GDP growth slowed to below 5 per cent for two consecutive years, i.e. 2012-13 and 2013-14. The combination of domestic structural constraints, inflationary pressures, particularly food inflation and uncertainty in the global economy, has affected growth and posed challenges for macroeconomic stability.The growth slowdown was broad based, affecting in particular the industrial sector.Aided by favourable monsoons, the agricultural and allied sector grew at 4.7 per cent in 2013-14.

In 2013-14 industry grew at 0.4 per cent. The key reasons for poor performance have been contraction in mining activities and deceleration in manufacturing output. Manufacturing and mining sector GDP declined by 0.7 per cent and 1.4 per cent respectively in 2013-14. The underlying cause of the poor performance of these two sectors has been considerable deceleration in investment, particularly by the private corporate sectorduring 2011-12 and 2012-13. In infrastructure delays in regulatory approvals, problems in land acquisition & rehabilitation, environmental clearances and time overruns in the implementation of projects are matters of concern.

Consumer price inflation declined from 10.21 per cent during FY 2013-14 to about 9.49 per cent in 2013-14. However, food inflation remained stubbornly high during FY 2013-14. Contribution of the commodity sub-groups, ‘fruits and vegetables’, as well as ‘egg, meat and fish’ to the food inflation has been very high.

India’s balance-of-payments position improved in 2013-14 with current account deficit (CAD) at US $ 32.4 billion (1.7 per cent of GDP) as against US$ 88.2 billion (4.7 per cent of GDP) in 2012-13. India`s exports at US$ 312.6 billion grew by a positive 4.1 per cent compared to the previous year’s negative growth of 1.8 percent. Import growth decelerated from 0.3 per cent in 2012-13 to a negative 8.3 per cent in 2013-14, owing to fall in non-oil imports by 12.8 per cent primarily due to restrictions on gold imports. POL imports grew marginally by 0.7 per cent.Services grew at 6.8 per cent in 2013-14.

The growth rate of the combined category of trade, hotels, and restaurants and transport, storage, and communications decelerated to 3.0 per cent while financing, insurance, real estate, and business services grew robustly at 12.9 per cent. Challenges to the external environment remain as the global environment remains uncertain.

In 2013-14, public finances faced serious challenges. With a shortfall in tax revenues and disinvestment receipts and higher than budgeted subsidies, interest and pension payments, fiscal consolidation was mainly achieved through a reduction in grants for creation of capital assets and capital expenditure. An important factors in the increase in the Centre’s fiscal deficit after 2008-09 has been the sharp increase in subsidies from 1.42 per cent of GDP in 2007-08 to 2.56 per cent of GDP in 2012-13. For 2013-14 the subsidy bill is 2.26 per cent of GDP.

In the financial sector, leverage by infrastructure firms and deteriorating asset quality of the banking sector emerged as a major concerns. Gross NPAs of banks increased from 2.36 per cent of total credit advanced in March 2011 to 4.40 per cent of total credit advanced in December 2013 with infrastructure, iron and steel, textiles, aviation and mining emerging as the stressed sectors.Reforming the financial sector would involve reducing financial repression through which the state usurps a large share of household financial savings, financial sector regulatory reform and changing the laws and regulations governing the flow of foreign capital into India.

The passage of the PFRDA Act, the shift of commodity futures trading into the Ministry of Financeand the first steps towards adoption of improved consumer protection and better regulatory practices proposed by the Financial Sector Legislative Reforms Commission were the milestones in financial sector reform in 2013-14.

The Survey identifies the need to address long run problemsto improve the investment climate. It emphasizes the need for creating a framework for low and stable inflation, setting public finances on a sustainable path by tax and expenditure reform, and creating the legal and institutionalframework for a well-functioning market economy.It calls for legislative and administrative reform for building state capacity to allow businesses to operate in a stable environment and improve the ease of doing business.

The Survey calls for putting public finances on the sustainable path through fiscal correction, a new Fiscal Responsibility and Budget Management Act with teeth, better accounting practices, greater transparency and improved budgetary management. It argues that improvements on both tax and expenditure are needed to obtain high quality fiscal adjustment.

It calls for a tax regime that is simple, predictable and stable consisting of a single-rate goods and services tax (GST), fewer exemptions in direct taxes, and a transformation of tax administration. Government expenditure reform should involve three elements: shifting subsidy programmes away from price subsidies to income support, a change in the focus of government spending towards provision of public goods, and a focus on outcomes through an improvement in systems of accountability. For example, a focus on health and education outcomes, rather than inputs and expenditure must be a priority.

