Economic Survey 09-10

8/8/2019 Economic Survey 09-10

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What is an Economic Survey?

Economic survey is an annual commentary on the state of the economy of India which is put together by Finance

Ministry of India. It is a document which presents economic development during the course of the year. The draft

of the survey is prepared by Department of Economic Affairs and cleared by Chief economic Advisor and the

secretary Economic Affairs. The final version is vetted by Finance secretary and Finance Minister.

When an Economic Survey is presented?

Economic survey is presented every year shortly before presenting the Union Budget of govt. of India, or just afterthe railway budget. Out of the 10 to 11 chapters presented, the first chapter which is titled State of the Economy

and prospects deals in detail with overall macroeconomic performance of the country.

What is the objective of an Economic Survey?

An economic Survey provides an opportunity for the government of India to spell out its economic agenda. The

govt. also represents its issues and priorities.

GDP Outlook

Introduction:

Year 2009-10 started as a difficult Year for Indian economy. The Global Economic Slowdown had retarded the

growth of our economy more prominently in the second half of 2008-09. This was a time when the Global Financial

crisis was at its full swing and had spread its tentacles to all parts of the word.

Base year:

Here, a point has to be noted that with the release of the quick estimates of National Income for year 2008-09, the

central statistical organization (CSO) and changed the base year of its NAS (National Accounts Statistics) from

1999-2000 to 2004-05.

Growth Projects:

1. The overall growth of GDP at factor Cost at constant prices in 2008-09 as per revised estimates released by theCentral statistical organization was 6.7 %.

2. The turnaround in the Indian economy came in the second quarter of 2009-10 when Indias economy grew by 7.9%.

3. As per the advance estimates for GDP for 2009-10 released by the central statistical organization the economy isexpected to grow at 7.2% in 2009-10.

4. Industry and service sectors are expected to grow by 8.2 & 8.7% respectively.5. The manufacturing sector had shown a declining trend for last 8 quarters (since 2007-08), but now has got some

momentum.

6. There was also a decline of agricultural output by 0.2 % in 2009-10 due to poor Monsoons.7. The economic survey expected that economy is likely to grow by 8.75% in 2010-11 and return to 9% growth in

2010-12. Following chart shows the growth ofGDP (at Factor Cost 2004-05 prices)


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8. Over all Savings rate for 2008-09 is 32.5% of GDP which is slightly less than the previous year 2007-08 (34.9%).The Capital Formation rate for 2008-09 is 34.9% of GDP which is too slightly less than last year 2007-08 (37.7%)

Per capita National Income for the Year 2009-10 is Rs. 43749 (factor cost at current prices) compared to Rs. 40141

for the previous year 2008-09. The following graphic shows the trend of the per Capita Net National Income:

Per Capita Income Growth:

1. The growth rates in per capita income and consumption are the gross measures of welfare in general. Thepercapita income as well as consumption has increased, yet the growth in these two parameters has decreased.

This reflects the decline in overall GDP growth.

2. Growth in per capita income in 2007-08 was 8.1% which declined to 5.3% in 2009-10.


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3. Growth in percapita consumption was 8.3% in 2007-08 which has declined to 2.7 % in 2009-10.4. The following graphics show the trend of the per capita income and consumption at 2004-05 market prices.

Survey Recommendations and Important Notes:

1. The Survey recommended a gradual roll back of fiscal stimulus measures undertaken over the last 15-18 months.The prime ministers Economic Advisory Council had also suggested the partial rollback of stimulus measures.

2. The Survey warns a "higher-than-anticipated" general level of inflation.3. The Survey recommended effective steps to be taken to remove supply-side bottlenecks together with other

policies.

4. The survey recommended that there is a need for improving government finance by raising tax and non taxrevenues and controlling deficit.

5. The economy is projected to grow by 7.2 per cent this fiscal with industrial and services sectors growing at 8.2 and8.7 per cent.

