The  Economic  Survey  (ES)  report  and  the  comments  of  Finance  Minister  (FM)  in  the  parliament  while presenting Lots of ifs and buts for future growth in FM’s speech had created uncertainty and market was not able to perform.GDP.
 
ES has identified certain critical areas where government may take some decision in the forthcoming budget.
 
ES reading and indication for budget:
 
• The  mention  about  possible  threat  of  dumping  by  other  countries  in  India  indicates  possibility  of increase  in  Import  duty  on  various  items  which  are  vulnerable  to  dumping  and  can  disturb  Indian industry like steel sector.

• Research and development may be encouraged with fiscal policy. This may be good for Pharma Sector.

• The mention of narrowing the deficit is critical to keep interest rate low and to restore the high growth rate of GDP. This may act positive for banking sector and the capital markets. Announcement of increase in petrol and diesel price is also one step in this direction.

• The  indication  of  generation  of  Rs.25000cr  per  year  from  disinvestment  and  another  similar  amount from sale of 3G licenses in ES will also help in reducing fiscal deficit.

• ES has mention of conservation of natural resources like Coal, Iron Ore and Natural Gas may indicate some export duty on export of Iron ore.

• The  passage  of  Pension  Fund  Regulation  and  increase  in  Foreign  Direct  Investment  (FDI)  in  the insurance sector to 49% was mentioned in ES.

• Higher  and  Skill  education  and  faster  implementation  of  infrastructure  may  be  emphasized  in  the budget.

• ES  has  talked  about  growth  in  labour  intensive  industry  and  review  of  labour  law.  Any  step  in  this direction can support Textile industry.

• ES  also  made  a  case  for  removal  of  multiple  tax  like  FBT,  Surcharge,  STT  etc  for  simplification  of  tax structure but considering the higher fiscal deficit government may be restricted from removing these taxes.

• FM speech may find some statement on corporate governance as well.

Highlights

• Economic growth decelerated in FY 2009 to 6.7%. This represented a decline of 2.1% from the average growth rate of 8.8% in the previous five years (FY 2004 to FY 2008).  
 
• The  growth  in  agriculture  and  allied  activities  decelerated  from  4.9%  in  FY  2008  to  1.6%  in  FY  2009, mainly on account of the high base effect of FY 2008.  
 
• The manufacturing, electricity and construction sectors decelerated to 2.4, 3.4 and 7.2% respectively during FY 2009 from 8.2, 5.3 and 10.1% respectively in FY 2008.  
 
• Despite the slowdown in growth, investment growth was at a rate higher than that of GDP. The ratio of fixed investment to GDP consequently increased to 32.2% of GDP in FY 2009 from 31.6% in FY 2008.  Gross capital formation (GCF), which was 25.2% of the GDP in 2002?03, increased to 39.1% in FY 2008.   

• The gross domestic savings as a percentage of GDP at current market prices stood at 37.7% in FY 2008 as compared to 29.8 % in FY 2004.  

• A noteworthy development during the year was a sharp rise in Wholesale Price Index (WPI) inflation followed by an equally sharp fall, with the WPI inflation falling to unprecedented level of close to zero %

• The index of industrial production for the year FY 2009 points towards a sharp slowdown with growth being placed at 2.4%. Manufacturing growth was placed at 2.3% in FY 2009 as compared to 9.0 % in FY 2008.  Mining  grew  at  2.3%  in  FY  2009  as  against  5.1%  in  FY  2008  while  electricity  showed  a deceleration in growth from 6.4% in FY 2008 to 2.8% during FY 2009.

• For three consecutive years (2005?06 to FY 2008), food grain production recorded an average annual increase of over 10 million tonnes. The total food grain production in FY 2008 was estimated at 230.78 million  tonnes  as  against  217.3  million  tonnes  in  FY  2007.  As  per  the  third  advance  estimates,  the production  of  food  grains  in  FY  2009  is  estimated  to  be  229.85  million  tonnes.  In  the  third  advance estimates, there is an improvement of 1.97 million tonnes over the second advance estimates for FY 2009 but the estimates are still lower than the target of 233 million tonnes set out for the year and also

• The per capita income in FY 2009, measured in terms of gross domestic product at constant FY 2000 market prices, was Rs. 31,278. In FY 2008 this stood at Rs. 29,901. Per capita consumption in FY 2009 was Rs. 17,344 as against a level of Rs. 17,097 in FY 2008.