27-05-2014, 04:04 PM
Current Economic Scenario
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Introduction
After a promising start to the decade in 2010-11 with achievement like GDP
growth of 8.4 per cent, bringing down fiscal deficit to 4.7 per cent from 6.4 of GDP in
2009-10, as well as containing current account deficit to 2.6 per cent from 2.8 per cent
in 2009-10. GDP growth decelerated sharply to a nine year low of 6.5 per cent during
2011-12.
The slow down was reflected in all sectors of the economy but the industrial
sector suffered the sharpest deceleration which decelerated to 2.9 per cent during
2011-12 from 8.2 per cent in 2010-11. The centre‟s finances for 2011-12 experienced
considerable slippage as key deficit indicators turned out to be much higher than
budgeted due to shortfall in tax revenues and overshooting of expenditure. The gross
fiscal deficit (GFD)-GDP ratio moved up to 5.8 per cent in 2011-12 compared to the
budgeted ratio of 4.6 per cent. The substantial increase in subsidies during 2011-12 on
account of high crude oil prices further impacted the deficit of the Government.
Imports
Import growth has surged since September 2012, mainly due to a pick-up in the
quantum of petroleum oil lubricant (POL). With the uptrend in the international price of
gold in recent months, gold imports stayed at an elevated level in recent months. On
the other hand, non-oil non-gold imports registered a decline, reflecting a slowdown in
domestic economic activity13.
Cumulative value of imports for the period April- December, 2012-13 was US $
361271.88 million (Rs. 1967521.83 crore) as against US $ 363867.81 million (Rs.
1714432.42 crore) registering a negative growth of 0.71 per cent in Dollar terms and
growth of 14.76 per cent in Rupee terms over the same period last year.
Trade Balance
With imports growth turning positive from September 2012 and export growth
remaining subdues, concerns regarding a deteriorating trade deficit have been
reinforced. The trade deficit for April - December, 2012-13 was estimated at US $ 147.2
billion which was 7.2% higher than the deficit of US $ 137.3 billion during April -
December, 2011-12.
Policy attempts so far has been to deftly balance the genuine interest of the gold
business, as also the need of the savers to hedge against inflation, against the
overwhelming need to dampen gold imports with a view to preserving current account
and macro-financial stability15.
[b]Money[/b]
Broad money (M3) for 2012-13 up to January 11, 2013 (Rs. 81,115.7 billion)
increased by 10.2 per cent as compared to 10.5 per cent during the corresponding
period of the last year. The year-on-year growth, as on January 11, 2013 was 12.9 per
cent as compared to 15.7 per cent in the previous year. Reserve money (M0) during the
financial year 2012-13 up to January 11, 2013 (Rs. 14,795.4 billion) increased by 3.7
per cent as compared to 5.4 per cent in the corresponding period of the previous year.
The year-on-year variation revealed an increase of 2.0 per cent (as on January 11,
2013), compared to 12.7 per cent on the January 13 of the previous year16.
Global Economic Situation and Prospects
As per The United Nation‟s World Economic Situation and Prospects (WESP),
2013 report, four years after the eruption of the global financial crisis, the global
economy is still struggling to recover. During 2012, growth of the world economy has
weakened further. The global economy is expected to grow at 2.2 per cent in 2012, at
2.4 per cent in 2013 and 3.2 per cent in 2014.
Weaknesses in the major developed economies are at the root of the global
economic slowdown. The report stresses that most of them, but particularly those in
Europe, are trapped in a vicious cycle of high unemployment, financial sector fragility,
heightened sovereign risks, fiscal austerity and low growth. Several European
economies and the euro zone as a whole are already in recession, and euro zone
unemployment increased further to a record high of almost 12 per cent this year. The
US economy slowed significantly during 2012 and growth is expected to remain meager
at 1.7 per cent in 2013.
Deflationary conditions continue to prevail in Japan.
The economic woes in Europe, Japan and the United States are spilling over to developing
countries through weaker demand for their exports and heightened volatility in capital
flows and commodity prices.
Economies in developing Asia have weakened considerably during 2012, as the
region‟s growth engines, China and India, have shifted into lower gear. While a
significant deceleration in exports has been a key factor behind the slowdown, both
economies also face a number of structural challenges that hamper growth. Given
persistent inflationary pressures and large fiscal deficits, the scope for policy stimulus in
India and other South Asian countries is limited. China and many East Asian
economies, in contrast, possess much greater space for countercyclical policy.