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Highlights of Economic Survey 2014-15
Macroeconomic fundamentals in 2014-15 have dramatically improved. Because of favorable macroeconomic scenario now, India ranks amongst the most attractive investment destinations now. Amongst BRICS countries, only China scores above India.
As per the new revised growth estimates, based on base year 2011-12, the economy, after growing at around 6.7% during 2011-13, has been growing at around 7.2% since 2013-14. GDP growth at constant market prices is expected to accelerate to between 8.1 and 8.5 % in 2015-16. During 2012- 13 to 2013-14, the average growth in per Capital income i.e. 4.3% as per the new series is much higher than the corresponding growth of 2.4% presented by the old series.
On the global front, the United States radiates confidence and strength, while some other structurally important economies like China, Russia, Euro area and Japan face uncertain prospects, thereby affecting global growth and
investment outlook. Th e sharp decline in oil prices has provided an incentive for overall global growth and stability. At the same time, it has diminished fortunes of oil exporting countries that can influence economic activity Adversely.
Agriculture and allied sectors registered a growth of 2.5 % in the Ninth Plan, 2.4% in Tenth Plan, and 4.1% in the Eleventh Plan. For 2014-15, the CSO has estimated a positive growth rate of 1.1% for agriculture despite lower than normal rainfall. Th ere is a need to give greater attention to productivity in the agricultural sector. The following are some of the challenges and policy recommendations for Indian agriculture increase investment in agriculture, improve irrigation facilities, install proper food policy, and improve agricultural marketing
Th e manufacturing sector registered a growth of 6.2% and 5.3% respectively in 2012-13 and 2013-14 as per the new series. As per the pre-revised series, this growth was 1.1 % and – 0.7 %. Th is surprising change in growth rate can be ascribed to normal data revisions that take place as per revision schedules, the effect of base change as well as more comprehensive coverage of the corporate sector with the incorporation of MCA 21 database of the Ministry of Corporate Aff airs. At the disaggregated level of the new series, the growth in manufacturing sector was chiefly on account of robust growth in textiles, apparels, and leather products. While electricity, gas, and water supply and
other utility services are projected to achieve robust growth, manufacturing has gained momentum. As per the new series, the growth of manufacturing sector in 2014-15 is estimated to be 6.8%.
Growth in infrastructure, based on an index of eight core industries, has improved slightly to 4.4 % during April-December 2014-15 as compared to 4.1 % in the same period in 2013-14.
India’s services sector remains the major driver of economic growth contributing 72.4% of GDP growth in 2014-15. Services-sector growth has increased from 8.0% in 2012- 13 to 9.1% in 2013-14 and further to 10.6% in 2014-15.
Th is is mainly due to growth acceleration in fi nancial, real estate, and professional services to 13.7% from 7.9% and public administration, defense, and other services to 9.0% from 7.9% in the previous year. Growth in trade, hotels, transport, communication, and related services was 8.4 % in 2014-15 compared to 11.1% in 2013-14.
Th e outlook for the external sector is the most favourable since the 2008 global fi financial crisis and especially compared to 2012-13, when elevated oil and gold imports fuelled a surge in the current account deficit.
- Th e current account deficit has reduced from 6.7% of GDP in Quarter 3 of 2012-13 to 1.3% in 2014-15 and less than 1 % of GDP in 2015-16.
- Over the last ten years, India’s merchandise trade (on customs basis) increased manifold from US$ 195.1 billion in 2004-05 to US$ 764.6 billion in 2013-14 helping India’s share in global exports and imports improve from 0.8 % and 1.0 % respectively in 2004 to 1.7 % and 2.5 % in 2013. Its ranking amongst the leading exporters and importers improved from 30 and 23 in 2004 to 19 and 12 respectively in 2013.
- After growing by 4.7 % in 2013-14, India’s merchandise exports growth moderated to 2.4 % to reach US$ 265 billion in 2014-15 (April- January). During 2013-14, India’s merchandise imports contracted by 8.3% to US$ 450.2 billion. In 2014-15 (April-January), imports grew by 2.2% to US$ 383.4 billion as compared to US$ 375.3 billion in 2013-14 (April-January)
- Th ere has been significant market diversification in India’s trade in recent years—a process that has helped cope with the sluggish global demand, which owes to a great extent to the weakness in the Euro zone. Region-wise, India’s export shares to Europe and America have declined over the years from 23.6% and 20.1 % respectively in 2004-05 to 18.6% and 17.2% respectively in 2013-14. Conversely, shares of India’s exports to
Asia and Africa have increased from 47.9% and 6.7% respectively in 2004-05 to 49.4 % and 9.9 % respectively in 2013-14.
