PRESS RELEASE ON ECONOMIC OUTLOOK FOR 2009-10 :- HIGHLIGHTS

The Indian economy weathered the financial turbulence well

· 6.7 % growth in 2008/09 – amongst the highest growth rates in the world.

· well calibrated adjustments in the monetary and fiscal policies

Projected growth 6.5 % in 2009/10 against 6.7 % in 2008/09

· Agriculture : -2.0 % (1.6% in 2008/09)

· Industry (including construction) : 8.2% (3.9% in 2008/09)

· Services: 8.2 % each. (9.7% in 2008/09)

Unlikely that growth will be lower than 6.25 % but may reach 6.75 %.

Impact of international conditions

· Recession, higher household savings and demand contraction in developed economies- adverse for exports growth.

· Encouraging signs of revival of capital flows.

· A further negative shock to the global financial system and global inflation could threaten growth in Indian economy.

Investment rate unchanged from 2008/09

· Projected investment rate in 2009/10: 36.5%. Will pick up with improvement in domestic conditions.

· Projected savings rate 34.5% in 2009/10 (33.9% in 2008/09)

22.7 % deficiency in the SW monsoon will lower agricultural output

· Large acreage losses under kharif foodgrain, mainly rice. Rabi prospects good

· Projected food grain production:223 million tonnes in 2009/10 (234 mt in 2008/09)

Current Account Deficit: - 2.0 % of GDP in 2009/10 (– 2.6 % in 2008/09)

· Exports projected at $188.9 billion in 2009/10

· Imports projected at $306 billion in 2009/10

· Projected merchandise trade deficit for 2009/10:$ 117 billion or 9.4 % of GDP.

· Projected net invisibles: $92.2 billion. Service exports & remittances have revived.

Capital inflows of $57.3 billion in 2009/10 ($9.1 billion in 2008/09)

· Net accretion to reserves : $31.6 billion ( – $20.1 billion in 2008/09)

Surge in food inflation

· 13% annualized increase in overall WPI index and 33% for primary food index in first half of 2009/10. Sharper rise in CPI indices.

· Global inflationary pressures will be high – oil and commodity prices rising

· Inflation in March 2010 expected around 6%

Improvement in financial conditions – global and domestic

· Recovery in international loan and equity markets – lower LIBOR/CDS spreads

· Bank credit sluggish till September 2009 but corporate sector raised large amounts from the domestic capital market through debt and equity issuance.

· Calibration of monetary measures will depend on growth and inflationary pressures.

Serious fiscal strain

· Projected consolidated fiscal deficit: 10.09% in 2009/10 (8.6% in 2008/09). Higher revenue and primary deficit to persist.

· Debt of centre and states as a ratio of GDP is projected to increase to over 77% in 2009/10

· Need to return to fiscal consolidation

Some Policy Options – focus on agriculture and power

· Short Term - managing inflation, specially food price inflation

§ Protect and enhance Rabi crop.

§ Focus on strengthening PDS distribution system

· Medium Term – Farm economy and power

§ Improve farm productivity – use technology optimally

§ Imperative need to achieve targets and have an active plan over a

Time horizon of 15 years for capacity creation in electricity

§ Actively explore fuel sources like natural gas and nuclear energy

Table A: Growth – Past Performance and Projections for 2009/10

Annual Rates

2004/05

2005/06

2006/07

2007/08

QE

2008/09

Rev

2009/10

Projected

Percentage change over previous year

1. Agriculture & allied activities

0.0

5.8

4.0

4.9

1.6

–2.0

2. Mining & Quarrying

8.2

4.9

8.8

3.3

3.6

10.0

3. Manufacturing

8.7

9.1

11.8

8.2

2.4

7.7

4. Elect., Gas & Water Supply

7.9

5.1

5.3

5.3

3.4

7.4

5. Construction

16.1

16.2

11.8

10.1

7.2

8.8

6. Trade, Hotels, Transport, Storage & Communication

10.7

12.1

12.8

12.4

9.0

8.4

7. Finance, insurance, real estate & business services

8.7

11.4

13.8

11.7

7.8

8.0

8. Community & personal services

6.8

7.1

5.7

6.8

13.1

8.0

9. Gross Domestic Product (factor cost & constant prices)

7.5

9.5

9.7

9.0

6.7

6.5

Industry (2 + 3 + 4 + 5)

10.3

10.2

11.0

8.1

3.9

8.2

Services ( 6 + 7 + 8 )

9.1

10.6

11.2

10.9

9.7

8.2

Non-agriculture (9 – 1)

9.5

10.4

11.2

9.9

7.8

8.2

GDP (factor cost, const. prices) per capita

5.8

7.8

8.2

7.5

5.2

5.0

Some Magnitudes

GDP factor cost – 1999/00 prices (Rs trillion)

(Rs lakh crore i.e. Rs trillion)

26.0

28.4

31.2

34.0

36.1

38.8

GDP market & current prices (Rs trillion)

31.5

35.9

41.3

47.2

53.2

58.6

GDP market & current prices ( US$ Billion)

701

810

913

1,175

1,166

1246

Population (million)

1,089

1,106

1,122

1,138

1,154

1,170

GDP current & market prices per capita (Rs)

28,894

32,430

36,802

41,506

46,107

50056

GDP current & market prices per capita (US$)

643

732

813

1,033

1,010

1065

Table B. Balance of Payments

US$ billion

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

Merchandise Exports

85.2

105.2

128.9

166.2

175.2

188.9

Merchandise Imports

118.9

157.1

190.7

257.8

294.6

306

Merchandise Trade Balance

-33.7

-51.9

-61.8

-91.6

-119.4

-117.1

-4.80%

-6.40%

-6.80%

-7.80%

-10.20%

-9.40%

Net Invisibles

31.2

42

52.2

74.6

89.6

92.2

o/w Software & BPO

14.7

23.8

27.7

37.3

45.2

47.3

Private Remittances

20.5

24.5

29.8

41.7

44

50.4

Investment Income

-4.1

-4.1

-6.8

-4.3

-4

-6.1

Current Account Balance

-2.5

-9.9

-9.6

-17.03

-29.8

-25

-0.40%

-1.20%

-1.00%

-1.40%

-2.60%

-2.00%

Foreign Investment

13

15.5

14.8

45

3.5

46.9

o/w FDI (net)

3.7

3

7.7

15.4

17.5

22.8

Inbound FDI

6

8.9

22.7

34.2

35

36.9

Outbound FDI

2.3

5.9

15

18.8

17.5

14.1

Portfolio Capital

9.3

12.5

7.1

29.6

-14

24.1

Loans

10.9

7.9

24.5

41.9

5

8.7

Banking Capital

3.9

1.4

1.9

11.8

-3.4

2.9

Other capital

0

1.2

4.2

9.5

4.2

-1.1

Capital Account Balance

28

25.5

45.2

108

9.1

57.3

4.00%

3.10%

5.00%

9.20%

0.80%

4.60%

Error& Omissions

0.6

-0.5

1

1.2

0.6

-0.8

Accretion & Reserves

26.2

15.1

36.6

92.2

-20.1

31.6

3.70%

1.90%

4.00%

7.80%

-1.70%

2.50%

Memo

GDP mp Rs crores

3149407

3586743

4129174

5321753

5321753

5856569

US$ billion

701

810

913

1166

1166

1246

Forex rate (Rs per US$)

44.93

44.27

45.25

45.63

4563

47

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