Indian Economy Review 12-13
REVIEW OF THE ECONOMY
2012/13
ECONOMIC ADVISORY COUNCIL TO THE PRIME MINISTER
NEW DELHI
April 2013
BLANKS
ECONOMIC ADVISORY COUNCIL TO THE PRIME MINISTER
Dr. C. Rangarajan Dr. Saumitra Chaudhuri Dr. V. S. Vyas
Dr. Alok Sheel
Chairman Member Member Secretary
i
Economic Advisory Council to the Prime Minister E-Hall Vigyan Bhawan Maulana Azad Road New Delhi ii CONTENTS
I. Overview 1 11 11 15 16 20 20 27 29 35 37 37 38 41 42 45 48 48 50 iii II. The Economy Investment Savings Trends in Financial Corporate Results III. External Sector Merchandise Trade Invisible Earnings CAD – Estimate for 2012-13 and Projection for 2013-14 Managing the Capital Account IV. External conditions, Inflation and Fiscal Situation International Economic Conditions Domestic Inflation Monetary Policy Fiscal Situation V. Conclusions Appendices Table I Table II
BLANKS
iv
REVIEW OF THE ECONOMY
v
I. OVERVIEW
1. In August 2012, the EAC had projected a likely growth rate for the economy of 6.7 per cent, a year-end inflation rate of between 6.5 and 7.0 per cent and a current account deficit (CAD) of 3.6 per cent of GDP. At the end of the fiscal year, while the inflation forecast has turned out to be accurate, the actual growth rate at around 5.0 per cent is much lower than what was projected, while the CAD is likely to be considerably higher at about 5 per cent of GDP. With respect to GDP growth, the extent of divergence between the projected growth rate of the economy and the actual outcome is disconcertingly large. It does not seem to have flowed from weakness in the conventional structural parameters. In August 2012, the Council had projected that at current prices, gross domestic capital formation (GDCF) would be 35.5 per cent and gross domestic fixed capital formation (GFCF) would be 30.0 per cent of GDP. The Advance Estimates released by the CSO for 2012-13 in Feb 2013, suggest that GDCF was 35.4 and GFCF 30.0 per cent of GDP. The ratio
2012/13
ECONOMIC ADVISORY COUNCIL TO THE PRIME MINISTER
NEW DELHI
April 2013
BLANKS
ECONOMIC ADVISORY COUNCIL TO THE PRIME MINISTER
Dr. C. Rangarajan Dr. Saumitra Chaudhuri Dr. V. S. Vyas
Dr. Alok Sheel
Chairman Member Member Secretary
i
Economic Advisory Council to the Prime Minister E-Hall Vigyan Bhawan Maulana Azad Road New Delhi ii CONTENTS
I. Overview 1 11 11 15 16 20 20 27 29 35 37 37 38 41 42 45 48 48 50 iii II. The Economy Investment Savings Trends in Financial Corporate Results III. External Sector Merchandise Trade Invisible Earnings CAD – Estimate for 2012-13 and Projection for 2013-14 Managing the Capital Account IV. External conditions, Inflation and Fiscal Situation International Economic Conditions Domestic Inflation Monetary Policy Fiscal Situation V. Conclusions Appendices Table I Table II
BLANKS
iv
REVIEW OF THE ECONOMY
v
I. OVERVIEW
1. In August 2012, the EAC had projected a likely growth rate for the economy of 6.7 per cent, a year-end inflation rate of between 6.5 and 7.0 per cent and a current account deficit (CAD) of 3.6 per cent of GDP. At the end of the fiscal year, while the inflation forecast has turned out to be accurate, the actual growth rate at around 5.0 per cent is much lower than what was projected, while the CAD is likely to be considerably higher at about 5 per cent of GDP. With respect to GDP growth, the extent of divergence between the projected growth rate of the economy and the actual outcome is disconcertingly large. It does not seem to have flowed from weakness in the conventional structural parameters. In August 2012, the Council had projected that at current prices, gross domestic capital formation (GDCF) would be 35.5 per cent and gross domestic fixed capital formation (GFCF) would be 30.0 per cent of GDP. The Advance Estimates released by the CSO for 2012-13 in Feb 2013, suggest that GDCF was 35.4 and GFCF 30.0 per cent of GDP. The ratio