The Survey recommends that the government needs to move towards a low and stable inflation regime through fiscal consolidation, establishing a monetary policy framework, and creating a competitive national market for food. Initiation of reforms on these fronts should reduce inflation uncertainty and restore a stable business environment. Further lower inflationary expectations should increase domestic household financial saving and make resources available for investment.

The Survey calls for reforming the food market. Restrictions on farmers to buy, sell and store their produce to customers across the country and the world imposed by Indian laws enacted in the 1950s and 60s have not been removed, even though restrictions on industry were removed long ago. Restoring economic freedom of farmers and allowing them to be part of a competitive national market is essential for controlling food inflation. There is a huge opportunity today for Indian agriculture to be transformed through creation of markets and well as state intervention in public goods such as rural infrastructure and training as well as setting up modern regulatory frameworks for warehousing and commodity futures. Rationalisation of subsidies on inputs such as fertilizer and food is essential. Government needs to eventually move towards income support for farmers and poor households, so that market forces are able to respond to changes in consumption and technology.

The Survey also discusses the need for revamping some of the social sector schemes such as MNREGA, NRHM, SSA, etc. It is felt that the outlays for the different schemes have not often translated fully into outcomes owing to the poor delivery mechanism. Leveraging modern technology for efficient delivery of programmes, removing the multiple layers of governance, simplifying procedures, and greater participatory role by the beneficiaries can help in creating a better delivery mechanism. There is a need for greater degree of accessibility to information for the public, especially about the role, rights, and entitlements of the PRIs. Focused attention on raising the awareness levels and capacity-building activities at gram sabha level and devolution of powers in real terms, i.e. funds, function, and functionaries to the PRIs will lead to better and more effective planning, execution, monitoring and social audit of panchayat centric programmes.

Highlights of Economic Survey 2013-14

Chapter 1: State of the Economy and Prospects

· Economy to grow in the range of 5.4 – 5.9 per cent in 2014-15 overcoming sub-5 percent growth.

· Growth slowdown was broad based, affecting in particular the industry sector.

· Aided by favourable monsoons, agricultural and allied sector registered a growth of 4.7 per cent in 2013-14.

· Industry and Service sectors also witnessed slowdown.

Chapter 2: Issues and Priorities

· Reforms needed for long term-growth prospects on 3 fronts- low and stable inflation regime, tax and expenditure reform   and regulatory framework.

· Survey suggests removal of restriction on farmers to buy, sell and store their produce to customers across the country and   the world.

· Rationalisation of subsidies on inputs such as fertilizer and food is essential.

· Government needs to eventually move towards income support for farmers and poor households.

Chapter 3: Public Finance

· The fiscal policy for 2013-14 was calibrated with two-fold objectives; first, to aid growth revival; and second, to reach the   FD level targeted for 2013-14.

· The Budget for 2013-14 followed the policy of revenue augmentation and expenditure rationalization to contain government    spending within sustainable limits.

· The fiscal outcome of the central government in 2013-14 was achieved despite the macroeconomic challenges of growth   slowdown, elevated levels of global crude oil prices, and slow growth of investment.

Chapter 4: Prices and Monetary Management

· High inflation, particularly food inflation, was the result of structural as well as seasonal factors.

· IMF projects most global commodity prices are expected to remain flat during 2014-15.

· The RBI with a view to restoring stability to the foreign exchange market, hiked short term interest rate in July and   compressed domestic money market liquidity.

CHAPTER 5: FINANCIAL INTERMEDIATION

· RBI has indentified five sectors -- infrastructure, iron and steel, textiles, aviation and mining as the stressed sectors.

· Public sector banks (PSBs) have high exposures to the ‘industry’ sector in general and to such ‘stressed’ sectors in   particular.

· The New Pension System (NPS), now National Pension System, introduced for the new recruits who join government service    on or after January 2004, represents a major reform of Indian pension arrangements.

· The next wave of infrastructure financing will require a capable bond market.

Chapter 6: Balance of Payments

· The India’s balance-of-payments position improved dramatically in 2013-14 with current account deficit at US $ 32.4 billion    as against US$ 88.2 billion in 2012-13.

