to be broad-based
* Faster economic growth leading to inclusive growth
* Average GDP growth rate during 2004-2007 at 9%
.
INFLATION
* Inflation likely to remain moderate in coming months
* FY08 average inflation rate likely at 4.4%
* Contained inflation despite high commodity prices
* Auto fuel price hike may add 19 bps to WPI inflation
* Policy intervention helped maintain price stability
* Inflation on a "clear up trend" since October
* Inflation management complex on changes in economic structure
* Domestic supply management crucial to stabilise inflation
* Inflation seen moderate on policy steps taken
* Monetary policy has to manage stress from high FX flows
* Price movement in farm price, consumption items crucial
* Farm price movement crucial on rising per capita income, falling
poverty
* Global prices having more pronounced impact on local prices
* Ability to meet shortfalls being eroded by global shortages, rising
prices
* Supply management also crucial for moderating upward wage revision
pressure
* Supply side pressure seen on farm sector on structural problems
* Supply side pressure also seen in infrastructure sector
* Containing inflation high on government's agenda
* Rupee rise had "salutary impact" on general prices post import price
fall
* Indian inflation is structural as well as monetary phenomenon
* Market rigidity, regulatory failure supported inflationary
expectations
* M3, reference interest rates influenced aggregate demand, price
levels
* Prices rose FY08 on build-up of inflationary, demand-supply mismatch
* Large capital flows has been putting pressure on liquidity condition
* Wheat, pulses, edible oil FY07 shortfall increased demand-supply
mismatch
.
PUBLIC FINANCE
* Tariff cut on non-farm products needs to continue
* Farm tariffs remain relatively high, stable
* Buoyant revenue helping maintain fiscal consolidation
* FY08 FRBM targets "well within reach"
* Not very difficult to achieve 3% fiscal gap by FY09
* Eliminating revenue gap by FY09 remains a challenge
* States' revenue surplus seen 0.3% of GDP FY08
* Continuously reviewing tax exemptions, incentives
* Current trend shows FY08 tax mop-up may top aim
* Revenue buoyancy riding strong, globalised economy
* Close monitoring of global econ remains critical
* Revenue receipts up to Apr-Dec buoyant
* Uptrend in direct tax-GDP ratio on tax reforms
* Major subsidies comprise about 8% of govt spend
* FY08 fisc consolidation on buoyant tax, prudent spend
.
EXTERNAL SECTOR
* Slower India FY08 growth may dampen capital inflows
* Pressure on rupee rise may ease as capital flows slow
* Fall in inflows may affect equity markets in short-term
* Capital inflows putting pressure on prices
* Capital inflow including FDI to continue medium-term
* Current account deficit at little over 1% of GDP
* Inflows far exceed current account financing need
* US slowdown to impact Indian exports, imports
* Capital flows as proportion of GDP on an uptrend
* Exporters need to up productivity to tackle rupee rise
* US economy expected to slow down in 2008
* Can't rule out more surprises from US subprime crisis
* FY08 trade gap to widen on rising commodity prices
* FY08 current account gap to remain at moderate levels
* Invisibles to compensate rising current account gap FY08.
* FY09 export sector outlook not bright on lower world GDP forecast
* Slowing global growth to affect prices of oil, other commodities
* No one-to-one correlation between rupee rise, export growth
* Textiles, handicrafts experienced low export growth on rupee rise
* Share of India-US trade declined by 2.5% to 9.8% in FY07
* Import of gold, silver rises to 10% in Apr-Sep
* Gross external commercial borrowing Apr-Sep at $14 bln, up 81.1% on
year
* Apr-Sep external assistance at $729 mln, up 88.9% from year ago
* Apr-Sep FY08 short term trade credit $5.7 bln , suppliers' credit
$1.9 bln
* Non-resident deposits Apr-Sep FY08 saw outflow because of lower
rates
* Excess of capital flows over current account gap Apr-Sep at 7.72% of
GDP
* Total inflows to foreign investments ratio at 43.4% Apr-Sep vs 33.5%
FY07.
* Apr-Sep net FDI flows $3.9 bln vs $8.5 bln FY07
* Net FII inflow Jan-Dec 2007 $2.42 bln
* Apr-Sep "other capital" up at $3.7 bln
* Import growth of gold, silver buoyant Apr-Sep on rise in domestic
demand
* Apr-Sep services exports 8.6% vs 36.9% FY07
* Services exports fell in Apr-Sep on drop in non-software services
* Apr-Sep business service import down on low technical, business
services
.
INDUSTRY
* FDI limit of 26% in insurance sector "too low"
* Slowdown in manufacturing pulling down credit demand
* Certain degree of moderation in industrial production
* Rising wages may erode price advantage in sectors
* Buoyancy in industry growth continues with moderation
* Manufacturing product prices higher on rise in demand
* High crude oil prices significantly impact India econ
* "Distorted" subsidies challenge for fertiliser sector
* Mobike output dampened Apr-Nov manufacturing growth
* Steel, cable, wood pdts drove Apr-Nov industry growth
* Textile sector facing high costs, labour issues
* Apr-Nov cotton textile output hit on rupee rise
* High costs, input shortage fuelling paper imports
* Leather export may reach $7 bln FY12 vs $2.7 bln FY07
* Tyre sector hit by low automobile production Apr-Nov
* Shortage of bulk terminals plague cement sector
* Depleting iron ore reserves a worry for steel sector
* IT/ITeS sectors created 6 mln indirect jobs in FY07
* Policy measures helping gems, jewellery exports
* Mumbai, New Delhi lead in attracting FDI inflows
* Bengal, Tamil Nadu, Gujarat lead in industrial strikes
* Slowdown in white goods no cause of concern long-run
* Better infrastructure to fuel industrial growth
* Need to review labour laws, labour mkt regulations
.
FARM SECTOR
* Farm yield stagnant on overuse of chemical fertiliser
* Second green revolution needed to up farm output
* Irrigation a major constraint in raising crop yield
* Lower rabi output pulling down farm sector growth
* Share of farm sector in GDP likely at 17.5% FY08
* FY08 economic cost of wheat, rice "significantly" up
* FY08 wheat economic cost seen 13.71 rupee/kg, up 13%
* FY08 rice economic cost seen 15.72 rupee/kg, up 11%
* Economic cost of food grain up on high support price
* Rice economic cost up also on high incidentals
* State levies inflating economic cost of food grains
* Rice allocation for above poverty line cut since Apr
* 700,000 tn more wheat allocated for non-poor Sep-Mar
* PDS grain offtake in line with govt buys since 4 yrs
* Year to Sep rice procurement seen 26 mln tn
* Need to strengthen grain procurement in some states
* Year to Sep sugar output seen 27 mln tn
* Year to Sep sugar consumption seen 20 mln tn
* Year to Sep sugar availability seen "enough"
* 2006-07 season cane arrear 18.2 bln rupee as on Nov 15
* 2006-07 cane arrear up on high output, low sugar price
* Year to Jun foodgrain output seen 2.2 mln tn dn from aim
* Year to Jun oilseed output seen 10% lower than target
* Micronutrient deficiency hitting crop productivity
* FY08 farm, forestry, fisheries growth seen 2.6%
* Farm output hit on low capital invest, stagnant yield
* Weather induced changes also hit farm output
* Multi-cropping, better yield needed to up farm output
* Farm growth key for food security, price stability
* Higher farm income needed for equitable growth
* Need to better target food, fertiliser subsidies
* Apr-Nov farm sector credit flow 1.38 trln rupees
* India Apr-Nov tea output seen 805,180 tn
* FY08 coffee output seen 262,000 tn, dn 9% on yr
* FY08 local coffee consumption seen 85,000 tn, up 6%
* Year to Jun rubber output seen 819,000 tn, dn 4% on yr
* Year to Jun rubber consumption seen 857,000 tn, up 4%
* Year to Jun cash crops, cotton output seen buoyant
* India 2007-08 milk output seen 102 mln tn
.
STATES
* States may attain FRBM targets ahead of schedule
* Necessary for states to maintain vigil on fisc
* Sustaining better fiscal health challenge for states
* Ensuring targeted spending by states a challenge
* Initial experience of VAT encouraging
* VAT regime gradually stabilising, yielding result
* States to eliminate revenue gap 2 yrs ahead of target
* States to wipe out revenue deficit before FY09
* Indicators show distinct improvement in state finance
* States' FY08 fiscal gap likely lower than 2.3% target
* Fiscal correction in states gained further in FY08
* FY08 states tax-GDP ratio 6.3% vs 6.2% yr ago
* FY08 state spending 16.3% of GDP vs 18.7% FY04
* VAT implementation deepened fiscal reforms in states
* 26 out 28 states enact FRBM Act
.
BANKING
* SLR investments rose in FY08 on high deposit accretion, low credit
growth
* RBI policy intervention reduced credit sharply in FY08
* Credit-deposit ratio fell to 71.8% as on Jan 4 vs 74% year ago
* Further decline in credit growth will affect economic growth
* Non-SLR investment up by 46.79 bln rupee Jan 4 vs 320 mln rupees
fall yr ago
* Loans to realty sector up by 41.5% end Marc 2007 vs 78.7% year ago
.
FX MARKET
* Capital flows expected to remain robust in current year
* FX flows seen robust on interest rate cuts by advanced economies
* Reversal of near, medium term capital flows a possibility
* FX flows outlook hinges on growth recovery in big economies
* Risk aversion can slow FX inflows to emerging markets
* For active management of FX rate volatility in short-run
* Keeping nominal exchange rate stable not productive in long-run
* For balanced appraoch towards exchange rate management
* Exchange rate must be allowed to adjust, reflect fundamentals
* Current FX reserves provide import cover of 13 months
* Rupee rise FY08 in tandem with rising capital flows
* Rupee rose 13% Mar 06-Nov 07, while yuan rise was lower at 8% same
period
* Rupee rose, as demand for dollars not kept pace with supply
* FY08 sterilisation cost up at 82 bln rupees vs 37 bln budget
estimate
* Spot market turnover up over $7.4 bln on Nov 30
* Liberalisation of capital account "must continue"
.
DEBT MARKET
* Fresh issuance of gilts rose to 1.62 trln rupees 2007 vs 1.47 trln
2006
* Market cap of gilts at 13.18 trln rupees Dec-end vs 11.31 trln
end-2006
* Yield on AAA 5-yr corporate bond in 9.19-10.80% band Apr-Dec FY08
* Corporate bonds market cap at 580.74 bln rupees Dec-end vs 491.55
bln 2006
* Growing importance of insurance cos, pension funds to boost gilts
market
* Nomination, pledging, stripping of gilts to boost mkt, mainly retail
* Active interest rate futures to enhance price discovery in gilts
.
MISC
* Need to OK entry of foreign universities into India
* NHB to release economy-wide housing price index on regular basis

K.Karthik Raja
www.kences1.blogspot.com