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Employeees do celebrate Reforms and expect DTC tfor Tax relief. what happened on the Eve of the Budget may NOT Bother You.EPF rate cut from 9.5% to 8.25% for 2011-12


Employeees do celebrate Reforms and expect DTC tfor Tax relief. what happened on the Eve of the Budget may NOT Bother You.EPF rate cut from 9.5% to 8.25% for 2011-12

Troubled Galaxy Destroyed Dreams, chapter 754


Palash Biswas


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Employeees do celebrate Reforms and expect DTC tfor Tax relief. what happened on the Eve of the Budget may NOT Bother You.EPF rate cut from 9.5% to 8.25% for 2011-12Government on Thursday slashed interest rate on deposits in Employees Provident Fund from 9.5% to 8.25% for 2011-12 affecting over 4.7 crore subscribers.The decision is expected to draw flak from trade union leaders, who insist on budgetary support from the government to maintain 9.5 per cent as the interest rate. This was one of the demands during the day-long general strike on February 28. Disappointing performance of the economy in this fiscal should be a "wake-up call" for the government, the Economic Survey said, but it expressed the hope that growth rate would rebound to 7.6 percent in 2012-13 on the back of moderating inflation and low interest rates.The Survey made a case for fiscal consolidation, tax reforms, opening of the multi-brand retail to global chains, freeing of diesel prices and stressed on honesty quotient,too.Worried over worsening balance of payment situation, the Economic Survey today asked the government to take steps to discourage import of gold and consumer goods.

The Economic Survey for 2011-12 has signalled that India's economic growth has bottomed out and will bounce back to a 7.6% pace in the fiscal year beginning 1 April.As around 61 million subscribers of the Employees Provident Fund Organisation (EPFO) are likely to get lower returns on their deposits this year. The Union ministry of finance has, for the second time, recommended an interest rate of 8.25 per cent for 2011-12; it was 9.5 per cent for 2010-11.This was despite the ministry of labour requesting 8.6 per cent. An official with direct knowledge of the development said the finance ministry felt that was financial imprudence. It is estimated that an 8.5 per cent rate of interest would lead to a deficit in the closing balance in the Interest Suspense Account (Isa), amounting to Rs 526.9 crore. If, however, 8.25 per cent was accepted, this deficit would be no more than Rs 0.24 crore.This cut was proposed by the Finance Ministry and a notification was issued by the Labour Ministry, official sources said.A majority of employees surveyed expect Finance Minister Pranab Mukherjee to increase the income tax exemption limit to Rs 3 lakh in the upcoming Budget, in line with rising inflation, Assocham has said.

The decision of the finance ministry should be treated as final," said a senior EPFO official, on the condition of anonymity. The decision to recommend the matter to the finance ministry was taken in early January, after the central board of trustees of the EPFO failed to reach any decision. In its reply, the finance ministry had recommended an 8.25 per cent interest rate. On February 20, the labour ministry wrote again to the finance ministry, to consider 8.6 per cent. The latter has reiterated its stance.

The Economic Survey has projected that, barring unexpected shocks, headline inflation would ease to 6.5-7 per cent by the end of this fiscal and moderate further in the coming months although spiralling global crude oil prices continue to pose a challenge.

The Survey expects moderation in inflation to continue during the course of 2012-13 on account of tightening of monetary policy by the Reserve Bank of India and other measures. "By March 2012, headline inflation is expected to fall to 6.5-7 per cent and further moderate in the months ahead, barring 'unexpected shocks'..." it said.

Favouring a phased opening of India's multi-brand retail trade to FDI, the Economic Survey 2011-12 today said foreign investment could help in curbing food inflation in a significant way.

"Allowing FDI in multi-brand retail is one of the major issues in this sector. This could begin in a phased manner in the metros, with the cap at a lower level coupled with incentivising the existing 'mom and pop' stores (kirana shops) to modernise and compete effectively with the retail shops, foreign or domestic," the survey said.
Also see: Budget 2012 | Union Budget | Railway Budget | Economic survey

The survey said that the Inter-Ministerial Group (IMG) on inflation has recommended leveraging FDI in multi-brand retail as one of the means for addressing issues relating to high rates of food inflation and low prices realised by Indian farmers.

While agricultural marketing could improve immensely with the growth of modern retail trade, revenue to the government could also increase, as at present the retail sector is largely unorganised and has low tax compliance, it added.

