The Indian economy roared back in 2010, with the Gross Domestic Product, or GDP, growing at 8.6 per cent in the first quarter (January-March) and then going up a notch closer to nine per cent in the next two quarters of April-June and July-September. Industrial output indicators remained erratic as some months clocked double-digit growth rates, while others recorded lows of around four to five per cent. Yet, the overall outlook remained bright, with industrial growth set to be in double digits and good a monsoon brightening the prospects of agricultural production.
Emboldened by expectations of such revival, Finance Minister Pranab Mukherjee used the Budget for 2010-11 to roll back some of the fiscal stimulus measures introduced in the wake of the global financial meltdown in late 2008. In subsequent months, the Reserve Bank of India (RBI) followed suit by taking many “tiny steps” to gradually tighten the money market and gently nudge the interest rates upwards.
Export growth in the first quarter was robust, at 36 per cent. It slowed down to 27 per cent in the subsequent two quarters, but the outlook appeared much better than in 2009, though the world’s key export markets were yet to recover from their post-2008 recessionary blues. What kept the domestic manufacturing sector’s hopes alive was the continuing rise in non-oil imports. However, higher crude oil prices and non-oil imports widened the trade deficit to record levels.
The balance of payments came under mild pressure, with the current account deficit threatening to touch three per cent of GDP, in spite of remittances from abroad continuing to post respectable growth. What helped was the surplus on the capital account, propped up by a record surge in flows from foreign institutional investors into the stock market. This more than made up the sharp fall in inflows from a lower level of foreign direct investment.
The biggest concern arose from inflation, which the government failed to tame for almost all of 2010. The wholesale price index-based inflation ruled at well above 10 per cent for the first three quarters and declined to around 9 per cent only in the last quarter. The food inflation rate was higher, touching 17-18 per cent. It has now declined, but continues to be in double digits. Government economists, and even Prime Minister Manmohan Singh, hope that the inflation rate would decline to 5.5 per cent by the end of March 2011.If India’s emergence as a major voice at the Group of Twenty, or G-20, forum heralded its new status in the world economy, its handling of Naxal violence spreading to many more districts at home exposed chinks in the government’s ability to tackle such a movement. Disturbances in Jammu & Kashmir for several weeks also raised doubts about the government’s efficacy in administration of such sensitive domestic issues.
Emboldened by expectations of such revival, Finance Minister Pranab Mukherjee used the Budget for 2010-11 to roll back some of the fiscal stimulus measures introduced in the wake of the global financial meltdown in late 2008. In subsequent months, the Reserve Bank of India (RBI) followed suit by taking many “tiny steps” to gradually tighten the money market and gently nudge the interest rates upwards.
Export growth in the first quarter was robust, at 36 per cent. It slowed down to 27 per cent in the subsequent two quarters, but the outlook appeared much better than in 2009, though the world’s key export markets were yet to recover from their post-2008 recessionary blues. What kept the domestic manufacturing sector’s hopes alive was the continuing rise in non-oil imports. However, higher crude oil prices and non-oil imports widened the trade deficit to record levels.
The balance of payments came under mild pressure, with the current account deficit threatening to touch three per cent of GDP, in spite of remittances from abroad continuing to post respectable growth. What helped was the surplus on the capital account, propped up by a record surge in flows from foreign institutional investors into the stock market. This more than made up the sharp fall in inflows from a lower level of foreign direct investment.
The biggest concern arose from inflation, which the government failed to tame for almost all of 2010. The wholesale price index-based inflation ruled at well above 10 per cent for the first three quarters and declined to around 9 per cent only in the last quarter. The food inflation rate was higher, touching 17-18 per cent. It has now declined, but continues to be in double digits. Government economists, and even Prime Minister Manmohan Singh, hope that the inflation rate would decline to 5.5 per cent by the end of March 2011.If India’s emergence as a major voice at the Group of Twenty, or G-20, forum heralded its new status in the world economy, its handling of Naxal violence spreading to many more districts at home exposed chinks in the government’s ability to tackle such a movement. Disturbances in Jammu & Kashmir for several weeks also raised doubts about the government’s efficacy in administration of such sensitive domestic issues.
