Economic Survey 2009-10 was presented in the Parliament on February 25, 2010 on the eve of

the Budget. The theme of the Economic survey 2009-10 was that " Economy bounces back from
the Global Slowdown and is now on the track to achieve its growth path of 9%"
In the following pages, GKtoday makes some efforts to present its readers a very simplified
version of the Economic Survey 2009-10.
The idea behind this work is to make an average student, who is not from Economics
background understand the basics of the macroeconomical trends of our economy, which is very
much essential for every aspirant of every examination.
For advanced study , please download these 11 Chapters from the website of Government of
India

1. What is an Economic Survey?

2. GDP Outlook
3. Agriculture, Forestry and Fishing
4. Overall Sectoral Growth Figures
5. Industry & Infrastructure
6. Gross Domestic Savings
7. Capital Formation
8. Sectoral Investments
9. Inflation
10. Balance of Payments
11. India's Trade Performance
12. India's Foreign Exchange Reserves
13. Exchange Rates: Indian Rupee v/s US Dollar
14. India's Monetary Policy
15. Human Development, Poverty and Public Programmes

What is an Economic Survey?

Economic survey is an annual commentary on the state of the economy of India which is put
together by Finance Ministry of India. It is a document which presents economic development
during the course of the year. The draft of the survey is prepared by Department of Economic
Affairs and cleared by Chief economic Advisor and the secretary Economic Affairs. The final
version is vetted by Finance secretary and Finance Minister.
When an Economic Survey is presented?
Economic survey is presented every year shortly before presenting the Union Budget of govt. of
India, or just after the railway budget. Out of the 10 to 11 chapters presented, the first chapter
which is titled “State of the Economy and prospects” deals in detail with overall macroeconomic
performance of the country.
What is the objective of an Economic Survey?
An economic Survey provides an opportunity for the government of India to spell out its
economic agenda. The govt. also represents its issues and priorities.
Economic Survey 2009-10: GDP Outlook

Introduction:
Year 2009-10 started as a difficult Year for Indian economy. The Global Economic Slowdown
had retarded the growth of our economy more prominently in the second half of 2008-09. This
was a time when the Global Financial crisis was at its full swing and had spread its tentacles to
all parts of the word.
Base year:
Here, a point has to be noted that with the release of the quick estimates of National Income for
year 2008-09, the central statistical organization (CSO) and changed the base year of its NAS
(National Accounts Statistics) from 1999-2000 to 2004-05.
Growth Projects:

1. The overall growth of GDP at factor Cost at constant prices in 2008-09 as per revised
estimates released by the Central statistical organization was 6.7 %.
2. The turnaround in the Indian economy came in the second quarter of 2009-10 when
India’s economy grew by 7.9 %.
3. As per the advance estimates for GDP for 2009-10 released by the central statistical
organization the economy is expected to grow at 7.2% in 2009-10.
4. Industry and service sectors are expected to grow by 8.2 & 8.7% respectively.
5. The manufacturing sector had shown a declining trend for last 8 quarters (since 2007-08),
but now has got some momentum.
6. There was also a decline of agricultural output by 0.2 % in 2009-10 due to poor
Monsoons.
7. The economic survey expected that economy is likely to grow by 8.75% in 2010-11 and
return to 9% growth in 2010-12. Following chart shows the growth of GDP (at Factor
Cost 2004-05 prices)
 8. Over all Savings rate for 2008-09 is 32.5% of GDP which is slightly less than the
previous year 2007-08 (34.9%). The Capital Formation rate for 2008-09 is 34.9% of GDP
which is too slightly less than last year 2007-08 (37.7%)

Per capita National Income for the Year 2009-10 is Rs. 43749 (factor cost at current prices)
compared to Rs. 40141 for the previous year 2008-09. The following graphic shows the trend of
the per Capita Net National Income:

Per Capita Income Growth:

1. The growth rates in per capita income and consumption are the gross measures of welfare
in general. The percapita income as well as consumption has increased, yet the growth in
these two parameters has decreased. This reflects the decline in overall GDP growth.
2. Growth in per capita income in 2007-08 was 8.1% which declined to 5.3% in 2009-10.
3. Growth in percapita consumption was 8.3% in 2007-08 which has declined to 2.7 % in
2009-10.
 4. The following graphics show the trend of the per capita income and consumption at
2004-05 market prices.

