Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Economic Survey: Trying times ahead - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 15, 2012

    Economic Survey: Trying times ahead

    The Economic Survey for 2011-12 (FY12) was tabled in the Parliament today. It highlighted the progress made by the Indian economy in FY12 and some big challenges it faces in the future. Let us have a look at the key takeaways from the same.

    Slowest growth in nine years

    FY12 was a challenging year for the government and the central bank (Reserve Bank Of India, (RBI)) as they tried to manage growth and price stability. According to the Survey, the Indian economy is estimated to grow by 6.9% in FY12. This has to be viewed in context of the fact that growth was robust at 8.4% in each of the two preceding years. Not just that, the rate of growth was also lower than what was recorded in the period 2003-11 (barring 2008-09 which was when the global crisis was at its peak). While agriculture and services did reasonably well, it was the deceleration in industrial activity that dragged down growth for the overall economy. The manufacturing sector grew by 2.7% and 0.4% in the second and third quarters of 2011-12.

    The 6.9% growth projection is lower than the 9% growth projected for FY12 by the Economic Survey 2010-11. That optimistic number at that time meant that Indian economy would most likely revert back to the pre-crisis levels of the three year period 2005-08. The buoyancy was based on robust growth in the preceding two years rise in savings and investment rates.

    But the Eurozone crisis and rising international crude oil prices changed all that. Further, there was pressure of politics, which also resulted in slowdown in key reforms to be implemented. What made the scenario even more challenging was that inflation remained high for a larger part of the year although there were signs of it cooling off towards the end. The Survey states that monetary policy was tightened by the RBI during the year to control inflation and curb inflationary expectations. The slowing inflation towards the end of the year reflects the lagged impact of actions taken by the RBI and the government.

    Short and medium term prospects

    The Survey has projected that the Indian economy will grow by 7.6% in the next year (FY13). The main reason for the recovery to be initially slow is the slight decline in investment rate. In the third quarter of 2011-12, gross fixed capital formation as a ratio of GDP was 30%, down from 32.3% one year ago. But as fiscal consolidation gets back on track, savings and capital formation should begin to rise.

    Moreover, the Survey states that with the easing of inflationary pressures in the coming months, there could be a reduction in interest rates by the RBI. This would encourage investment activity that could have a positive impact on growth. Thus, the Survey expects economic growth to pick up thereafter and reach 8.6% in FY14.

    Not surprisingly, there is a caveat to this. The Survey suggests states that since projections are based on assumptions regarding factors like normal monsoons, reasonably stable oil prices and global growth, a deviation from these situations will certainly impact India's growth. But it remains optimistic that owing to 15 years of robust growth and nearly a decade of over 30% investment rate, the Indian economy can be the leading engine of global growth.

    The key here is fiscal consolidation. The Survey states that the 2008-9 downturn came to India when the country's fiscal balances were robust. Hence, there was ample scope for fiscal and monetary stimulus. With this second slowdown coming so quickly on the heels of the previous one the scope in terms of fiscal and monetary policy is much more limited. What this means is that the government will have to be more innovative in terms of policy making.

    We believe that while conditions in the developed economies could be subdued in the coming year, it all boils down to how proactive the government gets in bolstering India's growth. The RBI has already done its bit in bringing down inflation by raising rates. But it is now up to the government to complement these efforts by reducing its wasteful expenditure. Reforms will be the key here. Only then can India hope to achieve consistent growth of 9% going forward.

      Radhika Pandit (Research Analyst), Managing Editor, ValuePro is one of our most senior analysts with nearly a decade-long stint in the field of equity research. She has helped build our pharmaceutical sector research from scratch and has a firm grasp of the Indian automobile industry. Being an ardent follower of Warren Buffett's value investing philosophy, she believes in investing in solid businesses for the long haul.



    Equitymaster requests your view! Post a comment on "Economic Survey: Trying times ahead". Click here!


    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms