Indian Finance Minister Pranab Mukherjee says the current slowdown in domestic economy is "temporary" and that the economy will soon revert to the path of higher growth trajectory
“ The current slowdown in domestic economy as temporary and exuded confidence that the economy will soon revert to the path of higher growth trajectory."- Pranab Mukherjee
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Macroeconomic Environment >> All components of domestic demand (private and government, consumption and investment) have decelerated. >> Inflationary pressures remain elevated, driven by a host of factors. Exchange rate depreciation has inflationary implications. The increase in petrol and diesel prices and minimum support prices appears to be neutralising the demand moderating impact of monetary policy measures. >> Risks to the external sector have risen as imports remain high while there is some slowdown in exports. >> The fiscal position remains challenging. The additional demand for supplementary grants points to the risk of slippages. Financial Markets >> Indian markets, particularly, equity and currency markets, remained volatile during the period under review affected by adverse developments abroad. >> Currency depreciation has been the sharpest in those countries among emerging markets which have external deficit, including India, compared to those countries which have surpluses. This would impact the Indian economy through various channels:
>> Some issues in the equity market microstructure, particularly in the derivatives segment warrant monitoring Source: RBI’s FSR- December 2011 |
The global economic slowdown and the Eurozone crisis couple with high inflation rate had a direct bearing on the Indian economy during 2011, though she did better than most emerging economies.
If this was not enough, policy paralysis, successive weakening of the rupee, rising cost of raw material and a spate of interest rate hikes had a direct negative impact on the core sector growth.
The only silver lining was, contrary to the apprehension the export sector more or less maintained the growth momentum, even as prices at the fag end of the year started easing.
According to Commerce Secretary Rahul Khullar Indian exports is within the realm of possibility to reach the annual export target of $300 billion this year and take it to the level of $450 billion by 2013-14.
"The external environment is not good - especially in the European Union and the United States. The next two years are going to be difficult.
There are going to be cutbacks in government expenditure, exchange rate fluctuations and financial sector problems," he cautioned while asserting that Indian exporters should gain competitiveness by reducing the cost of doing business and explore new markets in Africa and Latin America to offset the impact of export fall in Europe and the US.
Aviation, mining, automobiles, construction and manufacturing were, in particular, affected by the downturn and reported a retarded growth in India's Gross Domestic Product (GDP).
In the first quarter of this fiscal (2011-12), the growth declined to 7.7%, compared to 7.8% in the January-March quarter, and 8.3% in the previous three-month period. The growth slumped further to 6.9% in July-September.
In the first half of 2011-12, the GDP growth fell to 7.3% against the budgetary target of around 9% for the current fiscal and 8.6% registered in the corresponding period of last year.
The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5%. In the union budget, he had set the target of 9% (plus or minus 0.25%). The economy grew 8.5% in 2010-11.
In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1% in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25%.
The Finance Minister in his latest statement has termed the current slowdown in domestic economy as "temporary" and exuded confidence that the economy will soon "revert to the path of higher growth trajectory".
Mukherjee made this statement while addressing the fourth meeting of the Consultative Committee attached to the Ministry of Finance.
The subject matter of the meeting was 'Present State of the Indian Economy and the Roadmap for Future'.
Mukherjee said the domestic economy has been affected due to euro-zone crisis, downturn in external demand resulting in slowdown in exports, currency volatility and current account deficit.
"It was, however, reassuring to note that the pause in the Indian growth story was brief," Mukherjee said.
He said food inflation has come down to 1.8% with moderation in inflation in general and savings rate had also gone up.