Survey Recommendations and Important Notes:

1. The Survey recommended a gradual roll back of fiscal stimulus measures undertaken
over the last 15-18 months. The prime minister’s Economic Advisory Council had also
suggested the partial rollback of stimulus measures.
2. The Survey warns a "higher-than-anticipated" general level of inflation.
3. The Survey recommended effective steps to be taken to remove supply-side bottlenecks
together with other policies.
4. The survey recommended that there is a need for improving government finance by
raising tax and non tax revenues and controlling deficit.
5. The economy is projected to grow by 7.2 per cent this fiscal with industrial and services
sectors growing at 8.2 and 8.7 per cent.
6. Survey says that full recovery is likely to be attained over the next two fiscals with up to
8.75 per cent growth in 2010-11 and nine per cent in the 2011-12.
Economic Survey 2009-10: Agriculture, Forestry & Fishing

Introduction:

1. In 2009-10, the Agriculture, Forestry & Fishing shows a decline of 0.2% while Service
Sector shows maximum growth. The overall sectoral growth (Agriculture) rate at factor
cost at 2004-05 prices is shown as follows:
2.

3. The growth rate of Agriculture, Forestry & Fishing, which is also known as primary
Sector of our economy, was 5.2% in 2005-06. In 2006-7 it declined to 3.7%. In 2007-08
is again rose to 4.7% and declined to 1.6% in 2008-09. In 2009-10 due to the poor
monsoon through out the country the sector growth went in the negative zone with
showing a negative 0.2% growth.
4. Crop Production in 2008-09:
For three consecutive years, from 2005-06 to 2008-09 (fourth advance estimates),
foodgrains production recorded an average annual increase of over 8 million tonnes.
Total foodgrains production in 2008-09 was estimated at 233.88 million tonnes as against
230.78 million tonnes in 2007-08. However, the production of major commercial crops
(oilseeds, sugarcane, cotton, jute and Mesta) declined in 2008-09 compared to 2007-08
levels.
5. Crop Production in 2009-10:
As per the first advanced estimates which cover only Kharif crop, the production of food
grains is estimated at 98.33 million tones, as against fourth advanced estimates of 2008-
09 and target of 125.15 million tonnes for 2009-10. Thus, there is an overall there is a
decline of 18.51 million tonnes over 2008-09.
 6. Rice : As per the first advance estimates, the production of kharif rice is at 71.65 million
tonnes in 2009-10, a decrease of about 15 per cent over 2008-09 levels and 17 per cent
over the target for 2009-10.
7. Coarse Cereals : Total Kharif production of coarse cereals in 2009-10 is expected to
decline to 22.76 million tonnes against 28.34 million tonnes in 2008-09 and a target of
32.65 million tonnes for Kharif 2009-10.
8. Cereals : The overall production of Kharif cereals in 2009-10 is expected to decline by
18.51 million tonnes over 2008-09.
9. Pulses : Total production of Kharif pulses is estimated at 4.42 million tonnes in 2009-10,
which is 8 per cent lower than the production during 2008-09 and 32 per cent lower than
the targeted production for 2009-10.
10. Oilseeds : Total Kharif production of the nine oilseeds is estimated at 152.33 lakh tonnes
in 2009-10, which is about 15 per cent lower than the Kharif production in 2008-09.
11. Sugarcane : Sugarcane production in 2009-10 is estimated at 249.48 million tonnes,
which is lower than the production of 273.93 million tonnes during 2008-09. This
represents a decline of 9 per cent over the previous year and 27 per cent vis-à-vis the
targeted production for 2009-10.
12. Cotton: Cotton production in 2009-10 is estimated at 236.57 lakh bales (of 170 kg each),
which is higher than the fourth advance estimates of 231.56 lakh bales in 2008-09 by 2.2
per cent.
13. Jute and Mesta: The production of jute and mesta is estimated at 102.43 lakh bales (of
180 kg each) in 2009-10. This is lower than the targeted production of 112.00 lakh bales
and also lower than the 104.07 lakh bales produced in 2008-09.