6. Survey says that full recovery is likely to be attained over the next two fiscals with up to 8.75 per cent growth in2010-11 and nine per cent in the 2011-12.

Agriculture, Forestry and Fishing

Introduction:

9. In 2009-10, the Agriculture, Forestry & Fishing shows a decline of 0.2% while Service Sector shows maximumgrowth. The overall sectoral growth (Agriculture) rate at factor cost at 2004-05 prices is shown as follows:


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10.

11. The growth rate of Agriculture, Forestry & Fishing, which is also known as primary Sector of our economy, was5.2% in 2005-06. In 2006-7 it declined to 3.7%. In 2007-08 is again rose to 4.7% and declined to 1.6% in 2008-

09. In 2009-10 due to the poor monsoon through out the country the sector growth went in the negative zone with

showing a negative 0.2% growth.

12. Crop Production in 2008-09:For three consecutive years, from 2005-06 to 2008-09 (fourth advance estimates), foodgrains production recorded

an average annual increase of over 8 million tonnes. Total foodgrains production in 2008-09 was estimated at

233.88 million tonnes as against 230.78 million tonnes in 2007-08. However, the production of major commercial

crops (oilseeds, sugarcane, cotton, jute and Mesta) declined in 2008-09 compared to 2007-08 levels.

13. Crop Production in 2009-10:As per the first advanced estimates which cover only Kharif crop, the production of food grains is estimated at

98.33 million tones, as against fourth advanced estimates of 2008-09 and target of 125.15 million tonnes for 2009-

10. Thus, there is an overall there is a decline of 18.51 million tonnes over 2008-09.

14. Rice : As per the first advance estimates, the production of kharif rice is at 71.65 million tonnes in 2009-10, adecrease of about 15 per cent over 2008-09 levels and 17 per cent over the target for 2009-10.

15. Coarse Cereals : Total Kharif production of coarse cereals in 2009-10 is expected to decline to 22.76 milliontonnes against 28.34 million tonnes in 2008-09 and a target of 32.65 million tonnes for Kharif 2009-10.

16. Cereals : The overall production of Kharif cereals in 2009-10 is expected to decline by 18.51 million tonnes over2008-09.


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17. Pulses : Total production of Kharif pulses is estimated at 4.42 million tonnes in 2009-10, which is 8 per cent lowerthan the production during 2008-09 and 32 per cent lower than the targeted production for 2009-10.

18. Oilseeds : Total Kharif production of the nine oilseeds is estimated at 152.33 lakh tonnes in 2009-10, which isabout 15 per cent lower than the Kharif production in 2008-09.

19. Sugarcane : Sugarcane production in 2009-10 is estimated at 249.48 million tonnes, which is lower than theproduction of 273.93 million tonnes during 2008-09. This represents a decline of 9 per cent over the previous year

and 27 per cent vis--vis the targeted production for 2009-10.

20. Cotton: Cotton production in 2009-10 is estimated at 236.57 lakh bales (of 170 kg each), which is higher than thefourth advance estimates of 231.56 lakh bales in 2008-09 by 2.2 per cent.

21. Jute and Mesta: The production of jute and mesta is estimated at 102.43 lakh bales (of 180 kg each) in 2009-10.This is lower than the targeted production of 112.00 lakh bales and also lower than the 104.07 lakh bales produced

in 2008-09.

Area Under Food crops:

5. The area coverage of 667.84 lakh hectare under total food grains during Kharif 2009-10 compared to 714.02 lakhhectare during Kharif 2008-09 shows a decline of 46.18 lakh hectare.

6. The area coverage under Kharif rice during 2009-10 is around 361.62 lakh ha, which is 44.85 lakh hectares lessthan the 406.47 lakh hectare during Kharif 2008-09.

7. The area coverage under oilseeds during Kharif 2009-10 is 175.19 lakh hectares, which is lower by 9.49 lakhhectare than Kharif 2008-09.

