Thursday, February 2, 2012

State of Indian Economy: GDP Pegged at 8.4 Per Cent

The Central Statistical Organization (CSO) has released the quick estimates of national income. According to the CSO, the Gross Domestic Product (GDP) growth estimates for 2010-11 slightly lower to 8.4 per cent from 8.5 per cent projected earlier.
The country's GDP in 2010-11 at factor cost at constant prices (2004-05) grew by 8.4 per cent over the previous year. The services sector expanded by 9.3 per cent. The agriculture sector grew by 7 per cent as against 1 per cent in 2009-10. The rate of growth of industry was 7.2 per cent as against 8.4 per a year ago.
Rate of Investment
The savings rate is placed slightly lower at 32.3 per cent in 2010-11 as against 33.8 per cent in 2009-10, the fall was mainly due to a decrease in financial savings of the household sector. The gross domestic capital formation or the rate of investment is placed at 35.1 per cent in 2010-11 as against a level of 36.6 per cent in the previous fiscal.
The savings rate in 2010-11 has declined from 2009-10. The major reason for the decline is due to decrease in the rates of financial savings of household sector from 12.9 percent to 10 percent and the private corporate sector from 8.2 percent to 7.9 percent. However, the rate of savings of the public sector has increased to 1.7 percent in 2010-11 as compared to 0.2 percent in the previous year.
The growth numbers for 2010-11 seem robust when compared to the Finance Ministry's estimates for the current fiscal and the next (2012-13). With hopes of improvement in governance and speedier reforms, the ministry expressed confidence that economic growth in 2012-13 would edge up from a tad over 7 per cent during the current fiscal.
Reducing Subsidies
C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, stressed on the need to focus on reducing the overall level of subsidies as a proportion to GDP through an appropriate road map to reach the Fiscal Responsibility and Budget Management (FRBM) target of 3 per cent of GDP.
He underscored the difficulty in keeping fiscal deficit within the targeted 4.5 per cent during the current financial year but stressed on the need to keep it close to the targeted level to gain credibility.
Rangarajan also expected the GDP growth rate to be in the range of 7-7.25 per cent during 2011-12 as against the 8.4 per cent registered a year ago, given the industrial slowdown and the global economic crisis. Emphasizing that some segments of the economy were influenced by external factors, Rangarajan feared that should the European situation worsen it would affect the country's growth adversely. The global situation had affected the balance of payments situation and the rupee due to reduced inflow of capitals.
Rangarajan, however, expected the economic outlook to be better in 2012-13 with inflation and interest rates settling down to lower levels. He expected inflation to come down to 7 per cent by March-end.

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