The Economic Survey for 2011-12 has said putting the economy back on a nine per cent growth rate trajectory would not be possible even in 2013-14.
The survey has blamed the euro zone crisis, high interest rates and the slow investment rates for the slow growth this financial year, compared to expectations of nine per cent growth.
The survey said economic growth this financial year would stand at 6.9 per cent, the slowest in nine years, except 2008-09, when the economy grew 6.7 per cent.
For the next financial year, it estimated growth at 7.6 per cent (+/- 0.25 per cent), while for 2012-13, growth was estimated at 8.6 per cent.
“With the exception of 2008-09, growth in real GDP (gross domestic product) in 2011-12 has been the slowest in nine years. This speaks well of the last nine years, but it must also be treated as a wake-up call,” the survey cautioned.
Bureaucrats had exercised caution on decision making, owing to high-profile corruption scandals, This, along with the “welcome” civil society activism, was also responsible for the slackening growth, the survey said.
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Constraints of coalition politics and federal considerations have held up reforms like foreign direct investment in multi-brand retail.
Diesel and LPG pricing, the Goods and Services Tax and the Direct Taxes Code have also been stalled by these, and this had taken a toll on the growth process, the survey said. It however, added this argument could easily be challenged.
The approach paper to the 12th Five-Year Plan had called for average annual growth of nine per cent. This means for the desired results, during the last three years of the Plan period, growth per year would have to stand at more than nine per cent.
At a press conference, Chief Economic Advisor Kaushik Basu said he thought the approach paper’s target was reasonable. When asked whether the economy would grow at over nine per cent in the last three years of the Plan period, he said, “The answer is yes.”
The Reserve Bank of India’s tight monetary policy had slackened investment and industrial growth this financial year, since the central bank’s steps involved demand compression in the short run. As interest rates rose, the investment rate declined significantly, owing to higher costs of borrowing. Both gross capital formation and the savings rate are estimated to decline this financial year, compared to the previous one.
| SLOWDOWN HITS HOME GDP at factor cost by industry origin | ||||
| At current prices | 2010-11 | 2011-12 | ||
| GDP Rs crore | Growth* (%) | GDP Rs crore | Growth* (%) | |
| Agriculture, forestry & fishing | 1,461,095 | 6.8 | 1,650,396 | 1.9 |
| Manufacturing, construction | 1,749,648 | 7.4 | 1,969,883 | 4.5 |
| Trade hotels, transport & communication | 1,755,531 | 11.1 | 2,084,171 | 11.2 |
| Financing, insurance, real estate & business services | 1,170,522 | 10.4 | 1,395,853 | 9.1 |
| Public administration, defence & other services | 1,020,616 | 4.5 | 1,179,672 | 5.9 |
| GDP at factor cost | 7,157,412 | 8.4 | 8,279,975 | 6.9 |
| *Annual growth over previous year | ||||
The high inflation compressed household savings, while low corporate savings led to a fall in the overall savings rate, though government savings registered an increase.
With inflationary pressures set to ease in the coming months, there could be a reduction in policy rates by the central bank.