The Economic Survey's prediction of a rebound in growth to close to 8 per cent levels in the coming financial year and 8.6 per cent in the year after failed to cheer investors. The BSE Sensex tanked by over 200 points to close at 17,682.14 points, down 1.32 per cent.

Investors shed holdings in interest rate-sensitive stocks as the Reserve Bank of India, whose quarterly review of monetary policy coincided with the Economic Survey's release, left interest rates unchanged on inflation fears.

Highlights of Economic Survey (PDF)

But the Government's economic advisers remained upbeat about growth prospects. However, with manufacturing expected to play a bigger role in the growth story, the Economic Survey echoed the concerns of industry on rising cost of funds, land and energy.

The Survey estimates the economy to grow at 7.35-7.85 per cent during 2012-13 against 6.9 per cent in the current fiscal. Mr Kaushik Basu, chief author of the Survey and the Government's Chief Economic Adviser, remarked that manufacturing will lead the improvement of the growth estimate.

“There are signs from some high frequency indicators that the weakness in economic activity has bottomed out and a gradual upswing is imminent,” the Survey said.

Inflationary pressure

It added that the likely easing of inflationary pressure and subsequent reduction in interest rates would fuel economic growth, though it cautioned that rising crude prices in the international market would continue to put pressure on prices.

Though the economic crisis in Europe has affected the growth in India, the Survey said, “There is no doubt that a part of India's slowdown is rooted in domestic causes. The persistent inflation that remained over 9 per cent for much of the year and needed to be tamed played a role.”

 

The Survey feels that as fiscal consolidation gets back on track, savings and capital formation should begin to rise. It expected inflation to peak around 7 per cent by March 2012 and moderate thereafter.

Costly funds

However, the Survey indicates that industry has been impacted by a double whammy of high interest rates and a volatile rupee. “Such volatility impairs investor confidence and has implication for corporate balance-sheets and profitability in case of high exposure to External Commercial Borrowings (ECB) when currency is depreciating.”

Admitting that land availability was hurting industrial growth, the Survey said, “There is need to resolve the issue of availability of land for industrial and infrastructure use. National Investment and Manufacturing Zones (NIMZs) are a key tool for facilitating the growth of manufacturing sector, which cannot take off in the absence of a well-thought-out and standardised approach to land acquisition.”

Economic Survey (Full Text - PDF)

The Survey advocated allocation of agricultural land for manufacturing. It believed that such a move is crucially linked with the issue of agricultural productivity and food security.

Fuel for Industries

Since coal is a primary energy input for power generation, steel and cement, the core of not just manufacturing but also of services lies in the this source. The Survey expressed unhappiness at the near monopolistic position of Coal India.

The Survey called for a “transparent and credible” pricing policy for coal which should be based on global norms. It also wants competition in the production of coal.

Shishir.s@thehindu.co.in

krsrivats@thehindu.co.in

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