8. The area coverage under sugarcane during the current year is 41.78 lakh ha, which is also lower by about 2.18lakh hectare than that in the previous year.

Role of Poor Monsoon:

7. India received 23% less rainfall compared to an average rainfall (LPA) India has received. (it is called Long periodAverage LPA).

8. The central India experienced a 20% deficiency in the rainfalls, while, North east India experienced 27% decline,North West India experienced 36% decline (maximum) while Southern peninsula experienced 4% decline

(Minimum).

Seeds:

1. In India more than 4/5th of farmers rely upon farm saved seeds leading to a low seed replacement rate.2. The Indian Seed programme includes the participation of Central & state governments, ICAR, State sgricultural

Universities and the cooperative & private sectors.

3. India has 15 State Seed Corporations & 2 national level seeds corporations viz. National Seeds Corporation andState Farm Corporation of India.

Fertilizers: New programmes:


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1. A number of measures have been taken by Government of India to improve fertilizer appication in our country.2. In this context, National Project on Management of Soil Health & Fertility (NPMSF), has been introduced in 2008-09

with a view to setting up of 500 new Soil Testing Laboratories (STLs) and 250 Mobile Soil Testing Laboratories

(MSTLs) and strengthening of the existing State STLs for micronutrient analysis.

3. In order to ensure adequate availability of fertilizers of standard quality to farmers and to regulate trade, qualityand distribution in thecountry, fertilizers have been declared an essential commodity as per the Fertilizer Control

Order (FCO) 1985promulgated under Section 3 of the Essential Commodity Act 1955.

4. The procedure for incorporation of new products has been liberalized and simplified to encourage manufacture anduse of fortified fertilizers.

5. Eight fertilizers have been specified as fortified fertilizers in FCO 1985. To encourage balanced use of fertilizers, anew concept of customized fertilizers has been introduced.

6. These fertilizers are soil specific and crop specific. Organic fertilizers, namely city-based compost and vermincompost, and bio-fertilizers, namely rhizobium, azotobacter, azospirillum and phosphate solubilizing bacteria, have

been recognized and incorporated in FCO 1985.

Fertilizers : Consumption

1. The following Graphic shows the consumption of fertilizers in India for the 2009-10 (Only Kharif Season)

2. Overall Consumption: Over all consumption of fertilizers per hectare has increased steadily from 105.5 kgs in2005-06, to 111.80 in 2006-07, 116.80 in 2007-08 and 128.6 in 2008-09.

3. India's Total Consumption: India's total consumption of the fertilizers (N+P+K) has been 203.40 Lakh tonnes in2005-06, 216.51 lakh tonnes in 2006-07, 225.70 Lakh tonnes in 2007-08 and 249. lakhtonnes in 2008-09. For the

Kharif Season of 2009-10 , it is 132.25 Lakh Tonnes.


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Overall Sectoral Growth Figures

Industry & Infrastructure

Index of industrial production (IIP):

The index of Industrial production has shown a U shaped curvesince the first quarter of 2007-08. It was 11.6 % is

the end of 2006-07 which decreased steadily for 8 quarters to become 0.5% in fourth quarter of 2008-09. This

indicated the impact of recession on Indian Industry. Since last 3 quarters its has shown upward trend and in

October-November 2009, it reaches to 11.0 %, which indicated the recovery. The following graphic shows the

trend: (click for Clearer View)


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Various Components of IIP has grown

as follows: (click for clearer view)

CSOs advanced estimated place

industrial sector growth at 8.2% (against 3.9% in 2008-09)

22. The IIP Industrial Growth (Index of Industrial Production) is estimated 7.7% for April November 2009-10. This isup from 0.6 % during the same quarter of 2008-09. ]

23. The manufacturing sector has grown by 8.9% in 2009-10.Growth Pattern of industrial Groups:

9. Strong growth: Automobiles, rubber, plastic products, wool, silk , textiles, wood products, chemicals10. Moderate growth: nonmetallic mineral products11. No Growth :Papr, leather, food and Jute.12. Negative Growth: beverage and tobacco,

Growth pattern on Use Basis

9. Strong growth : Consumer durables and intermediate goods10. Moderate Growth : basic and capital goods11. Negative Growth: Consumer non durables.


