Ashok Handoo writes: As we move into the New Year, it is time to take stock of the state of our economy-the achievements in 2010 and the challenges we face in 2011.The most outstanding achievement has been the recovery from the economic slowdown that we have been facing since 2008, as a consequence of the global downturn. It is now being recognised the world over that the management of our economy during this period has been appreciable and we have been able to minimise the effects of global recession on our economy. India continues to be the 2nd fastest growing economy of the world.
In 2010 the recovery has been particularly fast. Exports have been increasing at a good speed, industrial growth has gone into double digit once gain and overall growth rate is impressive. Growth in the third quarter was impressive 8. 9 percent. What is more important is that it has been broad based covering all the three sectors, agriculture, industry and services. Foreign exchange reserves have swelled by $11 billion to nearly $300 billion.
But the most significant challenges that we have been facing are the inflation, particularly the food inflation and the fiscal deficit. The year started with as high as 17 percent food inflation. Inflation has already come down substantially, and it is expected to stabilise at 5.5 percent by the end of this fiscal. What is worrying is the food inflation, which after coming down to single digit mark, has again moved into the double digit zone, recently. It crossed 12 percent mark recently. This has been affecting the poorer sections of the society hard.
The Government on its part has been dealing with the problem as a high priority agenda item. It has banned the export of pulses indefinitely, and allowed duty free imports up to March 2012. Additional quotas of rice and wheat are being released to states for both below and above poverty line consumers to be distributed through the public distribution system. Similar steps have been taken with regard to some other food items. The purpose is to deal with the problem on the supply side.
On the demand side, the Reserve Bank of India has been taking fiscal and monetary measures all through the year to regulate money supply and thereby influence the demand. It has raised the key interest rates 6 times during the year and continues to keep a close watch on the situation.
Industrial growth touched 10.8 percent, after a gap of 3 months. It had come down to as low as 4.39 percent in August. Manufacturing sector which accounts for 80 percent of our industrial production too has been doing well.
Rising global oil prices has been one of the most important factors leading to inflationary pressures. During 2010, international oil prices increased by over 15 percent touching well over $91 a barrel in December, and the count goes on. This is only a little lower than the 26- month old high we have seen. It may well touch $100 mark in due course of time. Since India imports 70 percent of its oil requirements, the effect is all pervading. By selling oil at less than the market price, our oil companies have suffered an aggregate loss of over Rs.68, 369 crore during the current fiscal so far.
The debt crisis in Europe has also been affecting our economy, much because Europe is one of the most important trading partner for India. How things pan out there in the coming months will have a bearing on us too.
On the fiscal deficit front, the Government is confident that it will be able to contain it at 5.5 percent by the end of the current fiscal. Judging by the current performance, that seems achievable.
The declining trend in Foreign Direct investment too needs to be corrected. There is however a silver lining that the international companies in India are reinvesting funds in Indian ventures to expand capacity. The NRI inflows which were 22 percent less in 2009-10 compared to the previous year also need to be encouraged through various policy decisions.
Despite all these odds the economy is expected to grow at an impressive rate of about 9 percent this fiscal, though the Finance Minister Shri Pranab Mukherjee sticks to his earlier estimate of 8.7 percent rate. As the Home Minister Shri P. Chidambaram put it, the average growth rate during the UPA 1, has been 8.5 percent, 7.4 percent in the first year of UPA II and the second year is poised for 9 percent growth, much above the earlier performance. Coupled with this, if food inflation comes down to reasonable levels and both overall inflation and fiscal deficit are curtailed at 5.5 percent as estimated in the budget, that should augur well for the New Year and beyond and enable us to pursue our goal of inclusive growth.
As a long term policy, we need to take a number of steps to improve the health of our economy. On top is the introduction of modern farming technologies, revamping of the public distribution system to do away with the loopholes which lead to pilferages and tackling subsides which take away a large portion of our revenues. All this calls for economic reforms which need to be undertaken sooner than later. The outlook is promising, indeed.