As per IMG on inflation, FDI in multi-brand retail would help in developing a 'farm-to-fork' retail supply system, and addressing the investment gaps in post harvest infrastructure for agricultural produce, it said.

Since 2006, India has been allowing FDI in single brand retail to the extent of 51 per cent. In January 2012, the government removed restrictions on FDI in the single brand retail sector, allowing 100 per cent FDI.

The government has, however, put a condition in respect of proposals involving FDI beyond 51 per cent, making mandatory sourcing of at least 30 per cent of the value of products sold from Indian 'small industries/ village and cottage industries, artisans and craftsmen'.

The value of trade (inclusive of wholesale and retail in the organised and unorganised sectors) in India's GDP at constant prices has grown from Rs 433,967 crore in 2004-05 to Rs 7,42,621 crore in 2010-11, at a CAGR of 9.4 per cent.

"With a high GDP growth in the last five years, and high growth in consuming population, the retail business is of late being hailed as one of the sunrise sectors in the economy," the survey said.

A T Kearney, an international management consultancy firm, has identified India as one of the topmost retail destinations, it added.

The Survey noted that since recent geo-political uncertainties were once again putting pressure on crude oil prices globally, representing 'major risk and challenge' ahead, the "best course of action would be to persist with regular steps — adjustment of domestic energy prices, which would help reduce inflationary pressure and fiscal consolidation efforts".

The Survey said the gap between wholesale price index and consumer price index inflation had significantly narrowed due to drastic fall in food inflation. Underscoring the need for taking fiscal steps to contain the price spiral as the February data showed inflation hovering above the projected level, the Survey pointed out that with the supply-side factors feeding into food inflation and an uncertain economic scenario in advanced countries, the "task of monetary policy calibration has been particularly challenging".

In December, the financial advisory committee of the EPFO had recommended 8.25 per cent as the interest rate. The committee had noted it was "forced" to propose a slash in the interest rate this year, as there was a shortage of Rs 510.35 crore in the Isa. Further, the over-estimation of interest income by 5.7 per cent had resulted in a hole amounting to Rs 854.13 crore from interest income.

Last year, the government's approval of 9.5 per cent was subject to the condition that the accounts of the 47.2 million members' would be updated within six months. Even so, it had clarified that any shortfall in the Isa would be adjusted in 2011-12. Since the government fell short of its estimation, it said it had no option but to decrease the interest rate.

The Employees' Provident Fund Organisation (EPFO) had provided 9.5% interest rate to its subscribers for 2010-11 after it found Rs1,731 crore surplus in its books of account.

The Labour Ministry had recommended 8.6% rate of interest for this fiscal on provident fund deposits to EPFO subscribers.

According to EPFO's income projections, a provision of 8.25% interest for 2011-12 would leave a deficit of Rs24 lakh. It had further noted that an 8.5% rate of return would translate into a deficit of Rs526.44 crore.

"Finance Ministry has decided the interest rate based on what EPFO can pay," Labour Secretary M Sarangi told PTI.

The government decision came under sharp attack with Hind Mazadoor Sabha secretary AD Nagpal, who is also an EPFO trustee, saying it was unfair. "We will oppose this decision at the next meeting of the Central Board of Trustees," he said.

In December, EPFO's trustees had failed to decide on the interest rate for the current fiscal following sharp differences among them on the issue and had sought the Finance Ministry's intervention.

While the EPFO had suggested payment of interest at the rate of 8.25% for 2011-12, the trade union members insisted it should be retained at 9.5%.

The representatives of employers wanted the interest rate to be fixed at 8.5%.

EPFO (Employees' Provident Fund Organisation) is considering fixing the minimum pension for its subscribers at Rs1,000 per month. The Central Board of Trustees (CBT) discussed the proposal to issue contribution cards similar to bank passbooks to over 4.72 million subscribers which would be updated on a monthly basis from 1 April 2012.

CBT could not approve the proposal to benefit its subscribers, as neither employers' representatives nor the union leaders were willing to share any extra load. Of the 3.5 million EPFO pensioners, 1.4 million get monthly payment of less than Rs500 per month. Only 0.7 million pensioners get above Rs1,000 as monthly pension; there are cases where pensioners are getting as low as Rs12-Rs38 per month.

The CBT demanded that the government should bear the additional burden because EPFO is a social security scheme. One solution is to raise the retirement age of employees to 60 years from 58 years (in the EPFO scheme).

