Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister released the document ‘Review of the Economy 2011-12’ at a Press Conference in New Delhi today. Following are the highlights of the document:

Review of the Economy 2011-12

• The rate of growth in 2011-12 is now estimated at 7.1%, which is marginally higher than the projection of 6.9% as per the Advance Estimates (AE). The Council projects a slightly higher growth for agriculture and construction than the Advance Estimates.
• Investment activity has slowed down and as a result the Gross fixed Capital formation (GFCF) for 2011/12 has slipped to 29.3 per cent, a decline of almost 4 percentage points over the last four years.
• Global economic and financial conditions likely to remain under pressure during the year.
• Overall farm sector GDP growth for 2011/12 will average 3 per cent, riding high on record outputs for rice, wheat and strong trend growth in horticulture and animal husbandry.
• Mining and quarrying sector likely to report negative growth for 2011/12 on account of weak coal output growth, restrictions imposed on iron ore production, decline in natural gas production and negative growth in crude oil output.
• Electricity sector has performed well. It is expected to grow at 8.3 per cent during 2011/12.
• Manufacturing and construction have been sluggish during the first three quarters of 2011/12. This may show improvement in the last quarter. The overall growth rate will be 3.9 per cent and 6.2 per cent respectively.
• Strong growth in the services sector will continue with overall growth of 9.4 per cent for 2011/12.
• For the year as a whole the Balance of Payment (BoP) position will be tight, this clearly indicates the need to keep the Current Account Deficit (CAD) within limits.
  o CAD has weakened, averaging 3.6 per cent (annualized) of GDP in the first half of 2011/12.
  o CAD for the 2011/12 is projected to be 3.6 per cent.
• Headline inflation has shown decline since November 2011 and more strongly in January 2012. It is projected to be around 6.5 per cent at the end of March 2012. Policies-both monetary and other public policies seem to have had the desired effect.
• Sustained high food prices particularly on account of fruit, milk, eggs, meat & fish began to get passed into the price behaviour of manufactured goods.
• Year-on year inflation for manufactured goods rose from around 5 per cent in September 2010 to 8 per cent in September and October 2011.
• Expansion of the fiscal deficit beyond its budgeted estimate of 4.6 per cent of GDP -an area of concern. Government must strive to contain and improve the efficacy of subsidies.

Prospects for 2012/13

• Economy is likely to grow in the range of 7.5 to 8 per cent. Mining and manufacturing are expected to show substantial improvement in 2012/13 over the previous year.
• Inflationary pressure will continue to ease through 2012/13 and will remain around 5-6 per cent for the year.
• Vigil to be kept on food prices-focus on production as well as rolling out of adequate food logistics network.
• Greater need to invest in the infrastructure for both capacity creation as well as operational performance in coal, power, roads and railways.
• Need to make adjustments on sale of refined petroleum products to reduce the huge burden of subsidy.
• In the year 2012/13 CAD is projected to be around 3.0 per cent of GDP.
• Efforts be made to keep the CAD between 2.0 and 2.5 per cent of GDP over the medium term.
• Capital inflows particularly in the form of equity must be encouraged along with improved domestic conditions for investment and growth.
• Government must effectively lay out a road map to achieve fiscal consolidation.
• Government borrowing programme must not affect the financing needs of the private sector.
• For the overall macroeconomic stability, attention must be paid to prices, exchange rate and fiscal balances.

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Courtesy: pib.nic.in