Indian economic conditions- powerpoint

The Indian Environment

The current state of the economy makes it necessary for the government to put in place a robust and implementable plan of action for its revival. The economy has experienced a consistent fall in the quarterly GDP growth since the beginning of 2011, alarmingly high levels of twin deficits viz. Current Account Deficit (CAD) and fiscal deficit as well as worrying volatility in the inflow of foreign investments. Though inflationary pressure has receded in the last quarter of 2012, it still remains above the target level of Reserve Bank of India (RBI). This along with other worrying economic indicators has put the Indian economy in a challenging pathway in the short term. Budget 2013 provides an opportunity to regain focus by adhering to the path of fiscal consolidation and take appropriate policy initiatives outlining the timely recovery of the Indian economy. Strengthening fundamentals and boosting growth inducing investments is the foremost consideration at this stage. In order to understand the current state of the economy, we discuss the various aspects of economic performance of the country in 2012, in the following paragraphs.

The Fiscal Situation

The Government has found it difficult to contain expenditure despite proactive reforms to boost the slowing economy. The Government revised its fiscal consolidation roadmap in October 2012. As per the revised roadmap, the fiscal deficit of the central government will be reduced in a calibrated way from the targeted 5.3% of GDP in FY 2012-13 to 3.0% of GDP by FY 2016-17. The revision proved challenging

as the actual fiscal deficit fared at 5.9%. Further, the combined fiscal & revenue deficits had already reached 79% & 85% of budgeted targets by end of December 2012. Major contributors to high levels of deficits this year include lower tax collections due to lower than expected economic activity (reaching only 63% of annual target in 9 months) and dismal PSUs disinvestment collections (accounting only 27% of

annual target in 9 months) as against persistent unplanned government expenditure, which has already reached 72% of target. Despite these worrying trends, recently announced strong initiatives by the Finance Minister to cut down unplanned expenditure, including subsidies are laudable. An achievement of fiscal surplus of INR 8,227 crores during December 2012 sends a positive signal about Government’s willingness of adhering to its targets. However, policymakers need to make sure that the significant cut backs in public expenditure do not compromise

the quality of fiscal adjustment & development prospects in the long run.