Terming the economic performance in the current fiscal as "disappointing", the government's Economic Survey today expressed the confidence that an upswing is imminent and growth rate would rebound to 7.6% in 2012-13, though challenges to contain inflation would remain.

Attributing the decline in economic growth, which is projected to be at three-year low of 6.9% in 2011-12, to global and domestic factors, the Survey, said, "There are signs from some high frequency indicators that the weakness in economic activity has bottomed out and a gradual upswing is imminent".

The economic growth in the current fiscal is expected to slip to 6.9% from 8.4% in the previous two years. India was growing at over nine per cent before the global financial crisis pulled down the growth to 6.7% in 2008-09.

On future prospects, the Survey, an official account of the performance of the economy, said, "The growth  rate of real GDP (is expected) to pick up to 7.6% (plus or minus 0.25%) in 2012-13 and faster beyond that." The growth rate will further improve to 8.6% in 2013-14.

Referring to the major challenges, the Survey said, the government would need to focus on fiscal consolidation, inflation management and reforms of direct and indirect taxes, besides initiating steps to deal with the menace of corruption.

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

A trade deficit of more than 8 per cent of GDP and current account deficit (CAD) of more than 3 per cent is a sign of growing imbalance in India's Balance of Payments (BoP), the survey said.

"There is scope therefore to discourage unproductive imports like gold and consumer goods to restore balance," it added. India's gold imports went up by 64 per cent to USD 38.3 billion during the April-October period of this fiscal.

BoP summarises transactions between a country and the rest of the world, and the account classifies transactions under two head, capital account and current account.

In the second quarter, BoP showed only a marginal surplus of USD 276 million compared to USD 3.29 billion a year-ago. During the first quarter, BoP surplus was at USD 5.44 billion, taking the total account showing an overflow of USD 5.7 billion for the first half.

The survey pointed out that high trade and current account deficits, together with high share of volatile FII flows are making India's BoP vulnerable to external shocks. "Greater attention therefore has to be given to improving the composition of capital flows towards FDI," it said.

CAD has increased to USD 32.8 billion in the first half of 2011-12, as compared to USD 29.6 billion during the corresponding period last fiscal, mainly on account of higher trade deficit.

FII inflows showed marginal increase to USD 29.4 billion in 2010-11, from USD 29.0 billion in 2009-10.

Even though the generation of nuclear power increased by 33 percent this fiscal, no capacity was added against a target of 2,000 MW, the Economic Survey said on Thursday.

According to the survey tabled in the parliament by Finance Minister Pranab Mukherjee, the Eleventh Five Year Plan (2007-12) initially envisaged a capacity addition of 78,700 MW, of which 75.8 percent was thermal, 19.9 percent was hydro, and 4.3 percent was nuclear.

"At the time of the mid-term appraisal of the Eleventh Plan, the target was revised to 62,374 MW with thermal, hydro, and nuclear segments contributing 50,757 MW, 8,237 MW and 3,380 MW respectively," the survey noted.

"Capacity addition of 46,669.7 MW has so far been achieved until Jan 15, 2012. Projects with a capacity of 7,645 MW are under construction for commissioning during the remaining period. Capacity addition during the Eleventh Plan is, therefore, expected to be about 50,000-52,000 MW.

The anti-Kudankulam Nuclear Power Project (KNPP) agitation has spooked the addition of 2,000 MW new atomic power capacity addition this year.

Atomic power plant operator Nuclear Power Corporation of India Ltd (NPCIL) is building two 1,000 MW reactors with Russian technology at Kudankulam in Tirunelveli district, around 650 km from here.

Villagers who have safety concerns have been protesting against the plant. They are also concerned about the long-term impact of the nuclear plant on the population.

Their agitation, spearheaded by People's Movement Against Nuclear Energy, has put a stop to the project work, delaying the commissioning of the first unit by several months.

In September, the Tamil Nadu cabinet passed a resolution asking the central government to stop all project related work till the fears of the locals about the plant were allayed. Speaking to IANS, a senior NPCIL official preferring anonymity said: "The 2,000 MW capacity addition target is only from the Kudankulam project as other projects of NPCIL are under construction."

On the status of KNPP he said: "Only maintenance activity of the first reactor is being done with skeletal staff. Several truck loads of components have been unloaded at the employee township as the vehicles were not allowed to go inside the project complex."

