Paragraphs on Growth of Indian Economy!
A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05; Indian economy has been predicted to grow at a level of 6.9%.
Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. In fact, the Indian economy has posted an excellent average Gross Domestic Product (GDP) growth of 6.8% since 1994 (the period when India’s crisis was brought under control).
However, in comparison to many East Asian economies, having growth rates above 7%, the Indian growth experience lags behind. The Tenth Five-Year Plan aims at achieving a growth rate of 8% for the coming 2-3 years.
Though, the growth rate for 2004-05 is less than that of 2003-04, it is still among the high growth rates seen in India since independence, many factors are behind this robust performance of the Indian economy in 2004-05.
High growth rates in Industry and service sector and a world economic environment provided a backdrop conducive to the Indian economy. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. However, agriculture fells sharply from its 2003-04 level of 9% to 1.1% in the current year primarily because of a bad monsoon.
Thus, there is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon. This can be achieved by bringing more area under irrigation and by better water management.
Because of the weakening of the US dollar for the last two years, (caused mainly by widening US deficits), Indian Rupee has steadily appreciated vis-a-vis US dollar. Though, this trend saw a brief reversal during May-August 2004. The latest Re/$ Exchange rate (March 2005) stood close to 44.
Despite strengthening nominally against US $, rupee depreciated against other major non-dollar currencies. Thus, the Real Effective Exchange rate of the rupee depreciated and this trend continued until end 2004.
A strong Balance of Payment (BOP) position in recent years has resulted in a steady accumulation of foreign exchange reserves. The level of foreign exchange reserves crossed US $ 100 billion mark on Dec. 19, 2003 and was $ 142.13 billion on March 18, 2005.
The capital inflows, current account surplus and the valuation gains arising from appreciation of the major non-US dollar global currencies against US dollar contributed to such a rise in Forex reserves.
The current account of BOP having been in surplus since 2001-02, turned into deficit in the first half of the current year (April-September 2004-05). Such a reversal was observed on the back of rise in Petroleum Oil and Lubricants (POL) and non-POL imports which overwhelmed the growth of exports in US dollar terms at over 23 percent.
Growth momentum in exports was maintained. India’s exports during April-November registered a growth of 24% from the last period but India’s position was down from 30th to 31st rank in the top exporting countries of the world.
The main contributors to capital account surplus were the banking capital inflows, foreign institutional investments and other capital inflows. Alike current account, capital account too witnessed decline. The capital account surplus in April-September was also down by around US $ 1.5 million.
Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely by the increase in the net foreign exchange assets of the RBI. However, it declined to 6.4% in the current year to January 28, 2005.
During the current financial year 2004-05, broad money stock (М3) (up to December 10, 2004) increased by 7.4 percent (exclusive of conversion of non-banking entity into banking entity, 7.3 percent) as compared with the growth rate of 10.3 percent registered during the corresponding period of the last year.
The downward trend in interest rates continued in 2004-05, with bank rate standing at 6% as on Dec. 10, 2004. Banks recovery management improved considerably with gross Non-Performing Assets (NPAs) declining from Rs. 70861 crore in 2001-02 to Rs. 68715 in 2002-03.
During the current financial year (up to December 10, 2004) incremental gross bank credit increased by 20.5 percent (exclusive of conversion, 16.6 percent as compared with a growth of 5.9 percent in the same period of the previous year.
Non-food credit during the financial year so far, registered a growth of 20.5 percent (exclusive of conversion, 16.5 percent) as compared with an increase of 8.4 percent during the same period of the last year indicated a positive outlook.
Equity market return was 85% in 2003-04, second highest in Asia. With continued higher corporate earnings in 2004-05, the Sensex crossed 6800 mark in March 2005 later it reaches 15,000 mark in may 2007 but high stock market volatility remained higher in India compared to other Asian countries.
The expectation of Sensex crossing 15,000 marks is not yet realized. Fiscal deficit of states and centre was decreasing in early 90s but due to rise in fiscal deficit in recent years, corrective measures have been adopted. The fiscal deficit decreased to 7.9% in 2004-05 from a 9.4% of GDP in 2003-04.