Tuesday, November 29, 2011

Pranab Mukherjee presents a picture of the state of Indian economy

At the national convention of the office-bearers of the Indian Youth Congress entitled Buniyad, Union finance minister Pranab Mukherjee explained the Indian economic situation to the delegates.

He said that Indian economy also had to face the impact of the economic crisis in September 2008. It was at this juncture that the new formation of G20, which accounted for 85 per cent of the world output, came into existence. Though the impact on India was less, "we are not insulated," Mukherjee said.

He said that in the first quarter of 2008-09, the growth rate was 9 per cent, and it came down in the second quarter, and it seemed that the annual growth in 2008-09 would be less than 5 per cent. But it was the fiscal expansion policy of the government which prevented further deceleration, he said. The growth for 2008-09 was 6.8 per cent because of the fiscal stimulus.

He said that in 2009-10 the growth was 8 per cent and in 2010-2011 it was 8.5 per cent.

A second crisis emerged because of recession in Europe, North America and Japan. The International Monetary Fund revised its growth projection three to four times. Europe, the U.S. and Japan were growing at 1 1/2 per cent. Compared to that, the Indian economy is growing at less than 8 per cent. Chinese growth has come down from 12 per cent to 9 per cent.

Mukherjee said that between 1951-79, India grew at 3.5 per cent annually, in the 1980s it grew at 5.2 per cent, in the 1990s at 5.6 per cent, and in the last six to seven years around 9 per cent. We need to grow at 10 per cent to alleviate poverty, he said.

Mukherjee admitted that inflation was an issue of concern. It was 10 per cent in April 2010 and it came down to 9 per cent in 2011. The food inflation was 14 per cent but it has come down to 9 per cent in November and it should come down further to 6 per cent to 7 per cent But even that is high.

He said inflation was due to rise in oil prices, which stood at US$90 per barrel and in the last 11 months it grew to US$108-109 per barrel. As a result the under-recoveries for the oil marketing compoanies was Rs 1,32,000 crore. Petrol prices were raised in July 2010 and in June 2011.

Mukherjee said there was financialistaion of commodities. Some of the US$1200 billion which was injected into the economy by the governments in the US and elsewhere has not been used for investment but for speculation which led to rise in prices in metals, fuels and in food.

He said that the Congress government has tried to insulate the weaker sections and to provide subsidised essential commodities through the public distribution system (PDS). He said 6 crore families were targeted, which meant that 30 crore people would get help. But unfortunately, the PDS, which in the federal set up, falls to the state governments, failed to deliver because they did not build the infrastructure.

He said that FDI in retail would ensure building of cold storage chains and back-end infrastructure. He said FDI in retail will benefit farmers.

The other major problem he said was fiscal deficit. Many of the Eurozone countries were facing sovereign debt 110 per cent to 120 per cent of their GDP. He said, "We've been prudent."India's fiscal deficit stood at 6.8 per cent and it will be brought down to 4.8 per cent this fiscal.

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