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Despite Difficult Global Environment, India to be the Fastest Growing Economy in World

[vc_row][vc_column width="1/1"][vc_column_text]New Delhi: The Economic Survey 2015-16 presented here today in the Parliament by the Union Finance Minister Shri Arun Jaitley emphasizes that Indian economy will continue to grow more than 7 percent for the third year in succession in 2016-17 helped by a normal monsoon, despite global meltdown. The Economic Survey (2015-16) states that due to Government’s commitment to carry the reform process forward, conditions do exist for raising the economy’s growth momentum to 8 percent or more in the next couple of years. The survey underlines that despite global headwinds and a truant monsoon, India registered 7.2 per cent growth in 2014-15 and 7.6 per cent in 2015-16, thus becoming the fastest growing major economy in the world. The Survey points out that the growth in agriculture sector in 2015-16 has continued to be lower than the average of last decade, mainly on account of it being the second successive year of lower-than-normal monsoon rains. As per the information of the Department of Agriculture, Cooperation and Farmers Welfare for 2015-16, the production of foodgrains and oil-seeds is estimated to decline by 0.5 per cent and 4.1 per cent respectively, while the production of fruits and vegetables is likely to increase marginally. A brighter picture is expected to emerge from the allied sectors consisting of livestock products, forestry and fisheries with a growth exceeding 5 per cent in 2015-16, which will provide some impetus to rural incomes. Growth in industry is estimated to have accelerated during the current year on the strength of improving manufacturing activity. The private corporate sector, with an around 69 per cent share of the manufacturing sector, is estimated to grow by 9.9 per cent at current prices in April-December 2015-16. The Index of Industrial Production (IIP) showed that manufacturing production grew by 3.1 per cent during April-December 2015-16, vis-à-vis a growth of 1.8 per cent in the corresponding period of the previous year. The ongoing manufacturing recovery is is aided by robust growth in petroleum refining, automobiles, wearing apparels, chemicals, electrical machinery and wood products including furniture. Apart from manufacturing, the other three segments of the industry sector- electricity, gas, water supply and related utilities, mining and quarrying and construction activities are witnessing a deceleration in growth. The Survey underlines that the growth in the services sector moderated slightly, but still remains robust. Being the main driver of the economy, the sector contributed about 69 per cent of the total growth during 2011-12 to 2015-16 and in the process expanding its share in the economy by 4 percentage points from 49 to 53 per cent. The Survey in its outlook clearly points out that though the emerging market economies have clearly slowed down, the Indian economy stands out as a haven of macroeconomic stability, resilience and optimism and can be expected to register GDP growth that could be in the range of 7.0 per cent to 7.75 per cent in the coming year. Economic Survey 2015-16 tabled in Parliament here today by the Union Finance Minister Shri Arun Jaitley stresses that India’s economy is stable and it continues to be the land of opportunity.  Economic Survey states that India’s macro-economy is robust, and it is likely to be the fastest growing major economy in the world in 2016. This performance reflects the implementation of meaningful reforms like bringing transparency in regulatory decisions, liberalizing FDI, major crop insurance programmes, financial inclusion via Jan Dhan Yojana, JAM and power sector reforms. At the same time India also faces huge challenges such as exploiting demographic dividend through major investments in health and education, addressing the challenges of climate change and agriculture.
The Chief Economic Adviser, Dr. Arvind Subramanian addressing a press conference, regarding Economic Survey 2015-16, in New Delhi on February 26, 2016. The Director General (M&C), Press Information Bureau, Shri A.P. Frank Noronha and other dignitaries are also seen.
The Chief Economic Adviser, Dr. Arvind Subramanian addressing a press conference, regarding Economic Survey 2015-16, in New Delhi on February 26, 2016.
The Director General (M&C), Press Information Bureau, Shri A.P. Frank Noronha and other dignitaries are also seen.
Review of major developments-
  1. The growth rate of GDP at constant market prices is projected to increase to 7.6% in 2015-16 from 7.2% in ­2014-15(CSO)
