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Economic Survey


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Macroeconomic Overview
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External Sector
Issues and Priorities



GDP growth decelerated to 5 per cent in 1997-98 from 7.5 per cent in 1996-97. The drop in GDP growth is attributable mainly to a sharp fall in the growth rate in agriculture and a deceleration in the growth of industry.
In 1996-97, gross domestic savings and gross domestic investment reached 26.1 per cent and 27.3 per cent of GDP, respectively.
The average inflation rate in 1997-98 was less than 5 % compared to 6.3 % in 1996-97.
The production of foodgrains during 1997-98 is expected to be 194.1 million tonnes compared with 199.3 million tonnes during 1996-97.
Industrial production has grown by 4.2 per cent in 1997-98 compared to 7.1 per cent in 1996-97 and 12.1 per cent in 1995-96.
The Tariff Authority for Major Ports established.
Ordinance for setting up a Central Electricity Regulatory Commission (CERC) at the Centre and State Electricity Regulatory Commissions (SERCs) in the States promulgated on April 25, 1998.
Despite the easy liquidity situation, especially in the first half of 1997-98, credit growth continued to be low because of weak demand for credit and banks' cautious approach to lending
The process of fiscal consolidation received a setback during 1997-98 with the Central Government fiscal deficit (Revised Estimates) reaching 6.1 per cent of GDP as against the budget target of 4.5 per cent. The deterioration in the fiscal deficit was due primarily to a tax revenue shortfall of Rs. 14236 crore (net to Centre), and a shortfall of Rs. 3894 crore in disinvestment receipts.
The capital market continued to remain subdued in 1997-98.
As a measure of import decontrol, 488 items were moved from the restricted list to the OGL between 1-4-1996 and 1-4-1997. An additional 128 items, mainly textiles, were freed during 1997-98, and another 340 items were shifted from the restricted list to the OGL in April 1998.
The current account deficit is expected to be about 1.5 per cent of GDP. Export growth in dollar terms decelerated further to 2.6 per cent in 1997-98 from 5.3 per cent in 1996-97, while import growth decelerated from 6.7 per cent in 1996-97 to 5.8 per cent in 1997-98.
The exchange rate of the rupee with respect to the dollar displayed reasonable stability in 1996-97, thougth the real effective exchange rate appreciated. The stability in the nominal exchange rate of the rupee was disturbed in the last week of August 1997, when the currency market experienced a mild contagion effect of currency turmoil in Southeast Asia.
India's external debt as a per cent of GDP declined to about 24 per cent at end September 1997 from about 26 per cent in 1996-97. Debt service payments declined from 21.4 per cent of current receipts in 1996-97, to about 18 per cent in 1997-98.
Key challenges for economic policy formulation include revival of agricultural, industrial and export growth, containing fiscal deficit and development of physical and human infrastructure.

Postscript : Following the testing of nuclear devices by India in the second week of May 1998, some industrialised countries have reacted negatively in the field of economic relations. As of mid-May (when this document goes for printing), it is too early to assess the implications of these reactions for the short and medium-term development prospects of the Indian economy. One thing however is clear : to the extent to which these reactions render the external economic environment less friendly, to that extent, it becomes more urgent to implement the policy decisions necessary to ensure macroeconomic stability and rapid and sustainable economic growth.


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