- In 2014-15 (April-January), trade deficit increased marginally by 1.6 % to US$ 118.4 billion as against US$ 116.5 billion in 2013-1416. Lower growth of exports (2.4%) and imports (2.2 %) in 2014-15 (April-January) has resulted in a marginal increase of US $ 1.9 billion in the trade deficit.
Investments and Savings
- There was a downward pressure on aggregate demand due to the steep decline in the rate of capital formation. Th e gross capital formation was 36.6% in 2012-13 but reduced to 32.3% in 2013-14.
- From the past trends in the saving rate (gross domestic savings as percentage of GDP) available from the pre-revised series, it is observed that it reached its historical peak in 2007- 08 (36.8%) and then remained volatile, with a general downward movement. Th e savings rates (as per cent of GDP) declined from 33.9% in 2011-12, to 31.8% in 2012-13 and further to 30.6 % in 2013-14.While private corporate savings steadily declined; household savings witnessed realignment in favour of accumulation of physical assets at the cost of financial savings.
- Th ere have been increasing trends in consumption which have gradually firmed up, with both private and government consumption growing in strength.
- The first nine months of 2014-15 have witnessed some major policy reforms in the subsidy regime; the modified direct benefit transfer scheme has been launched; the new domestic gas pricing policy has been approved; and diesel prices have been deregulated. An Expenditure Management Commission has been constituted to look into various aspects of expenditure reforms to achieve the goal of fiscal consolidation. As
per provisional accounts, the fiscal deficit for 2013-14 worked out at 4.5 % of GDP as opposed to the Budget Estimate (BE) of 4.8%. Fiscal deficit and revenue deficit were budgeted 4.1 % of GDP and 2.9% of GDP respectively in 2014-15.
- As per the data on union government finances for April-December 2014 released by the Controller General of Accounts (CGA), the gross tax revenue increased by 7% in comparison to the corresponding period of the previous year and is at 58.3% of BE in April-December 2014.
- Fiscal deficit at 100.2 % of BE in 2014-15 (April- December) is much higher than the five-year -average of 77.7%. Th e revenue deficit for April-December 2014 is estimated at 106.2% of BE and is significantly higher than the five-year -average of 81.4%.
- Inflation has declined by over 6 percentage point since late 2013.
- Headline inflation measured in terms of the Wholesale Price Index (WPI) (base year 2004- 05=100) which remained persistently high at around 6-9 % during 2011-13 moderated to an average of 3.4% in 2014-15(April December) on the back of lower food and fuel prices. Inflation in manufactured products has remained within a narrow range since 2013-14
- As fuel has larger weight in the WPI, the decline in fuel prices led to a sharper reduction in the WPI as compared to the Consumer Price Index (CPI). Th e CPI (combined) inflation Like the WPI inflation, CPI inflation has also moderated significantly since the second quarter of 2014-15, with moderation in inflation observed in all the three major subgroups, viz. food and beverages, and tobacco; fuel and light; and others. Th e CPI (combined) inflation declined to a low of 5% in Q3 of 2014-15. As per the revised CPI (new series) with the base year 2012, headline CPI inflation stood at 5.1 % in January 2015.
- Th e decline in inflation during the year turned out to be much faster than was anticipated in the initial months of the year. Global factors, namely persistent decline in crude prices, soft global prices of tradables, particularly edible oils and even coal, helped moderate headline inflation.
Th e tight monetary policy was helpful in keeping the demand pressures contained, creating a buffer against any external shock, and keeping volatility in the value of the rupee under check. During the last one year, the rupee remained relatively stable vis-à-vis the major currencies, which too had sobering influence on inflation. Moderation in wage rate growth reduced demand pressures on protein based items. Base eff ect also contributed to the decline in
The RBI kept policy rates unchanged during the year till January 2015. With the easing of inflationary conditions, the RBI has signaled softening of the monetary policy stance by cutting policy repo rates by 25 basis points to 7.75% in January 2015. Subsequently, the RBI also reduced the statutory liquidity ratio (SLR) by 50 basis points from 22.0% of net demand and time liabilities (NDTL) to 21.5%.
