Finance Minister Shri Pranab
Mukherjee inaugurated the Annual Economic Editors’ Conference, here today. Following is the text of his address:
“Ladies
and Gentlemen,
It gives me great pleasure to welcome you all to this
annual conference, which has now become an important platform for Government-media
interaction on development and economic policy issues in India. I am particularly pleased to
welcome journalists and editors from across the country representing different
vernacular languages and also those from the English and Hindi media, who are
participating in this conference.
With greater transparency in governance and policy making
and easier public access to information and data, policy formulation in India is becoming a collaborative
exercise. This event provides another opportunity for us to share and explain
the Government’s thinking on policies and the initiatives being taken to
address the issues confronting the nation. The feedback and views of the media
and through media the views of the public will provide valuable inputs to
improve policy formulation and its implementation in the country.
The Mid-Year review of the economy is currently under-way
and I expect this interaction to raise issues and provide valuable inputs that we
can take back to that exercise.
Since the last meeting of Economic
Editors in November 2009, I am happy to share that the economy has responded
strongly and is well on its way to regaining the growth momentum of the years
prior to the global slowdown. There are several factors that have contributed
to this, including the timely impact of various fiscal and monetary policy
measures, the underlying fundamentals of the economy and the recovery, though
still weak, of the global economy.
Let me spell out briefly the salient features of this
growth recovery, some major policy developments and the prospects of the economy
in the short to medium term.
Economic Growth
Friends,
India recorded a GDP growth of 7.4 per
cent in 2009-10. It has been further consolidated in the current fiscal year with
growth in the first quarter estimated at 8.8 per cent. This is in line with the
GDP projections of 8.5 ± 0.25 per
cent growth in 2010-11, made in the Economic Survey. The recovery is broad
based with growth improving in all the three sectors, industry, services and
agriculture.
The sharp recovery in growth reflects the strengths of our
economy’s fundamentals and its underlying dynamics. That this growth came about
in a year with sub-normal monsoon indicates two things:
First, the economy is more resilient to cyclical changes in agriculture due to
a decline in the share of agriculture in GDP.
Second, at an aggregate level the compositional changes within the agriculture sector
are able to counter balance the impact of rainfall deficit. Unlike in the past,
even as recently as 2002-03, a major deficiency in monsoons may
not necessarily lead to a negative growth/decline in agriculture production.
On the demand side, the pick up in investment growth in
2009-10 seems to be continuing in the first two quarters of the current fiscal.
There are also signs of consumption growth moving towards its trend rate. The
recovery is led by industry and with improved growth in services; we should look
to hit the 9 per cent plus growth path in the near future.
Fiscal Consolidation
Last year I had mentioned that fiscal consolidation was a
policy imperative and I promised to revert to a prudent fiscal path as soon as
the economic situation so permitted. I have redeemed that promise. The clear
signals of economic recovery necessitated a partial roll back of the fiscal
stimulus measures which I duly reflected in the Budget for 2010-11. The fiscal
deficit was budgeted to come down from a level of Rs.4,14,041 crore in RE
2009-10 to Rs.3,81,408 crore in 2010-11 BE, which as a proportion of GDP amounts
to a decline from 6.7 per cent to 5.5 per cent.
The partial restoration of the tax cuts, compression in
expenditure and revenue from 3G auction and disinvestment will help us in
meeting our fiscal targets for the current year. In my Budget proposals for
2010-11, I presented an ambitious policy package which included a move
towards a nutrient based fertilizers subsidy regime culminating in direct
transfers to farmers at a later date; flexible petroleum pricing policy with
levels of subsidy calibrated to international crude prices; public expenditure
management; a new Direct Tax Code; and progress towards goods and services tax.
We have
made progress in all these areas.
The medium term Fiscal Policy Statement 2010-11 has outlined
a decline in fiscal deficit to 4.8 per cent of GDP in 2011-12 and 4.1 per cent of GDP in 2012-13.
It is our intention to have a gradual and sequenced exit from stimulus,
keeping in focus long-term fiscal sustainability concerns. The process of
fiscal consolidation is accordingly calibrated to be supportive of growth in
the medium term and is broadly in line with the recommendations of the
Thirteenth Finance Commission.
As per the data made available by Controller General of
Accounts gross tax revenue have so far
grown by 27.3 per cent, which compares favourably with a negative ( -) 11.6 per
cent growth last year and 17.9 per cent estimated in the Budget proposal for this year. The total revenue
receipt have increased by 85.0 per cent as compared to negative (-) 2.7 per
cent last year, mainly on account of the bonanza from telecom spectrum auctions and robust
growth in excise and customs duty receipts of 43 per cent and 60 per cent,
respectively. Total expenditure has grown by 30.4 per cent, as against 22.8 per
cent achieved last year.
The first batch of supplementary
demands from grants presented to Parliament envisages a net cash outgo of Rs.
54,589 crore. Fiscal and revenue deficits proportions of BE are thus placed at
39.7 per cent and 36.3 per cent, and look healthy when compared to the moving
average of last five years at 64.0 per cent and 95.8 per cent. The impact of
one-off nature of revenues might taper off in the months to come with a pickup
in expenditure and moderation in the levels of growth in revenues.
Macroeconomic Stability
Friends,
Now, I turn to the issue of macroeconomic stability. The
year 2010-11 started off with a headline inflation of 11.0 per cent in April 2010 in terms of Wholesale Price Index on
the revised base year. After remaining in double digits till June 2010,
inflation has moderated to reach 8.6 per cent in September 2010. In terms of consumer price indices,
inflation in the three major groups (industrial workers, agricultural labour
and rural labour) have all come down to single digit level. Food prices have
been the main driver of inflation.
