The country's real GDP at factor cost is set to expand 7.1 per cent during 2008-09 according to Advance Estimates released by CSO on 9 February. The feat implies a substantial slowing from 9+ per cent average in earlier three years. All sectors are expected to retard, barring community, social & personal services (mainly government expenditure), which are likely to shoot up by 9.3 per cent, against 6.8 per cent in 2007-08. Manufacturing would see 4.1 per cent growth, half the pace a year ago and construction 6.5 per cent (10.1 per cent). Private final consumption expenditure would rise 6.8 per cent and government consumption expenditure 16.8 per cent. Gross fixed capital investment would slow to 9 per cent, against 13 per cent in 2007-08. GDP at market prices is estimated at Rs.54.26 trillion.
According to the Quick Estimates of National Income, Consumption Expenditure, Saving and Capital Formation, released by CSO earlier, the Indian economy expanded 9.01 per cent in 2007-08, matching the performance assessed in June last and marking the third year of 9+ per cent economy expansion. GDP at market prices, which indicates the size of the domestic market, was placed at Rs.47.23 trillion for the year (well over US$1 trillion at around Rs.40.24 a $). With population estimated at 1.14 billion, per capita NNP at factor cost works out to Rs.33,283 (or $827).
Gross capital investment comprising additions to fixed assets, inventory accumulation and valuables (like gold jewellery) was placed at Rs.18.46 trillion at current prices, absorbing 39 per cent of GDP at market prices, escalating from 23 per cent in 2001-02. Domestic savings too rose robustly on the back of strong growth in corporate profits, but fell short of domestic investment requirement; the balance came from foreign capital inflow (as reflected broadly in current account deficit).
Gross fixed capital formation (GFCF) placed at Rs.16.05 trillion, slowed in real terms to 13 per cent, from a recent peak of 19 per cent in 2004-05; but has nevertheless grown at double digit over past five years. Boosted by strong growth in bottom-line, private corporate business is on investment binge, improving its share in projects investment from 24 per cent in 2001-02 to 39 per cent; eating into shares of both the public sector and the ubiquitous household sector that includes non-corporate business sector. In fact, while in line with current downsizing of public sector particularly in economic spheres, the share of public sector has been on decline in GDP and investment. The decline in share of households in investment could be partly reflective of better coverage of corporate data and the consequent lower share of households which is treated as a residual sector. Another interesting point in capital formation is a steady rise in investment in valuables, which includes gold jewellery, that has more than trebled between 1999-00 and 2007-08. In private final consumption, the share of food has declined from 45 per cent to 35 per cent, while the share of transport and communication has increased from 13 per cent to 17 per cent.
GDP at 1999-00 prices |
| |
Rs.Crore |
% increase |
| |
2006-07 |
2007-08 |
2008-09 |
2007-08 |
2008-09 |
Agriculture, forestry & fishing |
531,315 |
557,122 |
571,668 |
4.9 |
2.6 |
Mining & quarrying |
60,038 |
61,999 |
64,891 |
3.3 |
4.7 |
Manufacturing |
440,193 |
476,303 |
496,017 |
8.2 |
4.1 |
Electricity, gas & water supply |
60,544 |
63,730 |
66,465 |
5.3 |
4.3 |
Construction |
205,543 |
226,325 |
240,940 |
10.1 |
6.5 |
Trade, hotels, transport & communication |
778,895 |
875,398 |
965,346 |
12.4 |
10.3 |
Financing, insurance, real estate & business services |
409,472 |
457,584 |
496,903 |
11.7 |
8.6 |
Community, social & personal services |
385,118 |
411,256 |
449,423 |
6.8 |
9.3 |
Total GDP at factor cost |
2,871,118 |
3,129,717 |
3,351,653 |
9.0 |
7.1 |
Break-up by major sectors
|
Agr, forestry & fishing |
531,315 |
557,122 |
571,668 |
4.9 |
2.6 |
Industry |
766,318 |
828,357 |
868,313 |
8.1 |
4.8 |
Services |
1,573,485 |
1,744,238 |
1,911,672 |
10.9 |
9.6 |
Total GDP at factor cost |
2,871,118 |
3,129,717 |
3,351,653 |
9.0 |
7.1 |
"Interim" Union Budget
Serious slippage in deficit numbers in 2008-09
The
interim Union Budget 2009-10 presented by Finance Minister, Pranab
Mukherjee on 16 February, essentially a vote-on-account in view of the
general elections due in three-four months, was remarkable because it
displayed grave slippages in deficit numbers. Now the gross fiscal
deficit (GDF) for the current fiscal is estimated to be Rs.3.27
trillion, more than twice the amount budgeted for the year. The most
serious relapse in this key indicator of quality of Central government
finance, that would see GFD to GDP ratio climb to 6 per cent, after
seven years of steady improvement in the past, has been attributed to
fiscal fight to halt the economy retard. However, slowing revenue
receipt due to the economic slowdown, and expenditure escalation on
account of farmers' debt-write-offs, burgeoning subsidies and Sixth Pay
Commission effects, which happened independent of the fiscal stimulus
measures, also contributed to high GFD.
