A day before the Budget, the Economic Survey on Thursday predicted up to 8.75 per cent growth in 2010-11 while recommending a gradual roll back of stimulus -- a move that could entail hike in excise duty and service tax.
Warning that high double digit food prices could lead to "higher-than-anticipated" general level of inflation, the Survey called for effective steps to be taken to remove supply-side bottlenecks together with other policies.
The Survey said the government policy, other calibrated measures and tax reliefs as contained in the stimulus have helped the economy shrug off effects of slowdown triggered by global financial meltdown in 2008.
The buoyancy in the economy in tandem with reforms would make India possibly the fastest growing economy in the next four years, it said while recommending that there was a need for improving government financial by way of raising tax and non-tax revenues and containing deficit.
Last week, the Prime Minister's Economic Advisory Council too had suggested partial roll back of stimulus measures, including raising excise duty and service tax rates.
The Survey also echoed this view: "The broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15-18 months. . . so as to put the economy back on to the growth path of nine per cent annually."
The economy is projected to grow by 7.2 per cent this fiscal with industrial and services sectors growing at 8.2 and 8.7 per cent, respectively. Full recovery is likely over the next two fiscals with up to 8.75 per cent growth in 2010-11 and nine per cent the subsequent year.
Critical about the government's policy, particularly over the very high consumer price inflation, the Survey said that the "hype" over kharif crop failure without taking into account the comfortable food stocks and rabi prospects "may have exacerbated inflationary expectations encouraging hoarding and resulting in a higher inflation in food items.
". . . in the case of sugar, delay in the market release of imported raw sugar may have contributed to the overall uncertainty, thereby allowing prices to rise to unacceptably high levels in recent months," it added.
Elaborating on the prospects in the short and medium terms, the Survey observed that gross domestic savings stood at 32.5 per cent of GDP in 2008-09, while the gross domestic capital formation (investment) was 34.9 per cent.
"The rates of savings and investment have reached levels that even ten years ago would have been dismissed as a pipedream for India. On this important dimension, India is now completely a part of the world's fastest growing economies."
Indian economy has been one of the least affected by the global crisis. "In fact, India is one of the growth engines, along with China, in facilitating faster turnaround of the global economy. Risks, however, remain," it added.
On the foreign trade front, which had taken a beating in 2009, the economic document said it is looking up with the prospects of recovery in the world output and trade volumes. The downside risks for world and Indian trade lie in the fact that though the fall has been arrested, both output and trade recoveries are still fragile given the fact that the recovery has been pumped up by the stimulus given by different countries, including India, the effects of which may dry up if natural recovery does not follow.
High food prices may trigger higher inflation
The Economic Survey warned that overall prices would go up further in the next few months and partially blamed poor food management policies for double-digit food inflation.
"Since December 2009 there have been signs of these high food prices, together with the gradual hardening of non-administered fuel products prices, getting transmitted to other non-food items, thus creating some concerns about higher-than-anticipated generalised inflation over the next few months," Economic Survey, tabled in Parliament, said.
On a year-on-year basis, Wholesale Prices-based inflation in December 2009 was 7.3 per cent, while food inflation was 19.77 per cent.
Higher food prices were mainly because of supply-side constraints, compounded by poor monsoons in 2009.
The government has taken a number of short-term and medium term measures to improve domestic availability of essential commodities and moderate inflation, it said.
Survey asks for gradual roll back of stimulus
Buoyed by the prospects of economy bouncing back to 9 per cent economic growth, the Economic Survey today suggested gradual roll back of stimulus steps unveiled in the wake of the global financial meltdown.
This, it said, would help cut down the fiscal deficit that is estimated at 6.8 per cent of GDP in 2009-10 that was fed by a fall in indirect tax collections and delay in 3G auction.
"The fast-paced recovery of the economy underscores the effectiveness of the policy response of the government in the wake of the financial crisis. Moreover, the broad-based nature of the recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months," said the Survey, tabled in Parliament.
This was part of the policy response to the global slowdown, "so as to put the economy back on the growth path of nine per cent per annum," it added.
With the stimulus measures primarily comprising cut in indirect taxes, the Survey said there is likely to be a shortfall in tax collections under these heads.
40 million households get jobs
With a budgetary outlay of over Rs 70,000 crore on various poverty alleviation and employment generation schemes, nearly four and half crore households have availed job opportunities, the Economic Survey said.
"During the year 2009-10, 4.34 crore households have been provided employment under the National Rural Employment Guarantee Scheme (NREGS)," the Survey for 2009-10 said.
In the previous financial year, over 4.51 crore households were provided employment under the scheme.
As against the budgetary outlay of Rs 39,100 crore for 2009-10 for NREGS, an amount of Rs 24,758.50 crore has been released to the states and union territories till December 2009, the Survey, tabled in Parliament, said.
Survey for freeing food, fertiliser, diesel prices
The Economic Survey asked the government to decontrol prices of food, fertiliser, diesel and kerosene, saying subsidies given to these sectors have a "questionable" impact.
Freeing prices from government control could help deploy large resources for financing other vital activities in the economy that could promote productivity and eradicate poverty.
"The impact of these (food, fertilisers, kerosene and diesel) subsidies, using the yardstick of poverty mitigation is, however, questionable", the Survey said.
The high level of subsidies "now constitutes a major fiscal burden and tends to crowd out the government's ability to finance other vital activities in the economy that could promote productivity and eradicate poverty," it added.
Already, the government's resources are strained due to various fiscal stimulus and the Survey has separately noted that high growth environment creates scope for partial rollback of these stimuli.
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