Of the 583 central projects underway involving an outlay of Rs.8.21 trillion only seven are ahead of schedule and 166 are on schedule, says the Economic Survey. The original cost of the projects when sanctioned was Rs.7.12 trillion but delays pushed up costs by 15.3 per cent or Rs.1.08 trillion.

Curiously, 175 projects have been sanctioned without specifying any commissioning schedule while 235 projects are running behind schedule.

Budget at ET: Budget 2012 | Union Budget | Railway Budget 2012 | Budget News | Economic Survey 2012 Live

According to the survey, tabled in parliament by Finance Minister Pranab Mukherjee Thursday, Rs.3.44 trillion has been spent on these projects, which is 41.9 per cent of the revised cost.

"Maximum number of projects delayed relate to road transport and highways (90), followed by power (45), petroleum (29), railways (26), and coal (17)," the survey notes.

In the railways sector, of 132 projects costing more than Rs.1.5 billion, in 101 the anticipated cost is 181 per cent higher than the original estimated cost.

Likewise, cost overruns of 17 projects in the petroleum sector are expected to be 32 per cent. Twelve projects in coal and 13 in road transport are expected to have cost overruns of 29 per cent and 61 per cent respectively.

The delay in railways ranges from 2 to 213 months and in road transport and highways from 4 to 106 months.

According to the survey, analysis based on the flash reports for the month of October 2011 on these projects by the Ministry of Statistics and Programme Implementation (MOSPI), shows sub-optimal project implementation across all the major sectors.

The ministry monitors the progress of all central sector projects involving an outlay of Rs.1.5 billion and above.

"While some of the project delays are due to exogenous factors beyond the control of the implementing agencies, in the majority of cases the delays are mainly due to a dismal record of project implementation starting from project identification and designing to undue delays in procurement (both tendering and contracting) and ineffective project monitoring," says the survey.

Advocating raising fuel price with rise in input cost, the pre-Budget Economic Survey today asked the government to pay a fixed amount per litre as diesel subsidy so as to cut subsidy outgo.

"For diesel, where even the rudimentary first step for freeing prices has not yet occurred, a possible intermediate step is to fix a per litre subsidy from the government," said the Survey that sets context for the Budget to be presented by Finance Minister Pranab Mukherjee tomorrow.

"In other words, for every litre of diesel sold by an oil-marketing company, the government will give a fixed subsidy of a certain number of rupees," it said.

The Survey advocated shifting the burden of higher international oil prices to consumers to not just limit government's subsidy bill but also curb diesel consumption.

Currently, the finance ministry meets about half of the revenue that state-owned oil firms lose on selling diesel, domestic LPG and kerosene at government-controlled rates. It provided Rs 41,000 crore fuel subsidy in 2010-11. This fiscal, the oil firms are projected to lose over Rs 137,000 crore in revenue.

"If the price of crude rises, with the subsidy per litre fixed, the consumer's price will rise and so the signal to save on the use of diesel will be transmitted," it said.

The Survey said it was possible to make this system more sophisticated by requiring that the per-litre subsidy be raised if the price rises too high, in order to cushion the consumer.

"What is important is that the subsidy should be pre-specified so that, thereafter, government stays fully out of the picture.

The government should aim at "result-oriented" free trade agreements as there are no signs of any meaningful conclusion of Doha Round of talks for a global trade deal in the near future, the Economic Survey 2011-12 said today.

"While there are no signs of any meaningful conclusion of WTO negotiations in the near horizon, India's push towards regional and bilateral agreements should result in meaningful and result-oriented FTAs and CECAs," the survey said.

India is negotiating about a dozen free trade agreements with countries like Australia, Indonesia, New Zealand, Canada, and European Union.

Over 150 WTO members have been negotiating a new agreement for liberalising the world trade since 2001 without a breakthrough.

The talks have been marred by wide differences between the developed and developing countries on the level of opening and protection of their respective markets, the survey said.

India has successfully implemented comprehensive free trade pacts with Malaysia, Japan and South Korea.

The survey added that the challenges for India on the trade front are daunting but needs to be addressed with speed and dexterity as the opportunities are equally great and still untapped.

Reeling under the pressure of borrowings for 3G services, the profit of telecom sector is likely to dip by 84.7 per cent in 2011-12, Economic Survey today said.

