Saturday, 26 February 2011

Economic Survey 2010-11

The economic survey for the financial year 2010-11 was released on February 26, 2011 in the parliament. It highlights the progress made in the financial year and what needs to be done to improve growth of the country. It is usually seen as a preview on how the annual union budget will be.

Salient Points

  • The economic survey forecasts that a dozen reforms need to be done to achieve 9% GDP growth rate for 2011-12 and further.
  • Policy reforms are required to bring better convergence of schemes to avoid duplication and leakages to ensure that benefits reach the targeted groups.
  • Good and Services Tax (GST) should be introduced as soon as possible.
  • There is a dire necessity for a second green revolution with technological break-through. Agriculture should contribute more towards economic development. Development of rain-fed areas and effective marketing links for farmers should be given top priority.
  • In the social sector, private sector should be encouraged to participate in health and education

Infrastructure Sector

  • Implementation of several projects (Road, Railways and Power) at state and central level is delayed.
  • There is a need to explore the possibilities to increase investment through Public-Private-Partnership (PPP) and sometimes, exclusively private investment.
  • The economic survey suggested streamlining of environmental clearance for all infrastructure projects.
  • Several non-financing constraints are needed to be urgently addressed to avoid time and cost over runs.
  • Capacity addition is lower than aimed in power, roads and railway lines.
  • However, Telecom sector continues to do well and most of its projects were on schedule.

Power Sector

  • With the power sector struggling to achieve its targets, the economic survey has called for bold reforms in the sector.
  • States are asked to reduce subsidies and cross-subsidies on electricity and hike tariffs.
  • India has one of the world’s highest transmission and distribution losses at 35% and the lowest and most uneconomical average electricity tariffs at 8 cents per unit.
  • It calls for a end the monopoly of State Electricity Boards (SEB) in power distribution by encouraging open sales of bulk power to boost competition. This can be done in 3 ways,

i. Public Private Partnership (Like the telecom sector)

ii. Franchisee distribution model

iii. Performance based state distribution company.

Indian Economy

  • The economic survey warns that there is a need to be vigilant about any fallout from the financial turbulence in Europe and the Middle East.
  • India’s trade will surpass the $200 Billion in 2010-11.
  • The gradual withdrawal of stimulus will not affect exports.
  • Rising inflation will however, erode agricultural exports.
  • India should concentrate more on engineering sector exports.
  • India is moving towards services-dominated export growth.
  • During the period from April 2010 to December 2010, Trade deficit stood at $82 billion while trade and imports grew by 29.5% and 19% respectively.

Foreign Direct Investment (FDI) in Retail Trade

  • The economic survey has favored phased opening of FDI in multi-brand retail stores to address the concerns of consumers, farmers and declining FDI inflows.
  • This will also help bring technical know-how to set up efficient supply chain which could act as models of development.
  • In India, retain trade had no national framework and is a state subject.