Competitive Exams: Current Affairs 2011: State of Indian economy

State of Indian economy

In 2010 − 11, the economy grew by 8.5 per cent, which was in line with what was forecast by the Council.

It is, however, the structural factors at home that need to be attended to on a priority basis.

Fixed capital formation has weakened noticeably initial estimates for 2010 11 place it at not more than 29.5 per cent.

High rate of domestic inflation, excessive government debt and political instability have eroded business confidence impacting asset creation adversely.

A fixed investment rate of 33 per cent plus is needed to achieve a growth rate of 9 per cent. Domestic savings too has come down to 33.7 per cent in 2009 − 10 and is unlikely to be more than 34 per cent in both 2010 − 11 and 2011 − 12. The Council expects that the headline Wholesale Price Index based inflation rate would continue to be at 9 per cent or higher in July

August. Thereafter, it may start easing but even in December the headline inflation will remain high. However, in the last quarter of the year, inflation may come down:

The target rate for inflation for the year end is 6.5 per cent, slightly below the RBI's 7 per cent. On government finances, although the Centre and the States have made substantial progress towards fiscal consolidation, the Council feels that achieving the targets set in the 2011 − 12 budget estimates will present significant challenges. Structural reforms in the finances of the Centre and the States are necessary.

In the short term, the challenge in the case of the Centre is the rising crude oil bill, which creates an upward pressure on the subsidy bill, while lower taxes on crude and diesel are impacting revenues. In the case of State governments, the deteriorating finances of the electricity utilities are creating substantial liabilities. In the medium tem, several social sector legislations will place a huge financial strain on the government.

It is imperative to introduce expenditure reform and initiate steps to augment revenue. According to the Council, introduction of the Direct Taxes Code will be useful but the real gain will come from the introduction of the Goods and Service Tax (GST). ‘’

Courtesy: The Hindu and Times of India