· India’s foreign exchange reserves increased from US$ 292.0 billion at end March 2013 to US$ 304.2 billion at end march   2014.

· India’s external debt has remained within manageable limits due to the external debt management policy with prudential   restrictions on debt varieties of capital inflows.

 Chapter 7: International Trade

World trade

· World trade volume which decelerated to 2.8 per cent in 2012 has shown signs of recovery in 2013, albeit slow with a 3.0   per cent growth.

· The sharp fall in imports and moderate export growth in 2013-14 resulted in a sharp fall in India`s trade deficit by 27.8 per   cent.

· In April-May 2014, trade deficit declined by 42.4 per cent.

Chapter 8: Agriculture and Food Management

· Record food grains and oilseeds production of 264.4 million tonnes (mt) and 32.4 mt is estimated in 2013-14.

· Horticulture production estimated at 265 mt in 2012-13 has exceeded the production of foodgrains and oilseeds for the first   time.

· Due to higher procurement, stocks of foodgrains in the Central Pool have increased to 69.84 million tonnes as on June 1,   2014.

· The net availability of foodgrains increased to 229.1 million tonnes and that of edible oils to 12.7 kg per year in 2013.

Chapter 9: Industrial Performance

· The latest gross domestic product (GDP) estimates show that industry grew by just 1.0 per cent in 2012-13 and slowed    further in 2013-14, posting a modest increase of 0.4 per cent.

Chapter 10: Services Sector

· India ranked 12th in terms of services GDP in 2012 among the world’s top 15 countries in terms of GDP (at current prices).

· India has the second fastest growing services sector with its CAGR at 9.0 per cent, just below China’s 10.9 per cent, during   2001 to 2012.

· In 2013-14, FDI inflows to the services sector (top five sectors including construction) declined sharply by 37.6 per cent to   US$ 6.4 billion compared to an overall growth in FDI inflows at 6.1 per cent resulting in the share of the top five services in    total FDI falling to nearly one-sixth.

Chapter 11: Energy, Infrastructure and Communications

· Major sector-wise performance of core industries and infrastructure services during 2013-14 shows a mixed trend. While   the growth in production of power and fertilizers was comparatively higher than in 2012-13, coal, steel, cement, and   refinery production posted comparatively lower growth. Crude oil and natural gas production declined during 2013-14.

· The performance of the coal sector in the first two years of the Twelfth Plan has been subdued with domestic production at   556 MT in 2012-13 and 566 MT in 2013-14.

· A total length of 21,787 km of national highways has been completed till March 2014 under various phases of the NHDP. In   spite of several constraints due to the economic downturn, the NHAI constructed 2844 km length in 2012-13, its highest   ever annual achievement. During 2013-14 a total of 1901 km of road construction was completed.

· From the infrastructure development perspective, while important issues like delays in regulatory approvals, problems in   land acquisition & rehabilitation, environmental clearances, etc. need immediate attention, time overruns in the   implementation of projects continue to be one of the main reasons for underachievement in many of the infrastructure   sectors.

Chapter 12: Sustainable Development & Climate Change

· Human- induced Greenhouse gas (GHG) emissions are growing and are chiefly responsible for climate change.

· The world is not on track for limiting increase in global average temperature to below 2◦C, above pre-industrial levels. GHG   emissions grew on average 2.2 per cent per year between 2000 and 2010, compared to 1.3 per cent per year between 1970   and 2000.

· There is immense pressure on governments to act through two new agreements on climate change and sustainable   development, both of which will be global frameworks for action to be finalized next year.

· The cumulative costs of India’s low carbon strategies have been estimated at around USD 834 billion at 2011 prices,    between 2010 and 2030.

Chapter 13: Human Development

 India’s Human Development Rank and performance

· According to HDR 2013, India has slipped down in HDI with its overall global ranking at 136 (out of the 186 countries) as   against 134 (out of 187 countries) as per HDR 2012. It is still in the medium human development category.

· The poverty ratio (based on the MPCE of ` 816 for rural areas and `1000 for urban areas in 2011-12 at all India level), has  declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12.

· In absolute terms, the number of poor declined from 407.1 million in 2004-05 to 269.3 million in 2011-12 with an average   annual decline of 2.2 percentage points during 2004-05 to 2011-12.

· During 2004-05 to 2011-12, employment growth [CAGR] was only 0.5 per cent, compared to 2.8 per cent during 1999-2000   to 2004-05 as per usual status.