A number of anti-inflationary measures were announced by
the Government to tackle this problem. These include: selective ban on exports and futures trading in rice and some pulses, zero
import duty on select food items and removal of restrictions on licensing,
stock limits and movement of food articles under the Essential Commodities Act
of 1955. Permission was given to import of pulses and sugar by public sector
undertakings. Distribution of imported pulses and edible oils was permitted
through the Public Distribution System (PDS) and a higher
quota of non-levy sugar was released.
In addition, a Standing Core
Group of Chief Ministers and concerned Central Ministers has been constituted
on 15th March, 2010 to
discuss issues related to prices of essential commodities with Ministry of
Agriculture as nodal agency.
The Reserve Bank of India (RBI) as
part of the monetary policy review has taken suitable measures to moderate
demand to levels consistent with the capacity of the economy to maintain growth
without price rise. It has raised its key policy rates since April, 2009. On September
16, 2010
the RBI raised the repo rate to 6.0 per cent and reverse repo rate to 5.0 per
cent.
A robust domestic
demand coupled with a weak global demand has resulted in a widening of the
trade deficit, which has spilled over into higher levels of current account
deficit. However, the strong domestic demand and robust investment climate in
the country has resulted in a surge in capital inflows, which have helped finance
the higher level of current account deficit.
The current levels of capital inflows, which exceed
financing requirements of our current account deficit, have put pressure on the
Rupee, resulting in its appreciation in the last few months. This has implications
for our exports. We have faced similar situation in the past and have overcome it
without taking recourse to some of the more stringent policy measures that are
by now well known to discerning analysts.
On the whole, notwithstanding continued concerns on
inflation, the macroeconomic environment, both domestic and on the external
front, is far more comforting at present than last year.
Prospects
In the short term it is reasonable
to expect that the economy will go back to the robust growth path of around 9
per cent average that it was on before the global crisis slowed it down in
2008. To begin with, there has been a revival in investment and private
consumption demand, though the recovery is yet to attain the pre-2008 momentum.
Second, Indian exports have recorded impressive growth since November December
2009. The favourable capital market conditions with improvement in capital
flows and business sentiments are also encouraging. Finally, the manufacturing
sector has been showing a buoyancy reminiscent of the pre-slowdown years. There
is also a substantial pick-up in corporate earnings and profit margins.
Inclusive Development
Friends,
Our objective is to harness this
growth to make the development process more inclusive, strengthen food security,
improve education opportunities and health facilities both in rural and urban
areas. At the same time we are looking to address the weaknesses in our
systems, structures and institutions at different levels of governance, making
the public delivery mechanisms more robust and transparent, and sharply focus
on the role of Government as an enabler.
The Budget for 2010-11 following the earlier budgets has
provided for higher outlays for the flagship schemes. Mahatma Gandhi NREGS alone
has been provided a sum of Rs. 40,100
crore in the current financial year. Nearly 5.26 crore households were provided
employment under the scheme in 2009-10. During 2010-11, so far (4.10.2010.),
3.05 crore households have been provided employment under the scheme; 92.96
crore person-days have been created of which 22.21 percent and 17.8 per cent
were in favour of SC and ST population respectively and 50.33 per cent of the
total person days went in favour of women.
Financial Inclusion is an important priority of the
Government as only about 38 per cent of the 85292 bank branches of Scheduled
Commercial Banks are in rural areas and only 40 per cent of the country’s
population has bank accounts. To address this need, the Government has
directed all banks to provide appropriate banking facilities to habitations
having population in excess of 2000 by March, 2012 using various models and
technologies including branchless banking through Business Correspondents
(BCs). The banks have formulated their road maps for Financial Inclusion and
have identified about 73,000 habitations having a population of over 2000 for
providing banking facilities.
“Swabhiman” - a nationwide programme on
financial inclusion, estimated to cover approximately 5 crore households, is
now ready for roll out.
“Swavalamban” - a
co-contributory pension scheme for workers in unorganized sector, has been
launched on 26.9.2010. The Central Government shall contribute a sum of
Rs.1,000 per annum to the workers in unorganized sectors who contribute a sum
of Rs.1,000 to Rs.12,000 per year in their pension accounts during the
financial year 2010-11, are not in regular employment of the Central or the
State Government or any of their entities, or not covered by any of the Social
Security Scheme. Government has targeted 10 lakh workers from un-organized
sectors each during the initial four years of the implementation of Swavalamban
Scheme totalling to 40 lakh subscribers by March, 2014. For the purpose, PFRDA
would also be undertaking extensive financial literacy and awareness campaigns
in association with the Aggregators.
In the financial year 2009-10, the
Government had announced the ground level credit target for agriculture at Rs
3,25,000 crore. The total credit flow to agriculture during 2009-10 was of the
order of Rs. 3,66,919 crore, which is 113% of the annual target. For the
financial year 2010-11, the Government has set agriculture credit flow target
at Rs 3,75,000 crore.
On the reforms front, there has been considerable progress
in some of the announcements that I had made at the time of the Budget.
Disinvestment is broadly on track. The Initial Public Offering
of Coal India Limited opened for public subscription on 18th October, 2010 has been an unqualified success. Direct Taxes Bill
2010 which was introduced in the monsoon session of the Parliament is now being
considered by the Standing Committee. Petroleum pricing has been made flexible
taking due care of the stakeholders and consumers. I believe the movement
towards goods and services tax would also be possible in due course with the
cooperation of all stakeholders.
It is often said that reforms in India are slow reflecting the democratic sanction
process; but nevertheless sure as it has larger backing. Going forward, I
believe the Indian economy would take its rightful place in the global economic
order in terms of not only macroeconomic aggregates, but also in terms of human
development indices.”
DSM/BY/GN