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Economy upbeat, but inflation a 'concern': Economic Survey
February 27, 2007

The pre-Budget Economic Survey 2006-07 on Tuesday expressed concern at rising prices and advised 'calibrated' measures to contain inflation while sustaining high growth - an indication that Wednesday's Budget may continue the overall trend of moderating taxes.

Acknowledging buoyancy in all sectors of economy except for the slow growth in agriculture, the Survey tabled by Finance Minister P Chidambaram in Parliament said that the "economy appears to have decidedly taken off and moved from a phase of moderate growth to a new phase of high growth."

Projecting a 9.2 per cent GDP growth for 2006-07 on the back of 9 per cent growth in the previous year, it said achieving sustained high growth trajectory required careful consideration of 'sustainability of high growth with moderate inflation' and inclusive nature of such progress.

It squarely blamed the supply side shortages for the inflationary pressures, for which there were no immediate solutions, and said: "Poor agriculture performance, as the current year has demonstrated, can complicate maintenance of price stability with supply side problems in essential commodities of day to day consumption."

Lauding overall fiscal and financial performance, the Survey said that buoyancy in taxes would lead to overshooting of overall revenue targets but expenditure management was still an 'unfinished task' of fiscal consolidation.

It warned that the monetary policies aimed at containing inflation were also leading to hardening of interest rates.

Expressing concern over rising unemployment and poor social sector performance, the Survey asked the government to be more effective in critical areas such as education, health and support for the needy to achieve the target of "inclusive growth."

Pointing out that high economic growth in recent years provide a unique opportunity and momentum for faster social sector development, the Survey said the buoyant economy should not only generate adequate employment but also provide resources for large interventions in critical areas of the sector.

With more than half the population directly depending on the agrarian sector, low agricultural growth at 2.7 per cent in 2006-07 has serious implications for the "inclusiveness" of growth, the Survey said.

In fact, the government has taken various steps in the agricultural sector like replenishment of food stocks by way of procuring 5.5 million tonnes of wheat through STC and one million tonnes through private traders in Rabi marketing season with a view to check the inflation rate, which has been hovering around 6.7 per cent.

In the current year, the Survey has speculated, that pressure on inflation may persist because of a mismatch in supply and demand for some primary articles and firm international prices.

On the external front, the Survey said the strong growth in the Foreign Direct Investment, which has risen by 98.4 per cent in first half of 2006-07, was the testimony of improvement in India's credit rating and positive outlook of Indian economy.

"At $4.2 billion during the first six months of this fiscal, FDI was almost twice its level in April-September of 2005," it said, adding two-third of the FDI flows was in the form of equity.

The foreign exchange reserves have touched the level of $180 billion as of February this year providing an import cover of about 11 months.

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