  2. The CPI- New series inflation has fluctuated around 5.5% while the WPI has been in negative territory since November 2014.
  1. Foreign exchange reserves have risen to US $ 351.5 (Feb-2016)
  2. Net FDI inflows have risen to US $ 27.7 Billion (April-December2015-16)
The fiscal sector registered three striking successes: ongoing fiscal consolidation, improved indirect tax collection and improved quality of spending at all levels of government. The government will be able to meet its fiscal deficit target of 3.9% of GDP. Direct tax revenue grew by 10.7%, while indirect tax revenue showed the growth by 10.7% (without Additional Revenue Measures).  Also, a shift in the quality of spending from revenue to investment and towards social sectors has been observed. India stands out internationally as an investment proposition. India’s Rational Investor Ratings Index (RIRI) shows that India compares favorably with peer countries in the BBB investment grade and almost matches the performance of A-grade countries. External Challenges As per Economic Survey India is facing an unusually challenging and weak external environment. India needs to prepare itself for a major currency readjustment in Asia in the wake of a similar adjustment in China. Also it needs to address low growth in emerging markets due to capital controls to curb outflows of capital. In order to balance weak foreign demand, India needs to activate its domestic sources of demand to maintain growth momentum. The Twin Balance Sheet Problem The Twin Balance Sheet (TBS) problem implies the impaired financial positions of the public sector banks along with some large corporate houses. It is a major impediment to private investment and so to a full-fledged economic recovery.  As per economic Survey, Non performing assets (NPA) has been rising since 2010. The situation is not sustainable; a decisive solution is needed. Economic survey points out that resolving the TBS challenge comprehensively would require 4R’s: recognition, recapitalization, resolution and reform. Banks must value their assets close to true value (recognition). Their capital position must be safeguarded via infusions of equity (recapitalization). The NPA’s in the corporate sector must be sold (resolution). And future incentives for the private sector and corporate must be set right to avoid repetition of the problem (reform). Some steps have already been taken. The government launched the Indradhanush scheme for phased recapitalization of banks. The RBI also initiated the 5:25 and SDR schemes to incentivize banks to rehabilitate stressed assets. Most importantly, such moves need to be initiated jointly and cooperatively between the government and the RBI. Recalibrating Growth Expectations India’s long run potential GDP growth is substantial, about 8 to 10%. Since india’s exports of manufactured goods and services now constitute about 18% of GDP, its actual growth will depend upon global growth and demand. Reflecting India’s growing globalization, a 1 percentage point decrease in the world growth rate is now  associated with a 0.42 percentage point decrease in Indian growth rates. So, if the world economy remains weak, India’s growth will face considerable headwinds. Hence Economic survey points out that in the current global environment, there needs to be a recalibration of growth expectations and consequently of the standards of assessment. Positive Impact of La-Nina El Nino, an abnormal warming of the Pacific waters near Ecuador and Peru affects agricultural production in India. The 2015 El Nino has been the strongest since 1997. But if it is followed by a strong La Nina, there could be a much better harvest in 2016-17.An extended and strong El Nino explains why India had a deficient south monsoon and dry winters impacting both Kharif and Rabi crops. As per the data given in Economic Survey, some of the strongest El Nino years were followed by La Nina episodes resulting in bumper harvests. This kind of possibility cannot be ruled out in 2016 as well. La Nina conditions are expected to develop before June- September. So La Nina is unlikely to deliver its full bounty until late in Kharif season.[/vc_column_text][/vc_column][/vc_row]

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About Sanjay Trivedi

Sanjay Trivedi is honorary editor of Asia Times. He is senior Indian Journalist having vast experience of 25 years. He worked in Janmabhoomi, Vyapar, Divya Bhaskar etc. newspapers and TV9 Channel as well as www.news4education.com. He is working as Media Officer in Gujarat Technological University, which has 440 colleges under its umbrella.

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