India is projected to be the youngest nation in the world by 2020. While this provides great opportunities, it also poses challenges before the nation. These include:
- Educational Challenges: While only 73 % literacy has been achieved (Census 2011), there is marked improvement in female literacy. Male literacy at 80.9 % is still higher than female literacy at 64.6% but the latter increased by 10.9 percentage age points compared to the 5.6 percentage points for the former.
- Skilling the Youth: As per the Labour Bureau Report 2014, the current size of India’s formally skilled workforce is small, approximately 2%; this number compares poorly with smaller countries like South Korea and Japan which report figures of 96% and 80% respectively. As per the National Skill Development Corporation (NSDC), for the period between 2013 and 2022 there is an incremental requirement of 120 million skilled persons in the non-farm sector.
- Sluggish employment growth: A cause for concern is deceleration in the Compound Annual Growth Rate (CAGR) of employment during 2004-05 to 2011-12 to 0.5% from 2.8 % during 1999-2000 to 2004-05 as against CAGRs of 2.9% and 0.4 % in the labour force respectively for the same two periods. A major impediment to the pace of quality employment generation in India is the small share of manufacturing in total employment. However, data from the sixty-eighth National Sample Survey (NSS) round indicates a revival
in employment growth in manufacturing from 11% in 2009-10 to 12.6% in 2011-12. Promoting growth of micro, small, and medium enterprises (MSME) is critical from this perspective. Towards a Healthy India: Th e Swachh Bharat Mission (Gramin) launched in October 2014, aims at attaining an Open Defecation Free India by 2nd October 2019.
- Poverty: Th e latest estimates of poverty are available for the year 2011-12. These estimates have been made following the Tendulkar Committee methodology using household consumption expenditure survey data. For 2011-12, the percentage of persons living below the poverty line is estimated as 25.7% in rural areas, 13.7% in urban areas, and 21.9 % for the country as a whole.
- Human Development: Th e 2014 Human Development Report (HDR) presents the Human Development Index (HDI)—values and ranks— for 187 countries. India’s HDI value for 2013 is 0.586, ranking it 135 out of 187 countries and territories, the lowest among the BRICS countries with Russia at 57, Brazil at 79, China at 91, and
South Africa at 118, and slightly ahead of Bangladesh and Pakistan. India also ranks low with respect to the Gender Development Index (GDI). Th e GDI value for India is 0.828 and it is ranked 132 among 148 nations. In comparison, Bangladesh and China are ranked higher.
- Th e Investment Challenge: Th e stock of stalled projects stands at about 7 % of GDP, accounted for mostly by the private sector. Manufacturing and infrastructure account for most of the stalled projects. Changed market conditions and impeded regulatory clearances are the prominent reasons for stalling in private and public sectors, respectively.
Outlook for 2015-16
- Th e macroeconomic situation in India has improved significantly during the current year. The steady acceleration in services and manufacturing growth in the face of subdued global demand conditions point to the strengthening of domestic demand. Most of the buoyancy in domestic demand can be traced to consumption. Investment activity, which is slowly picking up, needs to be grounded on a stronger footing. Th e
savings-investment dynamics will be crucial for the growth to strengthen further in the coming years, in addition to reversal of the subdued export performance being currently witnessed.
- In the light of the Government’s commitment to reforms, along with the improvements in the price and external sector scenarios including the possibility of international oil prices remaining generally benign, the outlook for domestic macroeconomic parameters is generally optimistic, notwithstanding the uncertainties that could also arise from an increase in the interest rates in the United States and situation prevailing in Greece within Euro-zone. Given the above, and assuming normal monsoons better prospects in the world
economy that could provide impetus to higher exports for Indian products and services, a growth of around 8.5 % is in the realm of possibility in 2015-16.
- Th e Survey recommends revival of public investment in short term, to act as an engine of growth in infrastructure sector. It argues that public investment cannot be a substitute for private investment; but is required as a complement and to crowd it in.
- Economic Survey highlights the need for reorientation and restructuring of the PPP model. Th is is expected to make them more viable in future.
- India could bolster the “Make in India initiative’’, which requires improving infrastructure and reforming labor and land laws by complementing it with the ‘’Skilling India initiative”. Th is would enable a larger section of the population to benefit from the structural transformation that such sectors will facilitate