Corporates were
expecting some further fiscal measures to prop up the sagging economy,
but were left disappointed. Reflecting this, the BSE Sensex dropped 600
points (16 per cent) in two days of post-budget trading.
Review of 2008-09
The
current year is expected to end with a GFD of Rs.3,26,515 crore, more
than twice Rs.1,33,287 crore budgeted for the year. Revenue Deficit of
Rs.2,41,273 crore is also expected to be over four times the budgeted
Rs.55,184 crore. The deterioration reflecting the economy retard
particularly in the second half was on account of slowing revenue
receipt and burgeoning expenditure, both due in part to fiscal stimulus
measures.
The total Central government expenditure has been
put at Rs.9.01 trillion under RE, indicating a sharp 20 per cent
overspending, among the largest over the decade. The expenditure would
be 26 per cent more than that in 2007-08 and three times that in
1999-00.
Plan Expenditure was placed at Rs.2.83 trillion, 16
per cent more than BE. Of the additional plan spending, Rs.24,174 crore
was on account of an increase in Central Plan and Rs.15,397 crore due
to Central Assistance to State and UT Plans. Increased allocations
include additional Central Assistance for Externally Aided Projects,
Accelerated Irrigation Benefit Programme, Roads and Bridges, National
Social Assistance Programme, Jawaharlal Nehru National Urban Renewal
Mission, etc. Central plan outlay (including resources of Central
public sector enterprises apart from budgetary support) for the year
was around Rs.3.88 trillion, surpassing budget expectation of Rs.3.75
trillion; making it one among the few years in the recent past where
Central Plan outlay has exceeded budget expectations. Overachievement
was due to larger budgetary support, while resources of CPEs fell
short, as usual, of budget hopes. Excess outlay was mainly in rural
development, particularly NREGS, where provisionally estimated actual
spending of Rs.36,750 crore would be two and half times the Rs.14,400
crore provided in the budget.
On the Non-Plan side, Rs.1.10
trillion excess spending was caused by Rs.44,863 crore in fertilizer
subsidy, Rs.10,960 crore in food subsidy, Rs.15,000 crore on
Agricultural Debt Waiver and Debt Relief Scheme, Rs.7,605 crore in
Pensions, and Rs.5,149 crore in Police and Rs.9,000 crore in Defence
expenditure.
Tax collection is expected to be around Rs.6.28
trillion, 9 per cent lower than Rs.6.88 trillion projected under BE.
The shortfall is attributed to Government's pro-active fiscal measures
totaling Rs 40,000 crore in tax cuts, including a fairly steep across
the board reduction in Central Excise rates in December, 2008,
initiated to counter the impact of global slowdown on the Indian
economy.
Projections for 2009-10
Total
expenditure for 2009-10 is placed at Rs.9.53 trillion, which includes
Rs.2.85 trillion for plan and Rs.6.68 trillion for non-plan. The
allocation for Defence would be Rs.1.42 trillion, including Rs.54,824
crore for capital expenditure. Major subsidies including food,
fertilizer and petroleum would grab Rs.95,954 crore.
Plan
allocation under various heads provided is limited to the provision at
the BE stage last year, plus additional amounts on account of the two
stimulus packages. It also reflects a modest increase in Central
Assistance to the States to enable the States to complement their
budgetary resources. The total Gross Budgetary Support (GBS) for the
Plan and resources of CPEs would contribute Rs.2.08 trillion each,
adding to a Central Plan outlay of Rs.4.16 trillion. Power (Rs.55,919
crore), iron & steel industries (Rs.13,765 crore), civil aviation
(Rs.12,145 crore) and shipping, ports & lighthouses (Rs.4,914
crore) are among the sectors that would be spending markedly more,
compared to RE for 2008-09. Among the other sectors, Bharat Nirman gets
Rs.40,900 crore, NREGS Rs.30,100 crore, SSA Rs.13,100 crore, JNNURM
Rs.11,842 crore and RIDF-XV Rs.14,000 crore with a separate window for
rural roads with a corpus of Rs.4,000 crore.