Area Under Food crops:

1. The area coverage of 667.84 lakh hectare under total food grains during Kharif 2009-10
compared to 714.02 lakh hectare during Kharif 2008-09 shows a decline of 46.18 lakh
hectare.
2. The area coverage under Kharif rice during 2009-10 is around 361.62 lakh ha, which is
44.85 lakh hectares less than the 406.47 lakh hectare during Kharif 2008-09.
3. The area coverage under oilseeds during Kharif 2009-10 is 175.19 lakh hectares, which is
lower by 9.49 lakh hectare than Kharif 2008-09.
4. The area coverage under sugarcane during the current year is 41.78 lakh ha, which is also
lower by about 2.18 lakh hectare than that in the previous year.

Role of Poor Monsoon:

1. India received 23% less rainfall compared to an average rainfall (LPA) India has
received. (it is called Long period Average LPA).
2. The central India experienced a 20% deficiency in the rainfalls, while, North east India
experienced 27% decline, North West India experienced 36% decline (maximum) while
Southern peninsula experienced 4% decline (Minimum).

Seeds:
 1. In India more than 4/5th of farmers rely upon farm saved seeds leading to a low seed
replacement rate.
2. The Indian Seed programme includes the participation of Central & state governments,
ICAR, State sgricultural Universities and the cooperative & private sectors.
3. India has 15 State Seed Corporations & 2 national level seeds corporations viz. National
Seeds Corporation and State Farm Corporation of India.

Fertilizers: New programmes:

1. A number of measures have been taken by Government of India to improve fertilizer

appication in our country.
2. In this context, National Project on Management of Soil Health & Fertility (NPMSF), has
been introduced in 2008-09 with a view to setting up of 500 new Soil Testing
Laboratories (STLs) and 250 Mobile Soil Testing Laboratories (MSTLs) and
strengthening of the existing State STLs for micronutrient analysis.
3. In order to ensure adequate availability of fertilizers of standard quality to farmers and to
regulate trade, quality and distribution in thecountry, fertilizers have been declared an
essential commodity as per the Fertilizer Control Order (FCO) 1985 promulgated under
Section 3 of the Essential Commodity Act 1955.
4. The procedure for incorporation of new products has been liberalized and simplified to
encourage manufacture and use of fortified fertilizers.
5. Eight fertilizers have been specified as fortified fertilizers in FCO 1985. To encourage
balanced use of fertilizers, a new concept of customized fertilizers has been introduced.
6. These fertilizers are soil specific and crop specific. Organic fertilizers, namely city-based
compost and vermin compost, and bio-fertilizers, namely rhizobium, azotobacter,
azospirillum and phosphate solubilizing bacteria, have been recognized and incorporated
in FCO 1985.

Fertilizers : Consumption

1. The following Graphic shows the consumption of fertilizers in India for the 2009-10
(Only Kharif Season)
2. Overall Consumption: Over all consumption of fertilizers per hectare has increased
steadily from 105.5 kgs in 2005-06, to 111.80 in 2006-07, 116.80 in 2007-08 and 128.6
in 2008-09.
3. India's Total Consumption: India's total consumption of the fertilizers (N+P+K) has
been 203.40 Lakh tonnes in 2005-06, 216.51 lakh tonnes in 2006-07, 225.70 Lakh tonnes
in 2007-08 and 249. lakh tonnes in 2008-09. For the Kharif Season of 2009-10 , it is
132.25 Lakh Tonnes.
Economic Survey 2009-10: Over all sectoral Growth

Over all Growth Rate has been shown in the following table: (Click for clearer View)

The above table shows that except for Agriculture, Forestry and Fishing, a economy has got a
momentum. The worst period was 2008-09 , when almost all sectors and subsectors of the
economy saw a worst decline in the growth rates. This has been attributed to the Global
Financial crisis.

Economic Survey 2009-10: Industry & Infrastructure

Index of industrial production (IIP):

The index of Industrial production has shown a U shaped curve since the first quarter of 2007-
08. It was 11.6 % is the end of 2006-07 which decreased steadily for 8 quarters to become 0.5%
in fourth quarter of 2008-09. This indicated the impact of recession on Indian Industry. Since last
3 quarters its has shown upward trend and in October-November 2009, it reaches to 11.0 %,
which indicated the recovery. The following graphic shows the trend: (click for Clearer View)
 Various Components of IIP has
grown as follows: (click for clearer view)

CSO’s advanced estimated place

industrial sector growth at 8.2% (against 3.9% in 2008-09)

1. The IIP Industrial Growth (Index of Industrial Production) is estimated 7.7% for April –
November 2009-10. This is up from 0.6 % during the same quarter of 2008-09. ]
2. The manufacturing sector has grown by 8.9% in 2009-10.

