Finance Minister Shri
Pranab Mukherjee inaugurated the Annual Economic Editors’ Conference, here
today. Following is the
text of his address:
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.
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.
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.
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.
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.
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.”