Gross Tax Revenue
receipts at the existing rates of taxation are estimated at Rs.6.71
trillion. Fiscal Deficit is estimated at Rs.3,32,835 crore -- 5.5 per
cent of GDP. Revenue deficit would be 4 per cent of GDP. Both these key
indicators would be more than indicative norms and new targets are set
to return to FRBM norms.
Fiscal Stimulus III
The
Finance Minister announced following concessions while replying to the
debate on the Interim Budget 2009-10 on 24 February. This would cost
the exchequer around Rs.30,000 crore.
* General reduction in Excise Duty rates by 4 per cent points extended beyond 31 March, 2009
* Reduction in the general rate of Central Excise duty from 10 per cent to 8 per cent
* Retention of currently available ad valorem rates of 8 per cent and 4 per cent
*
Reduction in the rate of central excise duty on bulk cement from 10 per
cent or Rs.290 PMT, whichever is higher to 8 per cent or Rs.230 PMT,
whichever is higher.
* Decline in service tax on taxable services from 12 percent to 10 per cent
* Exemption from customs duty on naphtha imported for generation of electric energy extended beyond 31 March.
Section
10 AA of the Income Tax provides for exemption in respect of export
profits of a unit located in a Special Economic Zone (SEZ). This had
resulted in discriminatory treatment of assesses having units located
both in SEZ and the Domestic Tariff Area (DTA) vis-à-vis assesses
having units located only within the SEZs. It has now been decided to
remove this anomaly through necessary changes in the Act.
Budget at a Glance (Rs.Crore) |
| |
2007-08 |
2008-09 (RE) |
2009-10 (BE) |
Net Tax Revenue |
439,547 |
465,970 |
497,596 |
Non-tax Revenue |
102,378 |
96,203 |
111,955 |
Recovery of loans |
5,100 |
9,698 |
9,725 |
PSU equity disinvestment |
38,796 |
2,567 |
1,120 |
Borrowings & other liabilities |
126,912 |
326,515 |
332,835 |
Non-Plan Expenditure |
507,620 |
617,996 |
668,082 |
Plan Expenditure |
205,082 |
282,957 |
285,149 |
Budget Support for Central Plan |
143,468 |
204,129 |
208,450 |
Central Assistance to States & UTs |
61,614 |
78,828 |
76,699 |
Total Expenditure |
712,732 |
900,953 |
953,231 |
Revenue deficit |
52,569 |
241,273 |
238,534 |
Fiscal deficit |
126,912 |
326,515 |
322,835 |
IIP declines
As feared widely in view of declines in
export, tardier tax collections and high year-ago base effects, growth
in index of industrial production (IIP) turned negative in December,
second time in the current fiscal. Mining and electricity though
remaining insipid, turned out positive growth, but the largest segment
manufacturing, which has borne the brunt of global meltdown declined by
2.5 per cent. The cumulative overall IIP was up 3.2 per cent, one-third
the speed over the first nine months of 2007-08. Among the use-based
categories of items, intermediate goods suffered the worst with 8.5 per
cent decline during the month and 1.6 per cement during April-December.
Basic goods expanded 3.4 per cent cumulatively. Implying that the
project investment has not been completely knocked out, capital goods
production rose 7.7 per cent during the first three quarters, though
the feat over the months was highly erratic.
Consumer goods
turned in 5.2 per cent increase, with consumer non-durables rising 5.5
per cent and durables a lower 2.5 per cent. Cement production expanded
7 per cent, but finished (carbon) steel grew much slower at 2.7 per
cent due to declines during October-December.
The putrefaction
in industry was confined largely to manufacturing, whose cumulative
growth till September of 5.2 per cent got pulled down to 3.3 per cent
by December, following declines in October and December and a minuscule
rise in November. If we examine the manufacturing performance by 17
two-digit major industry groups, we find that nine industry groups
suffered declines in output, which included transport equipment &
parts, leather & leather products, jute and cotton textiles and
basic chemicals & chemical products. Non-metallic mineral products,
basic metal & alloy industries and machinery were among the eight
groups that remained in positive growth zone, though the cumulative
rise was pared, but textile products including wearing apparel and
paper & paper products quickened the pace slightly during
October-December. Among the individual items, while finished (carbon)
steel declined over the quarter, cement improved upon the H1 feat.
