The Economic Survey 2007-08, presented in the Parliament today by finance minister, P Chidambaram, says that the new challenge for the Indian economy is to not only maintain the current high growth rate, but to raise it further to double-digit levels.

The Economic Survey identifies several challenges, likely policy responses and medium term prospects.

According to the survey, there is a heightened need to augment and upgrade infrastructure, both in the physical as well as social sectors, in particular, power, roads and ports, so that demand for infrastructure services are met.

This would require mobilization of unprecedented amounts of capital, which can only happen if both the public and private sectors are provided the required incentives. 

The survey also says that as far as the public sector is concerned it is needed that persistent institutional weaknesses and implementation constraints are effectively addressed at different levels of government in the country.

The private sector, on the other hand, requires policy and regulations that are comprehensive but simple, clear and credible.

Trends

• Should the upward trend in GDP growth rates persist in the medium-term, the economy would average over 8.9 per cent per annum over the 11th Five Year Plan period. If GDP growth targets for the 11th Five Year Plan are achieved and stepped up to 9.5 per cent in the succeeding year, then the Indian economy would average a growth rate of 9 per cent over a decade, which would allow India to join a select group of about a dozen medium-large economies.
  
• On the demand side, growth acceleration has been driven by investment and supported by private consumption.  The economy is likely to remain domestic demand driven in the medium term. 

Prospects

• The two inter-related macroeconomic challenges in maintaining high GDP growth on a sustained basis are capital inflows and inflation. The surge in capital inflows, including FDI, will continue in the medium term.  The change in the structure of the economy, and its more globalised nature has made management of inflation a complex task. 

Challenges

• The interaction between high tariffs on agricultural products and the slow modernization of Indian agriculture and agro-processing, coupled with the high dependence of the population on agriculture may play a role in future inflation.
  
• A further convergence of both inflation and real interest rates is possible if we liberalise and develop India's debt and currency markets and remove the constraints on agriculture modernization and urban land supply.
  
• Though our exports to the US have already been slowing in 2006 and 2007, a further slowdown may be unavoidable, even though it should be relatively modest.  The deceleration in world imports will also lead to a deceleration in growth of demand for commodities. The balance of these two factors will likely result in a modest increase in the goods and services trade deficit as long as a severe recession is avoided in the US.
• On the supply side, the most critical challenge would be the availability of adequate physical and financial infrastructure.
  
• The medium term plan for road connectivity should target a network of highways linking all cities in the country, a network of State highways that link all towns at the State level and connectivity of all villages with all-weather district roads in every State.
  
• For urban infrastructure, there are a number of policy measures that need to be urgently addressed.  The Central sector programme, JNNURM and SEZs have imparted some impetus in this direction, but the states, particularly poorer ones, need to do more on their own.
  
• While 20 states have presented revenue surplus budgets in 2007-08, 15 States have budgeted for higher gross fiscal deficit over the previous year.  The fiscal position of some States continues to remain weak and there are concerns regarding the sustainability of high level of debt in some of these states.
  
• There is much that still needs to be done in terms of improving social sector and human development outcomes at the State level.
  
• The outcomes in the health sector also show significant disparities across states.  A successful policy framework to bridge outcome gaps in this sector would require a focus on epidemic diseases, public health education and drainage.
  
• For the success of the programmes such as NREGP, Bharat Nirman and the Right to Information Act, it is necessary that ground level implementation is efficient.
  
• Though expenditure is an important indicator of the progress of plan implementation, it does not measure the effectiveness of the expenditure undertaken in generating the desired outcomes.  It is, therefore, important to move systematically from financial monitoring to output and outcome monitoring.

Conclusion
Challenges and opportunities, according to the economic survey, come at two levels.  First, it would be incumbent on the Central Government to generate an investment climate that is conducive and also manage the economy in a way that facilitates non-inflationary growth. 

The Central Government and the Planning Commission can in certain areas and sectors also play a leadership role in setting an agenda of policy and institutional reforms that will sustain high growth for several decades. 

Secondly, the States must refocus their efforts on the provision of public goods, some of which they have neglected, and to improve the quality of the service provided by these goods. 

As the bureaucratic capability to deliver these goods and services in sufficient quantity and of adequate quality is heavily constrained, they must shed activities that are best done by private profit and non-profit organizations.