Economics & Politics

Present Tense, Future Uncertain: Short term outlook for Indian economy in 2012

The annual India Economic Survey survey report for 2012 has been released by RBI (Reserve Bank of India). Despite the positive spin of Finance Ministry and darker global economic situation which makes Indian situation look comparative better, the situation is not very comforting.

  • We are not going to catch-up with China soon – Double digit GDP growth no where in sight.
  • Per Capita Income is increasing significantly, but so is Inflation & Interest Rates – Net Net the economic prosperity is still eluding major portion of growing Indian population.
  • Savings rates are down and so is capital formation rate
  • Fiscal situation is not comforting at all, deficit is widening.

Some questions:

  • What is the plan for achieving double digit growth rate? What is going to fuel the Indian  economic growth in the short & medium term future.
  • Where will the Indian Govt. get money from for its pet wasteful projects?
  • If they do keep diverting the resource from capital investment and on long term growth factors for the populist & wasteful schemes designed by unaccountable charlatans in NAC, is there any hope for fiscal discipline in India?
  •  If Govt. keeps eyes closed on the fiscal discipline area, is there any back-up plan in case the global slowdown turns into a 1930’s style large scale & long term recession?

Okay that was my rant about the economic situation as we await for the Budget speech from Finance Minister. This is what the RBI’s report says about the economic situation.

  • Managing growth and price stability are the major challenges of macroeconomic policy making. In 2011-12, India found itself in the heart of these conflicing demands.
  • The Indian economy is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. This indicates a slowdown compared not just to the previous two years but 2003 to 2011 (except 2008-9). At the same time, sight must not be lost of the fact that, by any cross-country comparison, India remains among the front-runners. With agriculture and services continuing to perform well, India’s slowdown can be attributed almost entirely to weakening industrial growth. The manufacturing sector grew by 2.7 per cent and 0.4 per cent in the second and third quarters of 2011-12.
  • Inflation as measured by the wholesale price index (WPI) was high during most of the current fiscal year, though by the year’s end there was a clear slowdown. Food inflation, in particular, has come down to around zero, with most of the remaining WPI inflation being driven by non-food manufacturing products. Monetary policy was tightened by the Reserve Bank of India (RBI) during the year to control inflation and curb inflationary expectations. The slowing inflation reflects the lagged impact of actions taken by the RBI and the government. Reflecting the weak manufacturing activity and rising costs, revenues of the centre have remained less than anticipated; and, with higher than-budgeted expenditure outgo, a slippage is expected on the fiscal side.
  • The global economic environment, which has been tenuous at best throughout the year, turned sharply adverse in September 2011 owing to the turmoil in the euro zone, and questions about the outlook on the US economy provoked by rating agencies. However, for the Indian economy, the outlook for growth and price stability at this juncture looks more promising. There are signs from some high frequency indicators that the weakness in economic activity has bottomed out and a gradual upswing is imminent.

One thought on “Present Tense, Future Uncertain: Short term outlook for Indian economy in 2012

  1. Pingback: India’s Growth Trends: Interesting story so far… « For Whatever It's Worth…

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