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Service Sector:

4. Owing to a robust growth momentum of telecom service, the core industries and infrastructure services sectorgrew richly and the growth spread to power, coal, ports, cibvil aviation and roads.

Power:

7. During April December 2009, the peak deficit came down by 12.6 % and total energy deficit came down by 9.8%as compared to 13.8% and 10.9% respectively.

8. Thus the electricity generation has grown and over all PLF (Plant Load Factor) improved in 2009.9. This is partly attributed to availability of gas from the KG basin(D6) and surplus utilization of gas available on

fallback basis.

Crude Oil (Domestic Supply):

4. During 2009, the projected production for crude oil is 36.7mmt which is about 11 & higher than the actual cruideoil production of 33.5 mmt in 2008-09. (mmt=Million metric Tonnes)

5. This is partly attributed to discovery of 15 new oil and gas discoveries.Roads:

1. The stipulated target of developing the national highways under various phases of the National HighwaysDevelopment programme was 3165 kms.

2. The achieved development till November 2009 is 1490 kms (only)Telecom:

1. In India there were 54.6 million telephone subscribers in 2003. By the end of March 2009, this figure was 429.7million and grew robustly at 562 million by October 31, 2009.

2. Thus there was a 96 million subscribers during the period from march to December 2009.Service Sector:

1. Service sector has been Indias flag bearer for more than a decade continues to maintain that growth.2. The service sector has grown 8.7 % in 2009-10 as compared to 9.8% in 2008-09. Other subsectors have also

maintained the growth rate.

Pharmaceuticals:

1. The Indian pharmaceutical industry has become the third largest in world in terms of volume and ranks 14th interms of value at over Rs 1 lakh crore which humbly started from Rs. 1500 crore in 1980.

2. Exports of pharmaceuticals have consistently outstripped imports. India exports drug, intermediaries, activepharmaceutical ingredients (APO), finished dosage formulations, bio-pharmaceuticals and clinical services. The top

five destinations for such exports are the USA, Germany, Russia, the UK and China.

Notes on 3G Spectrum & BWA

1. 3G spectrum auction will open doors for foreign players in India. The upcoming auction of radio waves for the thirdgeneration mobile services will open the doors for foreign players to make an entry into fast growing Indian

telecom market.


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2. Launch of 3G Technology will provide existing operators a good opportunity as also foreign players to make anentry into the Indian market and bring in new technology and innovation.

3. There is no cap on the number of service providers in each circle. For the 3G telephony, the government isplanning to allow three to four private players in each circle depending upon the spectrum availability.

4. The auction of 3G and Broadband Wireless Access (BWA) spectrum scheduled to be held on April 9. Thegovernment had earlier indicated that interested foreign entities could take part in the auction directly.

5. The Survey said that the introduction of BWA services will enhance the broadband penetration in the country.6. The broadband subscriber base was 7.98 million by the end of December 2009.

Gross Domestic Savings

24. Gross Domestic Savings (GDS) at current prices in 2008-09 were Rs. 18,11,585Crore which amount to 32.5% ofGDP at market prices.

25. It was 36.4% in 2007-08.26. Thus there is a fall in the rate of Gross Domestic Savings.27. This fall has been attributed to the fall in the rates of savings of the public sector which stands at 1.4% in 2008-09

with respect to 5.0% in 2007-08.

28. The 32.5% growth is subdivided as follows:Public Sector : 1.4% + Private Sector: 31.1 %= Total : 32.5 %

29. The 31.1 % of Private sector savings has largest fraction of household sector (22.6% which amounts to 70% of thetotal private Sector), further the Financial saving is 10.4%, Saving in Physical assets is 12.2% and Saving in

Private Corporate sector is 8.4 %.

30. (Please note that here totals dont tally due to adjustments. )The following graphic shows the sectoral share:


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Capital Formation

31. The gross domestic capital formation (GDCF) (adjusted) as a percentage of GDP has steadily moved up from27.6% in 2003-04 to 37.7% in 2007-08.

32. For 2008-09 it is 34.9% of GDP. So it was highest in 2007-08 (37.7% ) and decreased in 2008-09. Out of this thepublic sector shares 9.4% while private sector shares 24.9 % (adjustments).

33. Out of 24.9 % of the private sector share, the household share in 12.2% while the corporate sector is 12.7%. Overall sectoral share in gross domestic capital formation is shown as below:

34. Ratio of Savings & Investment to GDP:The following table represents the ratio of Savings and Investment to GDP for last 5 years (figures in percent at

current market price) Please click for a clearer view


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Sectoral Investments

35. The overall growth of investment in India was in the range of 15-16% in last few years, however it plunged tonegative 2.4% in 2008-09 due to Global Economic crisis led slowdown.

36. Sectoral investment in agriculture grew by 26.0 % as compared to 16.5% of 2007-08 and thus there was arebound in investments related to agriculture.

37. In 2008-09 growth in the industrial sector investment declined by 17.6%. This decline was more prominent inmanufacturing and construction sectors.

38. In unorganized manufacturing sector the investment declined by 42%.39. In service sector there was a growth of 20.2 % in investment, which declined in 2007-08 and remained -16.0%.40. This was because of a decline in investment in the trade, hotels and restaurants (-21% in 2007-08) , however in

this subsector of trade, hotels and restaurant the growth in 2008-09 was 19.4%, which helped the overall growth

rate in investment to improve.

41. The Sectors and subsectors which have shown negative growth in investments in 2008-09 are Mining andQuarrying, Manufacturing (organized and unorganized) , Construction and Banking & Insurance subsector.

42. Compared to 34.1 % growth in investments in Communication subsector, this growth in investments in 2008-09was 65.1 %, which is highest in all subsectors investment growth rates at 2004-05 prices.


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43. The following table shows the sectoral investment growth rates at 2004-05 prices . Click for clearer view:

India's Monetary Policy

44. In the starting of 2009 the stance of the monetary policy was towards supporting the early recovery of the growthmomentum.

45. The monetary measures have been slow & sluggish as far as its impact on various segments of the economy isconcerned.

46. The measures taken by the monetary policy were successful in bringing down the lending rates , including BPLR(Benchmark Prime Lending Rates) , yet the decline of these rates was not sufficient in accelerating the demand for

the bank Credit.

47. The borrowers turned to alternate sources of money (cheaper finance) and banks flushed with liquidity (due tomonetary policy decisions) parked their surplus funds under the reverse repo window.

48. This means that in spite of the monetary policy being focused on maintaining a market environment which was tobring about a flow of credit to the productive sectors of the economy the growth of Bank Credit was low in 2009-

10.


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49. This was partly attributed to economic conditions prevalent during 2009-10. In addition, banks also reined in creditto the retail sector due to perceptions of increased risk on account of the general slowdown and to guard against

bad loans.

50. The bank credit increased by 17.5 % in 2008-09 partly due to above mentioned reasons against the growth of22.3% in 2007-08.

51. The above achieved growth rate was against Reserve Bank of India's set target of 20.0% credit growth for the year2009-10which the RBI had set in first quarterly review of the monetary policy.

52. In the second quarterly review of the policy RBI had cut down this target to 18.0 %. Still for the entire year, thetarget seems to be unachieved.

Deposit rates

13. Domestic Deposit Rates declined in 2009-10.14. The Interest rates offered by Public Sector banks on deposits of maturity of 1-3 years declined from 8.00-9.25 %

(March 2009) to 6.00-7.25 %. For on deposits with maturity longer than 3 years was from 7.50-9.00 % and

declined to 6.25-7.75%.

