Services Sector India‘s services sector that remained resilient even during and immediately after the global financial crisis buckled under the pressure of continued global and domestic slowdown, resulting in sub-normal growth in the last two years. However, early shoots of revival are visible in 2014- 15 with signs of improvement in world GDP growth and trade also reflected in pick-up in some key services like IT, aviation, transport logistics, and retail trading. Different indices and estimates also indicate an expansion in India‘s services business. Energy, Infrastructure and Communications As the growth of the economy in general and the manufacturing sector in particular is largely dependent on creation of suitable infrastructure, the policy focus in India has been on infrastructure investment. Such investment has increased manifold over time with increased private-sector participation in the country. The Twelfth Five Year Plan has also laid special emphasis on infrastructure development as quality infrastructure is important not only for sustaining high growth but also ensuring that the growth is inclusive. Large infrastructure investment during the last decade or so has helped India emerge as one of the fastest growing economies in the world. However, over the past few years, need has been felt to kick start stalled infrastructure projects by stepping up infrastructure investment, improving the productivity and quality of infrastructure spending, removing procedural bottlenecks, and improving governance. In the current perspective, the real challenge is not only to identify a core set of projects that are crucial for accelerating overall economic growth but also to ensure channelization of investment for such viable infrastructure projects and expedite their implementation by addressing issues like delays in regulatory approvals, land acquisition and rehabilitation in fast-track mode. Prices and Monetary Management In comparison with previous years, inflation showed signs of receding with average wholesale price index (WPI) inflation falling to a three-year low of 5.98 per cent during 2013-14. Consumer price inflation, though higher than the WPI, has also exhibited signs of moderation with CPI (new-series) inflation declining from 10.21 per cent during 2012-13 to about 9.49 per cent in 2013-14. Food inflation, however, remained stubbornly high during FY 2013-14. As inflation remained above the comfort level of the Reserve Bank of India (RBI), the tight monetary policy stance was maintained by the Central Bank. The depreciation of the rupee, following the taper indication by the Federal Open Market Committee (FOMC) in May 2013, also impacted the inflation situation. The rupee went into a free fall and touched a low of ` 68 to a dollar in August end. However, the government and the RBI were quick to respond and announced immediate measures to arrest volatility and quell speculation. The RBI has since stuck to its commitment to bringing down inflation levels and maintained high rates in Q4 2013-14. Going forward, both wholesale and consumer price inflation in India is expected to inch downwards, paving the way for monetary easing, although, there are risks to the outlook for inflation from a possible sub-normal monsoon during 2014-15 as predicted by the IMD on account of El-Nino effect, possible step up in the pass-through of international crude oil prices, and exchange rate volatility. Public Finance The fiscal outcome of the central government in 2013-14, which was in line with the fiscal consolidation targets set as per the Medium Term Fiscal Policy Statement (MTFPS), was achieved despite the macroeconomic challenges of growth slowdown, elevated levels of global crude oil prices, and slow growth of investment. The fiscal position of states has remained firmly in consolidation mode with states‘fiscal deficit budgeted at 2.2 per cent of gross domestic product (GDP). Steadfast adherence to fiscal consolidation by the centre and states is key to achieving the desired macroeconomic outcomes. While the initial phase of fiscal consolidation during 2004-08 was made possible by higher growth and was thus revenue led, it will indeed be challenging to maintain the momentum in the current context of lower growth. In the last two years, the focus has been on rationalizing expenditure; this needs to continue, especially should revenues remain below par, but without diluting the quality of expenditure. Financial Intermediation Financial markets form an important part of the Indian economy. Their performance in 2013-14 reflected the slowdown in the real economy with most intermediaries growing at a slower rate as compared to previous years. Moreover, there were growing concerns about asset quality in the banking sector. The Government of India along with relevant market regulators took cognizance of these growing challenges including financial inclusion and consumer protection and implemented a multitude of policy initiatives to reinvigorate financial markets. The passage of the PFRDA act and presentation of the FSLRC report in 2013-14 mark important milestones in moving towards the next generation of financial sector reforms.
Posted on: Tue, 15 Jul 2014 06:15:27 +0000
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