The Indian economy will grow at 9 per cent in 2011-12 if nothing goes wrong. The downside risks are a sharp deterioration in weather conditions or a disproportionate spike in the international crude oil prices, the Economic Survey for 2010-11 tabled in Lok Sabha, said.

The Survey has also pointed out that there is some uncertainty over the economic conditions in Europe and the US, and that a serious crisis in any of the major industrialised nations will affect the Indian economy adversely. But it also notes that a second dip recession there is a “very low” probability event.

‘Difficult year'

On inflation, the Survey, tabled by Finance Minister, Mr Pranab Mukherjee, has noted that 2010-11 has been a “difficult year” although the overall trend of inflation has been downwards. Inflation is expected to be 1.5 per cent higher than what would be, if the country was not on the growth curve, the Survey pointed out.

Given India's objective of inclusive growth and the need to put in place supportive policy structures so that the vulnerable segments are protected from ravages of inflation, there may be reason to expect that “in the medium term we will have to live with a little higher inflation than the 3 per cent or so we used to have in earlier years”.

Inclusion and inflation

The Economic Survey has also brought out an interesting connection between inclusion and inflation, suggesting that the Centre's financial inclusion efforts are to some extent having an undesired consequence of a greater inflationary propensity.

“This must not deter us from pursuing financial inclusion since the overall benefit of this can be enormous. What is being pointed out is the need to be aware of all its fall-outs, and take appropriate action against possible negative side effects,” the Survey has said.

The Survey pointed out that sustained inflation is, in part, a by-product of growth and financial inclusion. “A deficit that earlier did not cause inflation may now do so because ordinary citizens are putting their money into circulation,” it pointed out.

Stating that there is negative relation between inflation and unemployment, the Survey has highlighted that it is critical for the Government to carefully calibrate the demand management measures when bringing down inflation. “There is no known formula for doing this.”

The Survey does not appear to be too concerned about the current account deficit (CAD). It highlighted that the CAD has widened due to robust import demand and lower invisible surplus. Calling for fiscal consolidation, it also says that a moderation in current account (balance of payments position) is likely with deceleration in imports and acceleration in exports according to the latest monthly merchandise trade data.

“The concurrent consolidation of fiscal deficits will be essential as it is expected to ease the conduct of effective monetary policy in the near future. The reduced fiscal deficits will permit greater availability of credit to sustain growth, while tighter monetary policy starts to transmit its impact in reducing inflationary pressures,” said the Survey.

The Government has also through the Survey committed itself to ensuring availability of cooking fuels to the common man at affordable prices. In view of the importance of household fuels, namely kerosene and domestic liquefied petroleum gas (LPG), the Government has decided that subsidies on these products will be continued.

krsrivats@thehindu.co.in

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