Lending Rates:

12. The benchmark prime lending rates (BPLRs) of the public sector banks too declined from the 12.25-13.50 % inMarch 2008 to 11.50-14.00 % in March 2009 and 11.00-13.50 per cent in December 2009.

13. This change is not a clear cut indication of changes in effective lending rates because 67% (in March 2009) whichgrew to 70.4% (in September 2009) fraction of the lending took place at sub BPLR rates.

14. This anomaly led the Reserve bank of India to constitute a Working group on BPLR which submitted its report inOctober 2009.

15. This working group has recommended that the system of BPLR should be scrapped and replaced with a Base Ratesystem.

16. This base rate will represent a bare minimum rate for lending below which lending will not be viable for thecommercial banks and thus it will bring more transparency in the lending & credit pricing.

17. This base rate will include all the cost elements which are common to all borrowers. The actual rate of lending maybe worked out as base rate plus borrower specific costs associated therewith.

Sectoral Deployment of credit:

5. Credit to the priority sector grew by 15.4 % (From November 2008 to November 2009). Credit to the agriculturerecorded a growth of 21.4 % against 23.0 % in March 2009 and credit to industry recorded a growth of 12.8 %

against 18.6 % in March 2009.

6. Public food procurement credit showed a percentage variation of 4.1% (from march 2008 to March 2009) to -15.3% (from November 2008-November 2009)


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Lending targets

10. The overall target set for priority sector lending was set 40% for year 2009-10. Out of 27 Public Sector banks 24could achieve this target and 3 banks could not achieve this target. Only 17 private banks (out of 22) could achieve

this target.

11. The target set for agricultural lending was 18% which was achieved by 14 public sector banks only.12. Only 15 Public sector banks (out of 27) achieved the target of 10% lending to the weaker sections of the society.

(all figures March 2009)

13. Various Policy measures were taken by the government to increase the lending and improve flow of credit.Performance of the banks:

6. As per the balance sheets of scheduled commercial banks in India of 2008-09 the performance of the banksremained robust while not competently insulated from the ripples of the economic slowdown, the consolidate

balance sheets of the scheduled commercial banks expanded by 21.2 % in March 2009 as compared to 25.0% in

2007-08.

NBFCs (Non Banking Financial Corporations)

3. Out of the total assets in the Financial System, NBFCs account for 9.1 % . To preserve the financial stability andkeep on the growth momentum RBI took some measures for NBFCs which include a single repo window under the

Liquidity Adjustment facility of RBI.

4. The total number of NBFCs registered with the Reserve Bank, consisting of deposit-taking NBFCs (NBFCs-D),residuary non-banking companies (RNBCs), mutual benefit companies (MBCs), miscellaneous non-banking

companies (MNBCs) and Nidhi companies, declined from 12,809 in end-June 2008 to 12,740 in end-June 2009.

5. The number of NBFCs-D also declined from 364 in end-June 2008 to 336 in end-June 2009, mainly due to the exitof many NBFCs from deposit-taking activity

Survey Notes:

3. On Bank Credit: The Survey says that the marginal decline in the lending rates of banks -- public, private andforeign -- was "not sufficient to accelerate the demand for bank credit."

4. On Indian Stock Markets: Survey mentions that Indian stock market aligning with global bourses. Domesticequity markets are fast integrating themselves with the major global peers, a trend that helped in larger capital

inflows from overseas investors during the current fiscal.

5. On Regulatory measures: The regulatory measures initiated were clearly in the direction of introducing greatertransparency, protecting investors' interest and improving efficiency in the working of the Indian equity markets,

while also ensuring soundness and stability.

6. On Recovery in Equity Markets: The equity markets, started on a subdued note in 2009 and remained rangebound during April-March last year, but after that it showed signs of recovery particularly May July 2009.