"PAT (Profit After Tax) during 2011-12 is expected to fall by 84.7 per cent, mainly on account of the sharp rise in the industry's interest outgo and higher depreciation charges due to the heavy borrowings for acquiring 3G licences and rolling out 3G services," the survey said.

The pre-Budget document said it expects sales of telecom industry to slow down in 2011-12 to 8.7 per cent from 10.5 per cent during 2010-11. However, it expects the revenues to gain momentum in 2012-13 with a growth rate of 10.6 per cent.

The survey estimates that profit margin of IT sector also to remain under pressure inspite of healthy growth in topline.

For the year ending March 2012, the Indian IT industry's sales are expected to grow by 20.5 per cent and another 18.5 per cent during 2012-13, driven mainly by an increase in orders.

Profit after tax (PAT) is expected to grow by 13.1 per cent in 2011-12 and 14.2 per cent in 2012-13, the survey said.

While software services exports have continued to be steady, the unfolding events in the euro zone could lead to some sluggishness in the sector, it added.

The survey said that these two services sectors ,software and telecom, can be a high growth propelling force for many more years to come with positive spillovers to other sectors and can give a cutting edge in these sectors while facing international competition.

Though Indian banks' exposure to the troubled euro zone is negligible, funding pressure could impact them, Economic Survey 2011-12 today said.

"The recent regulatory prescriptions for European banks have raised fears of deleveraging. Indian banks are not expected to bear any direct impact on account of their negligible exposure to the troubled zone," the survey tabled by Finance Minister Pranab Mukherjee today in the Parliament said.

"However, they could be indirectly affected on account of funding pressures," it said.

The scope for countercyclical financial policy could be explored in financial regulations in order to minimise negative impact of accumulated financial risks, it said.

This will go a long way in providing needed stability to the financial system, it added.

The survey noted sovereign risk concerns, particularly in the euro area, affected financial markets for the greater part of the year, with the contagion of Greece's sovereign debt problem spreading to India and other economies by way of higher-than-normal levels of volatility.

Despite the demanding operational environment, it said, the Indian banking sector demonstrated continued revival from the peripheral spill over effects of the recent global financial turmoil.

Highlighting the importance of financial inclusion in the financial sector, the Survey said it is seen as an important determinant of economic growth.

Banks need to take into account various behavioural and motivational attributes of potential consumers for a financial inclusion strategy to succeed, it said.

Besides, it said, access to financial products is constrained by lack of awareness, unaffordable products, high transaction costs, and products which are not customised and are of low quality.

A major challenge in the times ahead would be to meet financing requirements, particularly of the unorganised sector and the self-employed in the micro and small business sector, it said.

India has become the fourth largest economy in the world due to a strong economic growth but still has a low per capita income, the Economic Survey revealed on Thursday.

"India has emerged as the fourth largest economy globally with a high growth rate and has improved its global ranking in terms of per capita income. Yet, the fact remains that its per capita income continues to be quite low," it said.

"India has moved up the ranks, but is still the poorest among the G-20," the survey added. The per capita income of India stood at USD 1,527 in 2011, it said. "...this is perhaps the most visible challenge. Nevertheless, India has a diverse set of factors, domestic as well as external, that could drive growth well into the future," the survey said.

Between 1980 and 2010, India achieved a growth of 6.2 per cent, while the world as a whole registered a growth rate of 3.3 per cent. As a result, India's share in global GDP more than doubled from 2.5 per cent in 1980 to 5.5 per cent in 2010, it said.

Consequently, India's rank in per capita GDP showed an improvement from 117 in 1990 to 101 in 2000 and further to 94 in 2009. China, however, improved its rank from 127 to 74 during the same period. G-20 or the Group of 20 nations was formed in 1999 after the East Asian crisis as a forum of finance ministers and central bank governors.

Meanwhile, the survey said any slowdown in eurozone, which accounts for 19 per cent of the global GDP, could impact the Indian economy. The International Monetary Fund ( IMF) has forecast that the eurozone is likely to go through a mild recession in 2012.

Admitting that corruption scandals and coalition compulsions have slowed down reforms, a day ahead of the Budget, the government today said it is facing fiscal slippages and made a strong pitch for raising tax resources.

The Reserve Bank too expressed concern over the deteriorating state of government finances and called for fiscal consolidation to control inflation.

The government, in the Economic Survey shared RBI's concerns that inflation and fiscal slippages were among the main challenges before the economy. It said there was a slackening in the pace of reforms and high-profile corruption scandals along with "welcome civil society activism" have led to delay in decision making by bureaucrats.

The Survey presented before Parliament by Finance Minister Pranab Mukherjee said, "the coalition politics and federal considerations played their roles in holding up economic reforms on several fronts, ranging from diesel and LPG pricing...to...FDI in retail." It also attributed economic slowdown partly to domestic issues "like pressures of democratic politics".

RBI, while keeping interest rates unchanged to keep prices under control in its monetary policy review, pointed to the deterioration in central government finances. "Credible fiscal consolidation will be an important factor in shaping the inflation outlook," RBI Governor D Subbarao said.

Agreeing with the RBI on the need for fiscal consolidation, the Survey said: "The principal way in which this has to be achieved is by raising tax-GDP ratio and cutting down wasteful expenditures." At present the ratio is 10.5 per cent, "and all effort has to be made to raise this".

The Survey was also endorsed RBI's views with respect to inflationary challenges facing the economy. "...vigilance will be required and steps need to be taken to quickly deal with any unexpected developments and global shocks such as increases in the price of crude oil," it said.

While both RBI and the government projected better outlook in the coming financial years, 2012-13 and 2013-14, they attributed the slowdown in the economy in the current fiscal to global and domestic factors. After close to 7 per cent growth in 2011-12, the government expects economic expansion to be around 7.6 per cent in the next fiscal.

Economy was growing at over nine per cent before the global financial crisis pulled down the growth rate to 6.7 per cent in 2008-09. It was 8.4 per cent in the last two financial years.

Indian stock markets have given the second highest returns between 2003-04 and April-December of 2011-12 among the prominent Asian bourses over the past eight years, according to the Economic Survey.

An analysis of major Asian countries' stock indices show that the 30-share Sensex gave the second maximum cumulative returns, while the highest return was given by Indonesia's benchmark Jakarta Composite Index, the Economic Survey 2011-12 said.

"Among selected Asian Indices, the Jakarta Composite Index posted a maximum cumulative return of 419.5 per cent in 2011-12 (April-December) over 2003-04 followed by the BSE Sensex Index (176.4 per cent), S&P CNX Nifty Index (161.0 per cent)...," it said.

Other indices compared are Japan's Kospi, Indonesia's Kuala Lumpur Comp, Hong Kong's Hang Seng, Taiwan's TSEC.

During the same period, the returns of other indices were "Kospi Index (107.4 per cent), Kuala Lumpur Comp Index (69.7 per cent), Hang Seng Index (45.4 per cent), SSE Composite Index (26.3 per cent), and TSEC weighted Index (8.4 per cent)," the report said.

The Economy Survey 2011-12 was tabled by the Finance Minister Pranab Mukherjee in the Parliament on Thursday. Following are the highlights of Survey, a report card of the Indian economic scenario for current fiscal:

* The country's economic growth estimated at 6.9 per cent in the current fiscal; growth momentum to pick up in next two fiscals to 7.6 per cent 2012-13 and 8.6 per cent in 2013-14.

* RBI expected to lower policy interest rates, as inflationary pressures expected to ease in coming months; A low interest rate regime to encourage investment activity and push forward economic growth.

* Steps required for deepening of domestic financial markets, especially corporate bond market and attracting longer-term inflows from abroad; Efforts at attracting dedicated infrastructure funds have begun.

* The growth rate of investment in the economy is estimated to have declined significantly; borrowing costs up due to a sharp increase in interest rates.

High borrowing costs and increase in other costs affecting profitability and internal accruals.

* Slowdown in Indian economy largely due to global factors, as also because of domestic factors like tightening of monetary policy, high inflation and slower investment and industrial activities.

* Inflation high, but showing clear signs of slowdown by the year-end; Whole-sale food inflation down to 1.6 per cent in January 2012 from 20.2 per cent in February 2010.

* India remains one of the fastest growing economies of the world; Country's sovereign credit rating rose by a substantial 2.98 per cent 2007-12.

* Exports grew by 40.5 per cent in the first half of this fiscal and imports grew by 30.4 per cent; Foreign trade performance to remain key driver of growth.

* Forex reserves expanded further, covering almost the entire external debt stock to the country.

The government has earmarked Rs 12,000 crore for infusion in the public sector banks (PSBs) in the current fiscal, which is double the amount provided in the Budget 2011-12.