Growth Pattern of industrial Groups:

1. Strong growth: Automobiles, rubber, plastic products, wool, silk , textiles, wood
products, chemicals
2. Moderate growth: nonmetallic mineral products
3. No Growth : Papr, leather, food and Jute.
4. Negative Growth: beverage and tobacco,

Growth pattern on Use Basis

1. Strong growth : Consumer durables and intermediate goods

 2. Moderate Growth : basic and capital goods
3. Negative Growth: Consumer non durables.

Service Sector:

• Owing to a robust growth momentum of telecom service, the core industries and
infrastructure services sector grew richly and the growth spread to power, coal, ports,
cibvil aviation and roads.

Power:

• During April –December 2009, the peak deficit came down by 12.6 % and total energy
deficit came down by 9.8% as compared to 13.8% and 10.9% respectively.
• Thus the electricity generation has grown and over all PLF (Plant Load Factor) improved
in 2009.
• This is partly attributed to availability of gas from the KG basin(D6) and surplus
utilization of gas available on fallback basis.

Crude Oil (Domestic Supply):

• During 2009, the projected production for crude oil is 36.7mmt which is about 11 &
higher than the actual cruide oil production of 33.5 mmt in 2008-09. (mmt=Million
metric Tonnes)
• This is partly attributed to discovery of 15 new oil and gas discoveries.

Roads:

• The stipulated target of developing the national highways under various phases of the
National Highways Development programme was 3165 kms.
• The achieved development till November 2009 is 1490 kms (only)

Telecom:

• In India there were 54.6 million telephone subscribers in 2003. By the end of March
2009, this figure was 429.7 million and grew robustly at 562 million by October 31,
2009.
• Thus there was a 96 million subscribers during the period from march to December 2009.

Service Sector:

• Service sector has been India’s flag bearer for more than a decade continues to maintain
that growth.
• The service sector has grown 8.7 % in 2009-10 as compared to 9.8% in 2008-09. Other
subsectors have also maintained the growth rate.

Pharmaceuticals:
 • The Indian pharmaceutical industry has become the third largest in world in terms of
volume and ranks 14th in terms of value at over Rs 1 lakh crore which humbly started
from Rs. 1500 crore in 1980.
• Exports of pharmaceuticals have consistently outstripped imports. India exports drug,
intermediaries, active pharmaceutical ingredients (APO), finished dosage formulations,
bio-pharmaceuticals and clinical services. The top five destinations for such exports are
the USA, Germany, Russia, the UK and China.

Notes on 3G Spectrum & BWA

• 3G spectrum auction will open doors for foreign players in India. The upcoming auction
of radio waves for the third generation mobile services will open the doors for foreign
players to make an entry into fast growing Indian telecom market.
• Launch of 3G Technology will provide existing operators a good opportunity as also
foreign players to make an entry into the Indian market and bring in new technology and
innovation.
• There is no cap on the number of service providers in each circle. For the 3G telephony,
the government is planning to allow three to four private players in each circle depending
upon the spectrum availability.
• The auction of 3G and Broadband Wireless Access (BWA) spectrum scheduled to be
held on April 9. The government had earlier indicated that interested foreign entities
could take part in the auction directly.
• The Survey said that the introduction of BWA services will enhance the broadband
penetration in the country.
• The broadband subscriber base was 7.98 million by the end of December 2009.