Money supply
The
y-o-y growth in M3 worked out to 17.9 per cent by 30 January, having
slowed from 21 per cent as at the end of September last year and 24.2
per cent a year ago. Net forex assets of banking sector grew 4.5 per
cent, nearly one-eighth the pace a year ago, whereas the bank credit to
government shot up 34.6 per cent (6.6 per cent).
Bank deposits & credit
Aggregate
deposits with SCB were up by 14.8 per cent till 30 January, slowing
from 18.4 per cent in the similar period of 2007-08. Bank credit
increased by 11.6 per cent, against 14.5 in similar period a year ago.
SLR investment increased by 20 per cent (20 per cent). Reflecting steep
decline in CRR, bank balances with RBI declined by Rs.60,445 crore,
against Rs.1.13 trillion bulge in the similar period a year ago.
In
its third quarter monetary policy review, RBI has raised the projection
of money supply (M3) growth for 2008-09 to 19 per cent from 16.5-17.0
per cent earlier, aggregate deposit growth to 19 per cent from 17 per
cent earlier and that of adjusted non-food credit, including investment
in bonds/debentures/shares of public sector undertakings and private
corporate sector and CP to 24 per cent from 20 per cent earlier.
Interest rates
Overnight
inter-bank call money rates ranged 2.77-4.23 in the first 20 days of
February. The reverse repo rate was at 4 per cent and the repo rate 5.5
per cent. The cut-off yields on 91 days and 364 days T-bills were at
4.79 per cent and 4.58 per cent at the auction on 11 February. Discount
rates on commercial papers (CP) ranged 7.75-14 per cent on CP issued in
the first fortnight of January. Yields to maturity (YTM) on longer-term
Government of India securities were at 5.68-7.99 per cent in the second
week of February. Prime lending rates of major banks ranged 11.5-12.5
per cent in the first week of February. Deposit rates were at around
7.75-9 per cent. Cash Reserve Ratio (CRR) was 5 per cent.
Rupee
was traded at 48.72/73 per USD on 13 February. Rupee depreciated
annually by around 19 per cent against US$, 8 per cent against Euro and
31 per cent against Yen, but appreciated by 11 per cent against Pound
Sterling.
Exports & imports
Weighted Call Money Rates: Feb 2008-09 |
|
Range (%) |
8-Feb |
4.82-8.54 |
8-Mar |
5.71-9.32 |
8-Apr |
4.07-7.34 |
8-May |
5.86-7.96 |
8-Jun |
5.71-8.98 |
8-Jul |
5.60-9.67 |
8-Aug |
5.98-9.71 |
8-Sep |
6.14-14.81 |
8-Oct |
5.57-17.89 |
8-Nov |
4.25-17.54 |
8-Nov |
5.26-6.56 |
9-Jan |
2.32-4.65 |
February 09 (up to 20 Feb) |
2.77-4.23 |
Exports & imports
Exports declined by 1 per cent in December; this was the third consecutive months of a decline, though the rate of decay has come down from 12 per cent in October and 10 per cent in November. The feat has, nevertheless pared the export growth to 17 per cent, from 31 per cent in H1, according to DGCI&S data.
Import expanded 9 per cent in December. The cumulative growth worked out to 31.5 per cent. Cumulative oil imports were US$ 78.8 billion (+45 per cent) and non-oil imports $147 billion (+25 per cent).
Trade deficit
The trade deficit shot up from $59 billion to $94 billion.
Inflation
Annual inflation as measured by the overall Wholesale Price Index (WPI) worked out to 3.9 per cent by 7 February 2009, against a recent high of around 12 per cent in September last year. While the WPI of fuel & power subgroup was 3 per cent lower, that of primary articles was 8 per cent high and manufactured products 5 per cent. Consumer price index (CPI) for industrial workers and urban non-manual workers ran 10.5-10.8 per cent high in November. CPI of agricultural/rural workers soared 11 per cent in December.
Reflecting paling project investment, ERIL Index of Cost of Project Inputs declined 4.2% by 7 February -against 3.4% rise by the end of H1.
Projects investment
With import of machinery & equipment adding to $15.29 billion and their export to around $6.36 billion, net absorption of machinery from external trade for project investment could be around $9 billion during April-October. Import of electronic goods ($11.78 billion) was over four times their export. However, in transport equipment the country has emerged as net exporter with export at around $6.41 billion and import $4.32 billion. Iron & steel import expanded 16 per cent to $6.02 billion, while their export shot up by 41 per cent to $4.37 billion.
Source : projectstoday
|