Annual Economic Report 2009 - 2010

• The Indian economy has seen a remarkable turn-around after bearing the impact of the global economic slowdown that started in September 2008, and is currently experiencing a time of renewed optimism with growth momentum picking up gradually in the recent months. According to government's estimate, the Indian economy has grown by 7.2 percent during fiscal year 2009-10 (FY 2010)1, an increase from 6.7 percent growth in FY 2009. The industry sector has witnessed excellent rebound this year. The cumulative growth for FY 2010 works out to 10.4 per cent, against 2.8 per cent in FY 2009. The fiscal stimulus measures taken by the government, together with a loosening monetary policy, have helped in pushing up the overall GDP growth. However, the recovery is still unbalanced. The services sector is expected to have grown by 8.7 percent, marginally lower than previous year's 9.8 percent growth. On the agricultural front, the production has been impacted by an erratic monsoon resulting in growth of (-)0.2 percent against 1.6 percent growth achieved in FY 2009. • Though the stimulus packages have pepped up economic activities, these measures have also contributed to an increased fiscal deficit (6.8 percent of GDP), the highest in this decade. The combined fiscal deficit (Centre and States) comes to 10.5 percent. For the new fiscal year, the government is planning to reduce the fiscal deficit by 1.3 percent. • The FY 2010 seems to have also run up a high current account deficit (4.1 percent of GDP) even as the rupee appreciated by 11 per cent against US dollar during this period, mainly on account of high capital inflows. • The rapid recovery in the economy has also brought forth the challenge of higher inflation . The wholesale price index in February was 9.89% higher than a year earlier. Reserve Bank of India (RBI) is following a calibrated approach. From an accommodative monetary policy beginning September 2008, the RBI has embarked on a phased exit, keeping in mind two main challenges - restraining inflationary pressures, and ensuring adequate liquidity at reasonable cost to sustain the current growth momentum.download