Gross Domestic Savings

1. Gross Domestic Savings (GDS) at current prices in 2008-09 were Rs. 18,11,585 Crore
which amount to 32.5% of GDP at market prices.
2. It was 36.4% in 2007-08.
3. Thus there is a fall in the rate of Gross Domestic Savings.
4. This fall has been attributed to the fall in the rates of savings of the public sector which
stands at 1.4% in 2008-09 with respect to 5.0% in 2007-08.
5. The 32.5% growth is subdivided as follows:
Public Sector : 1.4% + Private Sector: 31.1 %= Total : 32.5 %
6. The 31.1 % of Private sector savings has largest fraction of household sector (22.6%
which amounts to 70% of the total private Sector), further the Financial saving is 10.4%,
Saving in Physical assets is 12.2% and Saving in Private Corporate sector is 8.4 %.
7. (Please note that here totals don’t tally due to adjustments. )
The following graphic shows the sectoral share:
Capital Formation

1. The gross domestic capital formation (GDCF) (adjusted) as a percentage of GDP has
steadily moved up from 27.6% in 2003-04 to 37.7% in 2007-08.
2. For 2008-09 it is 34.9% of GDP. So it was highest in 2007-08 (37.7% ) and decreased in
2008-09. Out of this the public sector shares 9.4% while private sector shares 24.9 %
(adjustments).
3. Out of 24.9 % of the private sector share, the household share in 12.2% while the
corporate sector is 12.7%. Over all sectoral share in gross domestic capital formation is
 shown as below:

4. Ratio of Savings & Investment to GDP:

The following table represents the ratio of Savings and Investment to GDP for last 5
years (figures in percent at current market price) Please click for a clearer view
Sectoral Investment

 The overall growth of investment in India was in the range of 15-16% in last few years,
however it plunged to negative 2.4% in 2008-09 due to Global Economic crisis led slowdown.
 Sectoral investment in agriculture grew by 26.0 % as compared to 16.5% of 2007-08 and
thus there was a rebound in investments related to agriculture.
 In 2008-09 growth in the industrial sector investment declined by 17.6%. This decline was
more prominent in manufacturing and construction sectors.
 In unorganized manufacturing sector the investment declined by 42%.
 In service sector there was a growth of 20.2 % in investment, which declined in 2007-08 and
remained -16.0%.
 This was because of a decline in investment in the trade, hotels and restaurants (-21% in
2007-08) , however in this subsector of trade, hotels and restaurant the growth in 2008-09 was
19.4%, which helped the overall growth rate in investment to improve.
 The Sectors and subsectors which have shown negative growth in investments in 2008-09 are
Mining and Quarrying, Manufacturing (organized and unorganized) , Construction and Banking
& Insurance subsector.
 Compared to 34.1 % growth in investments in Communication subsector, this growth in
investments in 2008-09 was 65.1 %, which is highest in all subsectors investment growth rates at
2004-05 prices.
 The following table shows the sectoral investment growth rates at 2004-05 prices . Click for
clearer view:

Inflation
 1. Economic Survey 2009-10 says that WPI (Wholesale Price Index) inflation has been
volatile in 2009-10 and it is a major concern for the country.
2. It was 1.2 % in March 2009 and declined continuously to go into negative zone during
June-August 2009.
3. While turning to positive in September 2009, accelerated to 4.8% in November and 7.3%
in December 2009.From march to December 2009 the WPI inflation is 8%.
4. This soaring inflation was mainly contributed by the Composite Food Index which has a
weight age of 25.4% in overall inflation calculation.
5. The Food Inflation was 19.8 % in December 2009 compared to 8.6% in 2008.
6. Thus nearly 67% of the overall inflation was contributed by the food items , followed by
Power commodity Group and remaining 21% manufactured nonfood articles.
7. Among the food items too, Milk contributed to 20%, Eggs, meat and fish contributed to
20% , rice 10%, Wheat 6%, pulses 9% , Potatoes 9% and tomatoes 6 % (all figures
approximately, source economic survey)
8. The survey holds the supply side bottlenecks responsible for Food Price Escalations &
also in some of the essential commodities due to weak and irregular monsoons in 2009.
9. The survey says that very high consumer price inflation (particularly Food price
escalation) was a result of a hype created over Kharif crop failure without taking into
account the comfortable food stocks and rabi prospects. The survey said that this “Hype”
may have exacerbated inflationary expectations encouraging hoarding and resulting in a
higher inflation in food items.
10. The survey also partially explains the high sugar prices. It said that the delay in the
market release of imported raw sugar may have contributed to the overall uncertainty
which further led the prices to rise to unacceptably high levels in recent months
11. Wholesale Prices-based inflation in December 2009 was 7.3 per cent, while food inflation
was 19.77 per cent.
12. Fiscal deficit is estimated at 6.8 per cent of GDP in 2009-10 that was partially
supplemented by a fall in indirect tax collections and delay in 3G auction.
13. The Survey says that subsidies given to food, fertilizer, diesel and kerosene, have a
"questionable" impact and recommends the government to decontrol their prices as
freeing prices from government control could help deploy large resources for financing
other vital activities in the economy that could promote productivity and eradicate
poverty.
14. The survey says: Now constitutes a major fiscal burden and tends to crowd out the
government'sability to finance other vital activities in the economy that could promote
productivity and eradicate poverty .
15. besides the survey also mentions that : Already, the government's resources are strained
due to various fiscal stimulus and the Survey has separately noted that high growth
environment creates scope for partial rollback of these stimuli.

