Key Points: India’s Economic Outlook For 2011-2012

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Aug. 5 – India’s Economic advisory council has released its outlook for the year 2011-12. Some vital points are given below:

  • Economy is expected to develop at 8.2 percent in 2011-12.
  • Agriculture grew at 6.6 percent in 2010-11. Likely to nurture at 3.0 percent in 2011-12.
  • Industry grew at 7.9 percent in 2010-11. Likely to nurture at 7.1 percent in 2011-12.
  • Services grew at 9.4 percent in 2009-10. Likely to nurture at 10.0 percent in 2011-12.
  • The expected growth rate of 8.2 percent, although inferior than the earlier year, must be treated as high and respectable, given the current world situation.
  • The global economic and financial situation is not likely to improve according to the outlook.
  • To keep the economy growing at 9 percent it is significant to boost fixed investment rates.
  • Investment rates are expected at 36.4 percent in 2010-11 and 36.7 percent in 2011-12.
  • Domestic savings rates as a ratio of GDP are likely at 33.8 percent in 2010-11 and 34.0 percent in 2011-12.
  • The 2011 monsoon is anticipated to be in the range of 90 percent to 96 percent of Long Period Average. As a result, farm sector output is expected to grow at 3 percent.
  • The revised series (2004/05) for Index of Industrial Production shows an output growth pattern that is fairly different from what the old series (1993/94) had indicated.
  • The output growth was grossly underestimated by the old series in 2007-08 and overestimated in 2008-09 and 2009-10.
  • The impact of the Global Financial Crisis on industrial output was much stronger than had been indicated by the old series.
  • In 2010-11 the output growth was higher at 8.2 percent against 7.8 percent indicated by the old series.
  • Current Account deficit is US$44.3 billion (2.6 percent of GDP) in 2010-11 and likely at US$54.0 billion (2.7 percent of GDP) in 2011-12.
  • Merchandise trade deficit is US$130.5 billion or 7.59 percent of GDP in 2010-11 and projected at US$154.0 billion or 7.7 percent of GDP in 2011-12.
  • Invisibles trade surplus is US$86.2 billion or 5.0 percent of the GDP in 2010-11 and projected at US$100.0 billion or 5.0 percent in 2011-12.
  • Capital flows registered at US$61.9 billion in 2010-11 and are projected at $72.0 billion in 2011-12.
  • FDI inflows projected at US$35 billion in 2011-12 against the level of US$23.4 billion in 2010-11.
  • FII inflows projected to be US$14 billion which is less than half that of the last year’s US$30.3 billion.
  • Accumulation to reserves was US$15.2 billion in 2010-11 and is projected at US$18.0 billion in 2011-12.
  • The headline inflation rate would continue to be at 9 percent in the month of July-October 2011. There will be some relief starting from November and will decline to 6.5 percent in March 2012.
  • Available food stocks are to be freely released.
  • Significant role for fiscal policy to contain demand pressure. Need to ensure that fiscal deficit does not surpass the budgeted level.
  • RBI will have to persist to follow a tight monetary policy till inflation shows definite signs of decline.
  • Achieving fiscal targets set in 2011/12 budget estimates to present a significant challenge.
  • Government to redouble efforts to collect larger revenue, resolve cases to reduce tax arrears.
  • Minimize avoidable expenditures and initiate measures to increase revenues.
  • Resolve issues with states and introduce Goods and Services Tax.
  • Reforms in power sector distribution system to limit the liabilities of state governments.

Dezan Shira & Associates is boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. To contact the firm, please email india@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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