"A sum of Rs 12,000 crore has been provided in the Revised Estimates 2011-12...for capital infusion in PSBs to enable them to maintain a minimum Tier I CRAR at 8 per cent as on March 31, 2012 and also to increase shareholding of the government of India in the PSBs to 58 per cent," the Economic Survey 2011-12 said today.

For the year 2012-13 also, it said, the Government is committed to keep all the PSBs adequately capitalised so that the growth momentum of economy is sustained.

"As capital is a key measure of bank's capacity for generating loan assets and is essential for balance sheet expansion, the government of India has regularly been investing additional capital in the PSBs to support their growth and keep them financially sound and healthy so as to ensure that the growing credit needs of economy are adequately met," the survey said.

Finance Minister Pranab Mukherjee while presenting 2011-12 Budget last year had said: "I propose to provide a sum of Rs 6,000 crore for the year 2011-12 to enable Public Sector Banks to maintain a minimum Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 per cent."

He had said the government provided Rs 20,157 crore for infusion in PSBs to maintain Tier I CRAR at 8 per cent and increase the government equity in some banks to 58 per cent in 2010-11.

The survey also said the government has appointed a high level committee headed by the Finance Secretary to assess the need for capitalisation of various PSBs for the next 10 years, keeping in view various challenges PSBs have to face due to the impending implementation of Basel III norms.

The Committee has submitted its report to the government which is under consideration, the survey said.

The government is signing memorandum of understandings (MoUs) with the PSBs whereby capital infusion will be linked to achieving the targets by PSBs on various key parameters on productivity, including return on assets, net profit per employee and cost to income ratio, it said.

MoUs spanning over a period of four years, 2011-12 to 2014-15, have since been finalised with all the PSBs, excluding SBI Associate Banks. SBI will be entering into MoU with its associate banks on similar parameters, it said.

The UIDAI's Aadhaar project for providing unique identity numbers to residents, has huge potential to improve the delivery of social sector schemes like rural employment guarantee, the Economic Survey 2011-12 said.

"Aadhaar has huge potential for improving operations and delivery of services," the survey said.

The Unique Identification Authority of India ( UIDAI), attached to the Planning Commission, is engaged in providing residents in the country a Unique Identification number (called Aadhaar) linked to the resident's demographic and biometric information.

The project aims to create a platform that serves as an identification infrastructure for delivery of public and private services to the residents of India.

The survey suggested that the incorporation of the Aadhaar into the rural employment guarantee scheme will assist in addressing some of the major challenges like payment of wages and ghost beneficiaries.

It observed that Aadhaar can replace the need to provide supporting documentation for the standard Know Your Customer (KYC) drills, making opening of a bank account significantly simpler.

Besides, once each citizen in a job card needs to provide his UID before claiming employment, the potential for ghost or fictitious beneficiaries in this regard is eliminated.

The survey further pointed out that by using Aadhaar, it is possible to have the subsidy go directly to the target households who can then purchase their food items from any Public Distribution Store or may be even non-PDS shops.

Industrial growth is likely to rebound next fiscal on moderation in inflation and easing global commodity prices, the Economic Survey said today. Besides, the government is moving quickly to clear bottlenecks in critical sectors such as power, it added.

"With the easing of headline inflation, moderation in commodities prices in the international market, and revival of manufacturing performance in recent months in the major economies, India's industrial sector is expected to rebound during the next financial year," Economic Survey 2011-12 said.

The growth of industrial sector during 2011-12 is pegged between 4 and 5 per cent, less than the annual growth rates achieved in the recent past and far below the potential.

During the April-January period of this fiscal, the factory output growth, as measures on the Index of Industrial Production was 4 per cent year-on-year. However, the IIP numbers for January showed pick up.

Inflation, which remained near 9 per cent during most of this fiscal, was at 6.95 per cent in February.

However, the survey said, the challenges faced in the short-term to boost industry would be to shore up business sentiment, spur investment and identify bottlenecks that can be removed in a reasonably short period of time.

"The government has already made some quick moves to clear bottlenecks in some critical sectors such as coal and power and is also pushing forward project implementation in some key infrastructure sectors," it added.

The Committee of Secretaries, headed by Prime Minister Manmohan Singh's Principal Secretary Pulok Chatterjee, has been addressing issues of power sector to boost investors' confidence.

Meanwhile, the central bank in its mid-quarter Monetary Policy Review has said that while growth in the capital goods and intermediate goods sectors was negative during the first 10 months of 2011-12, growth in the basic goods and consumer goods decelerated marginally.

RBI said corporate sales growth in third quarter of 2011-12 was robust, margins moderated and reflecting increasing difficulty in passing on rising input prices.

The government's subsidy burden this fiscal will surpass the budget estimates of Rs 1,34,211 crore due to higher payout in fuel subsidies following high global crude oil prices, the Economic Survey 2011-12 said.

With international crude prices averaging $111 per barrel in 2011 against $80 a barrel in the previous year, the government's payout to keep domestic retail price of auto and cooking fuels as well as fertilisers would see a substantial rise.

"What is critical here is that policies need to be in place to cater to the uncertainties that might arise during the course of the year, particularly in dealing with risk like global oil prices that have acquired a systematic nature," the document, that is considered a guide to the Budget, said.

While the budget estimate (BE) 2011-12 put subsidies at Rs 1,34,411 crore, given the build-up so far in crude prices, they are likely to be much higher this year, the survey said.

Major subsidies grew appreciably in 2010-11 and were at Rs 1,31,212 crore, the document, which was placed in the Parliament by Finance Minister Pranab Mukherjee today, said.

Despite the high global crude prices, the government did not pass on most of the increase in retail prices of petrol, diesel, domestic LPG and kerosene to the consumers.

State-owned oil firms are projected to lose about Rs 1,35,000 crore this fiscal on selling fuel below cost. The government would have to make up at least half of this from Budget.

Also, fertiliser subsidy would exceed the budgeted target due to rise in imported cost as well as an increase in input fuel cost.

"Petroleum products subsidies have also gone up in the recent years on account of high global prices of crude petroleum. Given the high headline inflation levels, the pass through of global prices to the domestic market was limited," the survey said.

The survey also projected that the proposed Food Security Bill will lead to a rise in subsidy levels.

"In so far as food subsidies are concerned, the National Food Security Bill seeks to correct the under-consumption by the poor and other vulnerable sections and might entail some rise in levels of subsidy when operationalised," it predicted.

The Economic Survey 2011-12 said delay in infrastructure projects may affect competitiveness of the economy in long run and called for and "new models of financing" the sector whose funding requirement in the 12th Plan is estimated at around $ 1 billion.

"In view of the massive requirement of funds, all efforts need to be made to attract big-ticket long-term investors such as strategic investors, private equity funds, pension funds, and sovereign funds," the Survey tabled in Parliament today said.

It added that "there is a need for introducing more innovative schemes to attract large-scale investment into infrastructure...Strengthening domestic financial institutions and development of a long-term bonds market may be critical".

Stating that 50 per cent of the projected investment will come from the private sector in the next Five Year Plan, the survey said, "financing infrastructure will, therefore, be a big challenge in the coming years and will require some innovative ideas and new models of financing".

Taking a cue from the realisation of investment targets for infrastructure during the current Plan, the survey expressed hope that financing of the ambitious 12th Five Year Plan investment target would be possible.

According to the survey, the bank credit to the projects in the sector had witnessed a healthy growth of 48.4 per cent per annum during 2006-11, increasing from Rs 30,286 crore during 2006-07 to Rs 146,767 crore during 2010-11.

However, the credit growth has turned negative in the current financial year and at Rs 70,155 crore, net credit to the infrastructure sector during April-December 2011 was nearly 61 per cent lower than the same period of last fiscal, it noted.

The survey also called for "a conducive environment for private sector participation with a transparent and credible regulatory mechanism" for financing the infrastructure projects, so that to reduce the pressure on public-sector funding.

Emphasising that the performance in core infrastructure sectors is still to a large extent dependent on public sector projects, it said that in the next Five Year Plan, the public sector investment will need to increase to over Rs 22.5 lakh crore, a rise of over 71 per cent than the current Plan.

Noting that out of 583 projects in different infrastructure sectors, 235 are delayed as on October, 2011, and have seen cost overrun of 15.3 per cent cumulatively, the survey said that the sector has also suffered due to a time lag in the physical capacity creation and time overruns.

"These not only delay availability, but through cost overruns raise pricing and affordability issues. Infrastructure costs, as these are often non-tradeables, may also affect the competitiveness of economy in long run," it further said.
 

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