Balance of Payments
 1. A Balance of payments BOP is accounting record of all monetary transactions between
India and rest of the world.
2. These transactions include payments for the India's exports and imports of goods,
services, and financial capital, as well as financial transfers.
3. The BOP summarizes international transactions for a specific period.
4. BOP includes sources of funds such as exports or the receipts of loans and investments
which are recorded as positive or surplus items and uses of funds, such as for imports or
to invest in foreign countries which are recorded as a negative or deficit item.
5. The global financial slowdown has affected all the countries differently and the rich
countries have been affected badly which is evident from the 3.2 % negative growth
forecast for rich countries by IMF World Economic Outlook (January 2010).
6. This outlook says the developing countries will grow by 2.1% in 2009 and 6% in 2010
and the drivers of this growth will be India and China.
7. The data for the two quarters or H1 (April to September 2009-10 means half year) have
shown decline in the exports and imports.
8. However there is an improvement in Bop situation during H1 of 2009-10 with regard to
H1 of 2008-09.
9. Balance of Payment situation improves due to surge in capital flows and rise in foreign
exchange reserves, which have been accompanied by rupee appreciation.

Impact of Dubai Crisis:

1. The UAE accounts for 10% of the total remittances and 11.3 % of NRI deposits to India.
2. Due to the recent Dubai crisis, the surveys says that there could be some impact on
India’s exports and imports as there is a significant share of the UAE in India’s
international trade.
3. The crisis may lead to salary cuts or job losses for Indian workers in the construction
sector with consequent effect on remittances and NRI deposits, this is what the surveys
apprehends about.

India's Trade Performance

1. Foreign Trade Policy of India 2009-14 had set a target of annual export growth of 15%
with an export target US$ 200 Billion by March 2011.
2. However the government did not fix any export target for year 2009-10, because of
global recession and uncertain situation of the world trade.
3. Exports in April-December 2009 down 20.3 per cent.
Imports in April-December 2009 down 23.6 per cent.
4. Gold and Silver imports registered a negative growth of 7.3% which is primarily on
account of volatility in Gold Prices.
 5. The following Graphic Shows India’s Overall Trade performance, (Click for a clearer
View)

India’s Share in World’s merchandise Trade:

1. India’s share in world merchandise exports, after remaining unchanged at 1.1 per cent
between 2007 and 2008, reached 1.2 per cent in 2009 (January-June).
2. However this growth was attributed to to the relatively greater fall in world export growth
than India.

Changes in Export Composition:

1. There were substantial changes in the Composition of exports in 2008-09 and 2009-
10(April- September) with the fall in share of petroleum, crude and products and primary
products resulting in corresponding rise in share of manufactured goods.
2. The share of petroleum, crude and products fell from 17.8 % in 2007-08 to 14.9 % in
2008-09 and 14.2 % in the first half of 2009-10, while the share of primary products fell
from 15.5 % in 2007-08 to 13.3 % in 2008-09 and further to 12.7 % in the first half of
2009-10.
3. The share of manufactured exports increased by 2.3 percentage points to 66.4 % in 2008-
09 and further to 9.2 % in the first half of 2009-10

Changes in Import Composition:

1. Due to growing domestic concerns like inflation, the share of food and allied products
imports which fell from 2.3% in 2007-08 to 2.1% in 2008-09 increased to 3.5% in the
first half of 2009-10 with the increase in imports of edible oils and pulses.
2. The share of fuel imports fell from 34.2% in 2007-08 to 33.4% in2008-09 and 33.2% in
the first half of 2009-10.
Survey Recommendations:

1. Survey said that India is now a part of one of the big economies of the world and the
country was one among those who were least affected by the economic crisis.
2. Our Foreign Trade is looking up and there are prospects of recovery in the world output
and trade volumes.

