Mid-Year Analysis- Report Tabled in Lok Sabha

The Indian government on 7 December 2010 tabled in the Lok Sabha the first-half economic report card. According to the report GDP growth in the current fiscal is expected to exceed 9%. However the report warns of possible adverse impact due to problems in Europe. The Mid-Year Analysis flagged focussed on five areas, namely- fiscal consolidation, capital flows, education, environment and infrastructure.  The report pointed out that in the backdrop of surge in investment by foreign institutional investors that stands at $39 billion in 2010 in the Indian stock market, immediate attention is required to be paid to capital inflows. The surge in capital inflow was reported to be the result of strong fundamentals of the Indian economy. However the surge of capital inflow is considered to be a cause of concern for the government as it was leading to rise in stock prices thereby putting pressure on the rupee and leading to overheating of the economy. The price rise as a result of excessive demand is likely to occur in an overheated economy. The report highlighted that though extensive capital inflow so far did not cause rupee appreciation, it is possible that it might have an adverse impact on Indian exports.

The Indian finance ministry on the fiscal deficit front mentioned that despite additional spending by government, the Budget target of 5.5% of GDP is expected to be met. However in the report concern has been expressed as to whether the ministry will be able to adhere to the 13th Finance Commission’s target of eliminating revenue deficit by 2013-14.

The report suggested the need for governance reforms for a more durable fiscal consolidation. It pointed out the need for a lower expenditure-GDP ratio and an increased tax-GDP ratio. The government has so far not lowered spending or reprioritized it to boost investment. The government has instead used the higher tax revenue to lower fiscal deficit.