New Delhi: India's economic growth will rebound to 7.6 percent in 2012-13 on the back of softening inflation and better industrial production, enabling it to play an active role on the world stage and influencing international trade, capital flows and governance of global financial institutions, the Economic Survey 2011-12 said.
The survey, tabled by Finance Minister, Pranab Mukherjee, in parliament, projected 8.6 percent expansion in the country's Gross Domestic Product (GDP) in 2013-14. "The economic growth is expected to remain at 7.6 percent, plus or minus 0.25 percent, in 2012-13 and it will improve further to 8.6 percent in 2013-14," said Chief Economic Advisor, Kaushik Basu.
The economy is estimated to expand 6.9 percent in the current financial year ending March 31. The survey, presented a day before the annual budget, said inflation will remain in the range of 6.5-7 percent by the end of March. It projected a further moderation in inflationary pressure in 2012-13.
"A favourable base effect in prices and continued global slowdown are expected to moderate inflation to around 6.5 to 7 percent by March and further moderate in the months ahead, barring unexpected shocks, such as oil prices in international markets. It may further moderate during 2012-13 due to tightening of monetary policy and other measures put in place by the government," the survey added.
Inflation in the current fiscal has largely been driven by high food prices. It had slipped to a low of 6.6 percent in January but rebounded to almost 7 percent in February. The survey, however, said fiscal consolidation was the only way to keep inflation down.
"But despite the low growth figure of 6.9 percent, India remains one of the fastest growing economies of the world as all major countries including the fast growing emerging economies are seeing a significant slowdown."
According to the survey, industrial production is likely to improve in the next financial year. The survey also touched on politically contentious issues like allowing foreign direct investment in multi-brand retail and reducing subsidies especially on diesel.
"Allowing FDI in multi-brand retail is one of the major issues in this sector. This could begin in a phased manner in the metros, with the cap at a lower level coupled with incentivizing the existing 'mom and pop' stores (kirana shops) to modernize and compete effectively with the retail shops, foreign or domestic," it said.
The decision to allow Foreign Direct Investment (FDI) in multi-brand retail was rolled back after a huge furore in the parliament with opposition and even key constituents of the United Progressive Alliance government vehemently opposing it.
Talking to reporters outside parliament shortly after tabling the annual document, the Finance Minister said the survey would help create healthy discussions but the government would not be able to implement it in totality. "The government may adopt few suggestions but one should not expect that the Budget will reflect the survey in its entirety," Mukherjee said.
The survey suggested that diesel price should be revised upward and taxes on diesel-run vehicles should be increased to control its misuse. "Diesel price adjustments have lagged international prices in recent years, and budgetary subsidies have ballooned. At the same time such low prices and subsidies are providing incentives for misuse," the document said.
Recognizing that self-interest drives a market economy, the survey said India will stagnate and remain in the grips of chaotic poverty in the absence of morality and persistence of graft.
"We now know that a market economy cannot function if people are totally self-serving," said the survey. "While self-interest is a major driver of economic growth, it is important to recognize that honesty, integrity, and trustworthiness constitute the cement that binds society."
As the country enters the 12th Five Year Plan April 1, the survey said, the challenges before it are to lay down a sound foundation with a major push for building infrastructure, building human capital and eradicating poverty and malnutrition.
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