ECONOMIC SURVEY 2000-2001: Macroeconomic overview

Introduction

1. 1 Real GDP growth rate in 2000-01 is estimated at 6 per cent compared with a growth rate of 6.4 per cent achieved in 1999-2000 and 6.6 per cent in 1998-99. Despite deceleration of growth rate for the second consecutive year, India has the distinction of being one of the fastest growing economies in the world. The Indian economy has shown remarkable resilience in the face of substantial increase in the international price of crude oil over the last two years.

1. 2  The reduction of overall growth rate of GDP to 6 per cent in 2000-01 is mainly due to a decline in the growth rate of service sector from 9.6 per cent in 1999-2000 to 8.3 per cent in the current year. Among services, it is the community, social and personal services group that is expected to show the sharpest decline. In terms of growth of value added both industry and agriculture and allied sectors are expected to achieve higher growth rates than in the previous year.

1. 3  Despite a normal monsoon for the thirteenth successive year on the basis of average rainfall, prospects of agricultural production in 2000-01 are not considered to be bright due to relatively unfavourable distribution of rainfall over time and regions, leading to floods in certain parts of the country and droughts in some others. Production of foodgrains is expected to decline to 199 million tonnes in 2000-2001 from the record level of 208.9 million tonnes in 1999-2000. This, in turn is expected to lead to a decline in the overall agricultural output in the current year. However, in terms of growth of value added, the agriculture and allied sector taken as a whole is expected to show a marginal increase from 0.7 per cent in 1999-2000 to 0.9 per cent in 2000-01.

1. 4  The advance estimates of GDP indicate better performance by mining & quarrying, electricity, gas & water supply, and construction, in the current year compared to 1999-2000. Due to slightly better performance by these groups, the industry sector is expected to have higher growth in the current year despite reduction in the growth rate of manufacturing. Among services, trade, hotels, transport & communications are projected to have the same growth as in the previous year. Financial, real estate and business services are expected to experience a lower growth of 9.6 per cent in 2000-01 as against 10.1 per cent in 1999-2000. The community, social and personal services group is envisaged to experience the sharpest decline in the service sector by recording a growth of 7.6 per cent in 2000-01 compared with 11.8 per cent in 1999-2000. The anticipated decline for the sector is attributable to the effect of higher wages (arrears) drawn by Government employees in the previous years.

1. 5  During 2000-01, the annual rate of inflation in terms of WPI has shown an increasing trend due to pressure from energy prices. The inflation rate hovered around a little over 6 per cent till September 2000 when the hike in administered prices of fuel products pushed up inflation to 7.8 per cent for the week ending September 30, 2000. The inflation rate, as on January 27, 2001, was around 8.2 per cent on point to point basis (compared with 3.6 per cent on the corresponding date of the previous year) and 6.6 per cent on the basis of 52 weeks average (compared with 3.4 per cent on the corresponding date of the previous year). This increase in inflation was caused mainly by the the fuel, power, light and lubricants group, whose point to point annual inflation as on January 27, 2001 was 29.6 per cent compared to 16.2 per cent in the corresponding period of the previous year. But for this sharp rise in the fuel group’s prices, this year’s point to point inflation rate would have been half of the observed rate of 8.2 per cent. Excluding the fuel, power, light and lubricants group, point to point annual inflation as on January 27, 2001 remained subdued at 2.4 per cent (compared with 1.5 per cent as on January 29, 2000). During the financial year the cumulative inflation rate was 4.8 per cent as on January 27, 2001 compared with 3 per cent during the corresponding period of 1999-2000. Given the trend, the year-end average rate of inflation in terms of WPI is expected to be around 6.5-7.0 per cent.

1. 6  Inflation rate in terms of the Consumer Price Index for Industrial Workers (CPI) decelerated continuously during the year to reach a low of 2.7 per cent in November 2000 as against zero per cent in November 1999. The Index rose moderately by 3.5 per cent in December 2000. According to the twelve months average basis the inflation works out to 4 per cent for the year 2000 compared with 4.7 per cent for the year 1999.

1.7   During 1999-2000, Government’s fiscal position remained under strain due to unanticipated expenditure on elections, 50 day war in Kashmir and the super cyclone in Orissa. The gross fiscal deficit of the Central Government increased from 5.1 per cent of GDP in 1998-99 to 5.5 per cent of GDP in 1999-2000.

1.8    The Union Budget for 2000-01 envisaged a reduction of fiscal deficit from 5.5 per cent in 1999-2000 (provisional and unaudited) to 5.1 per cent of GDP. As regards revenues, direct tax collections have been buoyant throughout the current year. However, there are some shortfalls in indirect tax collections due to slowdown of industrial growth, the negative growth rate of non-oil imports, increase in the exemption limit for imposition of excise for the small scale sector and reduced duties on oil products. There is also significant shortfall in disinvestment proceeds. However, various austerity measures taken by the Government for reducing non-plan and non-capital expenditure have helped to keep expenditure and overall fiscal deficit under control.

1.9   On the external front, exports showed significant recovery in 1999-2000 from the negative growth in 1998-99. The current account deficit was contained at 0.9 per cent of GDP in 1999-2000, despite substantial increase in the oil import bill by 63 per cent due to hardening of international prices of crude oil and petroleum products.

1.10   Export growth rose further in 2000-01 due to Rupee depreciation alongwith further trade liberalisations, tariff reductions, and more openness to foreign investment in export-oriented sectors like information technology. The issue of India Millennium Deposits by the State Bank of India in October-November 2000 was very successful and raised more than US $5.5 billion of foreign exchange. The level of foreign exchange reserves (including gold and SDR) reached the record level of US $41.1 billion at the end of January 2001.

1.11   Official BOP statistics, compiled by the RBI for 2000-01, are available for only the first half of the year. According to these estimates, trade deficit increased from US$ 7.6 billion in April-September 1999 to US$ 9.2 billion in April-September 2000. Inflows of net invisible services increased from US $ 4.7 billion to US $ 5.2 billion resulting in an increase of current account deficit from US $ 2.9 billion to nearly US $ 4 billion during the same period. On the capital account, there was a decline of net capital inflows from US $ 3.7 billion in April-September 1999 to US $ 2.5 billion in April-September 2000 due to net outflows of external assistance and external commercial borrowing and a decline of foreign investment in April-September 2000. Consequently, foreign exchange reserves declined by US $ 1.5 billion during April-September 2000. However, foreign exchange reserves began to build up after the successful issue of IMD.

1.12   A tentative assessment of the BOP outlook for the current year indicates that the current account deficit in 2000-01 might widen to about 1.5-1.7 per cent of GDP compared to 0.9 per cent of GDP in 1999-2000. This is mainly due to the surge in India’s oil import bill because of the tripling of international oil prices between early 1999 and mid-2000. On the other hand, non-oil import growth remains subdued. Exports, however, are expected to remain buoyant, as is evident from the growth rate of 20.4 per cent (in US Dollar value), recorded by the DGCI&S data for April-December 2000. Net inflow of invisibles, despite moderate increase in outflows on account of interest, dividend, royalty payments etc., is expected to remain broadly at last year’s level, supported by the continued buoyancy in software service exports and private transfers. The widening of current account deficit will, however, be more than matched by the expected net capital inflows.

Trends in GDP

1.13   Overall GDP growth rate decelerated marginally from 6.6 per cent in 1998-99 to 6.4 per cent in 1999-2000 mainly due to a significant slowdown in agriculture and allied sector growth from 7.1 per cent in 1998-99 to a mere 0.7 per cent in 1999-2000, despite a record level of foodgrains production in 1999-2000. However, in 1999-2000, apart from electricity, gas and water supply, there was acceleration in growth rates of all other major sectors of the economy. There was a significant improvement in overall growth in industrial value added from 3.4 per cent in 1998-99 to 6.4 per cent in 1999-2000 due to acceleration of growth in value added by the manufacturing sector from only 2.5 per cent in 1998-99 to 6.8 per cent in 1999-2000, and that in construction from 6.1 per cent to 8.1 per cent over the same period. Within the industry sector, while mining and quarrying showed some improvement in 1999-2000, there was marked deceleration in the growth rate of electricity, gas and water supply.

1.14   Service sectors also performed exceptionally well in 1999-2000. Average growth rate of trade, hotels, transport and communications, improved from 7.1 per cent in 1998-99 to 8 per cent in 1999-2000 and that of financial, real estate & business services accelerated from 8.4 per cent to 10.1 per cent over the same period. Community, social and personal services also grew at a much faster rate in 1999-2000 than in 1998-99.

1.15    The advance estimates of GDP for 2000-01, made available by the CSO, indicate a lower GDP growth of 6 per cent in the current year. The decline is attributable to lower growth of the services sector. However, agriculture and allied sectors, along with industry, are expected to post marginally higher growth of value added compared to the previous year.