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7. This recovery has been particularly attributed to revival of foreign institutional investors' (FIIs) interest in emergingmarket economies, including India.

8. FIIs investment in equity market rose to Rs 83,424 crore in 2009 compared to withdrawals of Rs 52,987 crore in2008.

9. Total net investment by FIIs in equity and debt markets taken together, increased considerably to Rs 87,987 crorein 2009 compared to a net decline of Rs 41,216 crore in 2008.

Human Development, Poverty and Public Programmes

1. The HDI is based on three indicators, namely GDP er capita (PPP US $), life expectancy at birth, andeducation as measured by adult literacy rate and ross enrolment ratio (combined for primary, secondary

and tertiary education).

2. The value of HDI for India gradually increased from 0.427 in 1980 to 0.556 in 2000 and went up to 0.612in 2007.

3. The movement of the index value in some of the comparable countries indicates that improvement in HDIin India in recent years has been better than in most of them.

4. With a budgetary outlay of over Rs 70,000 crore on various poverty alleviation and employmentgeneration schemes, nearly four and half crore households have availed job opportunities.

5. During the year 2009-10, 4.34 crore households have been provided employment under the NationalRural Employment Guarantee Scheme (NREGS).

6. In the previous financial year, over 4.51 crore households were provided employment under the scheme7. As against the budgetary outlay of Rs 39,100 crore for 2009-10 for NREGS, an amount of Rs 24,758.50

crore has been released to the states and union territories till December 2009.

8. The current IMR stands at 53, substantially lower than the figure of 80 in 1991. Infant deaths to fall below30/1,000 live births by 2012. The survey says that with the gradual fall of crude birth and death rates,

the country expects to lower its infant mortality rate to below 30 per 1,000 live births by 2012. The survey

mentions the special role to be played by NRHM (National Rural Health Mission) which was launched in

2005.

9. India has successfully brought down its crude birth rate (CBR) to 22.8 in every 1,000 people from 29.5 in1991, this led to decrease in crude death rate (CDR) to 7.4 from 9.8 in 1,000 people in the same period.


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India's Trade Performance

53. Foreign Trade Policy of India 2009-14 had set a target of annual export growth of 15% with an export target US$200 Billion by March 2011.

54. However the government did not fix any export target for year 2009-10, because of global recession and uncertainsituation of the world trade.

55. Exports in April-December 2009 down 20.3 per cent.Imports in April-December 2009 down 23.6 per cent.

56. Gold and Silver imports registered a negative growth of 7.3%which is primarily on account of volatility in GoldPrices.

57. The following Graphic Shows Indias Overall Trade performance, (Click for a clearer View)

Indias Share in Worlds merchandise Trade:15. Indias share in world merchandise exports, after remaining unchanged at 1.1 per cent between 2007 and 2008,

reached 1.2 per cent in 2009 (January-June).

16. However this growth was attributed to to the relatively greater fall in world export growth than India.Changes in Export Composition:

18. There were substantial changes in the Composition of exports in 2008-09 and 2009-10(April- September) withthe fall in share of petroleum, crude and products and primary products resulting in corresponding rise in share of

manufactured goods.


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19. The share of petroleum, crude and products fell from 17.8 % in 2007-08 to 14.9 % in 2008-09 and 14.2 % in thefirst half of 2009-10, while the share of primary products fell from 15.5 % in 2007-08 to 13.3 % in 2008-09 and

further to 12.7 % in the first half of 2009-10.

20. The share of manufactured exports increased by 2.3 percentage points to 66.4 % in 2008-09 and further to 9.2 %in the first half of 2009-10

Changes in Import Composition:

7. Due to growing domestic concerns like inflation, the share of food and allied products imports which fell from 2.3%in 2007-08 to 2.1% in 2008-09 increased to 3.5% in the first half of 2009-10 with the increase in imports of edible

oils and pulses.

8. The share of fuel imports fell from 34.2% in 2007-08 to 33.4% in2008-09 and 33.2% in the first half of 2009-10.Survey Recommendations:

14. Survey said that India is now a part of one of the big economies of the world and the country was one among thosewho were least affected by the economic crisis.

15. Our Foreign Trade is looking up and there are prospects of recovery in the world output and trade volumes.Downside Risks:

7. The survey said that the economic fall has been arrested but still there are downside risks .8. There are risks as the recovery has been pumped up by stimulus given by different countries and India is also one

among them.

9. If the natural recovery does not come up, the effects of the pumped up stimulus may dry up.

India's Foreign Exchange Reserves

58. Indias foreign exchange reserves comprise foreign currency assets (FCA), gold, special drawing rights (SDRs) andreserve tranche position (RTP) in the International Monetary Fund (IMF)

59. Indias Foreign exchange reserves stood at US$ 283.5 billion at the end of December 2009.60. It was US$ 252 billion at the end of financial year 2008-09 i.e. March 2009.61. 35.6 % of this growth of US$ 31.5 billion i.e. US$ 11.2 Billion was attributed to higher inflows under FDI, and

portfolio investments (BoP basis excluding valuation effect), while 64.4% attributed to valuation gain due to a

weak US dollar against major currencies.

62. In this way credit for two out of every three of these dollars go to the rupee appreciation.63. The Indian Rupees sharp appreciation against dollar contributed $20.3 billion or 64.4 per cent to the total

accretion in forex reserves till December 2009 in the current fiscal.

Recent Developments:

In 2009-10, three major developments have taken place in the area of foreign exchange reserves management.


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First Development:

17. The first development is related to investment of foreign exchange reserves in infrastructure projects. It wasannounced in Budget 2007-08 that part of the foreign reserves will be used for financing domestic infrastructure

requirements without the risk of monetary expansion.

18. In this regard India Infrastructure Finance Company Ltd was set up as a WOS (Wholly Owned Subsidiary)ofReserve Bank of India in 2008 (April).

19. This subsidiary is called IIFC (UK) and it will borrow up to US$ 5 billion in trenches from the RBI by issuing USdollar denominated bonds .

20. This borrowed money will be used as resource to lend the Indian infrastructure companies for meeting their capitalexpenditures outside India.

21. It has already raised the first tranche of US$ 250 million.Second Development :

21. Second development was IMFs allocation of SDRs to member countries including India.22. A general allocation of SDRs for an amount equivalent to US$ 250 billion and a special SDR allocation pursuant of

the fourth amendment of the IMFs Articles of Agreement, amounting to US$ 33 billion, was made by the IMF to

member countries on August 28, 2009 and September 9, 2009 respectively.

23. India received SDR 3,082 million (equivalent to US$ 4,821 million) under general allocation and SDR 214.6 million(equivalent to US$ 340 million) under special allocation from the IMF. These SDR allocations have resulted in an

increase of US$ 5.2 billion in Indias foreign exchange reserves.

Third Development:

9. The third major development was the purchase of gold from the IMF by the RBI.10. Reserve Bank of India which recently purchased a 200 metric tonnes of Gold from IMF under the Limited Gold

Sales programme of IMF at the cost of USS6.67 Billion in November 2009.

Trend

The trend of growth of Indias Forex Reserves are shown in the following graphic:


20/20

Please note that as of December 2009 India's had fifth largest Foreign Exchange Reserves in the world.

Survey Notes:

16. India had pledged her bullion two decades ago to pay for imports. Please note that India had to pledge her gold tothe Bank of England in 1991 to pay for its imports.

17. 2009-10 saw India becoming the world's 10th largest gold-holding country.18. The government's purchase of 200 tonnes of gold from the International Monetary Fund took its total reserves to

557.7 tonnes, or about 6 per cent of total foreign exchange reserves.

Economic Survey 09-10

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Transcript of Economic Survey 09-10