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Key Features of Economic Survey

The Indian economy has been going through challenging times that culminated in lower than 5% growth of GDP for two successive years 2012-13 and 2013-14.Economic growth has slowed due to domestic structural and external factors. Two successive years of sub-5 per cent growth is witnessed for the first time in 25 years.In addition to the growth slowdown, inflation continued to pose significant challenges. Although Average wholesale price index (WPI) inflation declined in 2013-14 to 6% vis-a vis 8.9% in 2011-12 and 7.7% in 2012-13, it is still above comfort level.Inflation in terms of Consumer Price Index (CPI) remained fairly sticky at around 9-10% owing to high food inflation in the last couple of years.As per the latest GDP data, the industry sector registered a growth of 1.0 per cent in 2012-13 that slowed further to 0.4 per cent in 2013-14. The key reason for poor performance was contraction in mining and deceleration in manufacturing. The last two years were particularly disappointing for the manufacturing sector, with growth averaging 0.2% per annum. The decline has been broad based.Aided by favourable monsoons, the agriculture and allied sectors achieved a growth of 4.7% in 2013-14 compared to its long-run average of around 3%.The services sector has emerged as the fastest growing sector of the economy and the second fastest growing in the world, with a CAGR of 9 per cent, behind China with a CAGR of 10.9 per cent during the period from 2001 to 2012. Like industry, services also slowed during the last two years. In the absence of sufficiently high growth in agriculture and industry, services also failed to pick up since many of the services are dependent on buoyancy in the commodity producing sectors.The rate of investment which averaged more than 35% during 2004-13 slowed down to less than 34% in 2013-14.The gross savings rate was just 30.1 in 2012-13. This fell by 6.7 percentage points of the GDP in 2012-13 from the historic high of 36.8% achieved in 2007-08.The fiscal deficit of 4.5 per cent of GDP in 2013-14 as compared to the budgeted target of 4.8 per cent of GDP is indicative of continued focus on fiscal consolidation. With a shortfall in tax revenues and disinvestment receipts along with higher than budgeted subsidies and interest and pension payments, fiscal consolidation was mainly achieved through reduction in expenditure from the budgeted level.India’s share in world exports and imports increased from 0.7% and 0.8% respectively in 2000 to 1.7% and 2.5% respectively in 2013. There has been marked improvement in India’s total merchandise trade to GDP ratio from 21.8% in 2000-01 to 44.1% in 2013-14.Merchandise exports registered a growth rate of 4.1% in 2013-14as compared to a contraction of 1.8% during the previous year.The value of imports declined by 8.3 per cent in 2013-14 as compared to 2012-13, owing to a 12.8 Percent fall in non-oil imports. The value of imports of petroleum, oil, and lubricants (POL) increased by 0.7 per cent in 2013-14.India’s Balance of Payments (BoP) position improved significantly in 2013-14. After being at perilously unsustainable levels in 2011-12 and 2012-13, the improvement in BoP position in 2013-14 is a relief.Current Account Deficit (CAD) however, widened. Widening of the CAD in 2012-13 could largely be attributed to rise in trade deficit arising from weaker exports and relatively stable imports. The latter owed to India’s dependence on crude petroleum imports and elevated level of gold imports since the onset of the global financial crisis.Capital flows moderated, but foreign exchange reserves increased in 2013-14.India with a large and young population has a great demographic advantage. The proportion of working-age population is likely to increase from approximately 58 per cent in 2001 to more than 64 per cent by 2021. While this provides opportunities, it also poses challenges. Policymakers have to design and execute development strategies that target this large young population. Demographic advantage is unlikely to last indefinitely. Therefore timely action to make people healthy, educated, and adequately skilled is of paramount importance.According to the United Nations Human Development Report (HDR) 2013, India with a human development index (HDI) of 0.554 in 2012 slipped down the global ranking to 136 from 134 as per HDR 2012The poverty ratio declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12. In absolute terms, the number of poor declined from 407.1 million in 2004-05 to 269.3 million in 2011-12.During 2004-05 to 2011-12, employment growth (CAGR) was only 0.5 per cent, compared to 2.8 per cent during 1999-2000 to 2004-05 as per usual status. However the unemployment rate continued to hover around 2 per cent under usual status (principal + subsidiary).Priorities for growth revival include: investment revival, strengthening of macroeconomic stability, creation of non-agricultural jobs, strengthening of infrastructure, and boost to agricultural development

Issues and Priorities

Reviving investment, essential for growth of jobs and income, requires a three-pronged approach that works through improving India’s long-term growth prospects.First, the government must ensure low inflation by putting in place a framework for monetary policy, fiscal consolidation, and food market reforms.Second, it must put public finances on a sustainable path through tax and expenditure reform. Tax reform requires a GST, DTC, and more predictable tax administrationThird, Expenditure reforms must focus on public goods, new designs for subsidy programmes, and mechanisms for accountability. India requires the legal and regulatory frameworks for a market economy. This requires repealing the old legacy laws and creating state capacity to address market failures.

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