Downside Risks:

1. The survey said that the economic fall has been arrested but still there are downside risks.
2. There are risks as the recovery has been pumped up by stimulus given by different
countries and India is also one among them.
3. If the natural recovery does not come up, the effects of the pumped up stimulus may dry
up.

India's Foreign Exchange Reserves

1. India’s foreign exchange reserves comprise foreign currency assets (FCA), gold, special
drawing rights (SDRs) and reserve tranche position (RTP) in the International Monetary
Fund (IMF)
2. India’s Foreign exchange reserves stood at US$ 283.5 billion at the end of December
2009.
3. It was US$ 252 billion at the end of financial year 2008-09 i.e. March 2009.
4. 35.6 % of this growth of US$ 31.5 billion i.e. US$ 11.2 Billion was attributed to higher
inflows under FDI, and portfolio investments (BoP basis excluding valuation effect),
while 64.4% attributed to valuation gain due to a weak US dollar against major
currencies.
5. In this way credit for two out of every three of these dollars go to the rupee appreciation.
6. The Indian Rupee’s sharp appreciation against dollar contributed $20.3 billion or 64.4 per
cent to the total accretion in forex reserves till December 2009 in the current fiscal.

Recent Developments:

In 2009-10, three major developments have taken place in the area of foreign exchange reserves
management.

First Development:

1. The first development is related to investment of foreign exchange reserves in

infrastructure projects. It was announced in Budget 2007-08 that part of the foreign
 reserves will be used for financing domestic infrastructure requirements without the risk
of monetary expansion.
2. In this regard India Infrastructure Finance Company Ltd was set up as a WOS (Wholly
Owned Subsidiary)of Reserve Bank of India in 2008 (April).
3. This subsidiary is called IIFC (UK) and it will borrow up to US$ 5 billion in trenches
from the RBI by issuing US dollar denominated bonds .
4. This borrowed money will be used as resource to lend the Indian infrastructure
companies for meeting their capital expenditures outside India.
5. It has already raised the first tranche of US$ 250 million.

Second Development :

1. Second development was IMF’s allocation of SDRs to member countries including India.
2. A general allocation of SDRs for an amount equivalent to US$ 250 billion and a special
SDR allocation pursuant of the fourth amendment of the IMF’s Articles of Agreement,
amounting to US$ 33 billion, was made by the IMF to member countries on August 28,
2009 and September 9, 2009 respectively.
3. India received SDR 3,082 million (equivalent to US$ 4,821 million) under general
allocation and SDR 214.6 million (equivalent to US$ 340 million) under special
allocation from the IMF. These SDR allocations have resulted in an increase of US$ 5.2
billion in India’s foreign exchange reserves.

Third Development:

1. The third major development was the purchase of gold from the IMF by the RBI.
2. Reserve Bank of India which recently purchased a 200 metric tonnes of Gold from IMF
under the Limited Gold Sales programme of IMF at the cost of USS6.67 Billion in
November 2009.

Trend
The trend of growth of India’s Forex Reserves are shown in the following graphic:
Please note that as of December 2009 India's had fifth largest Foreign Exchange Reserves in the
world.

Survey Notes:

1. India had pledged her bullion two decades ago to pay for imports. Please note that India
had to pledge her gold to the Bank of England in 1991 to pay for its imports.
2. 2009-10 saw India becoming the world's 10th largest gold-holding country.
3. The government's purchase of 200 tonnes of gold from the International Monetary Fund
took its total reserves to 557.7 tonnes, or about 6 per cent of total foreign exchange
reserves.
Exchange Rates

Due to signs of recovery and increased FII flows after March 2009 , Indian Rupee has been
continuously strengthening against US Dollar. The following chart shows the last one year trend
of Indian Rupees to 1 USD. (The rates have been collected from x-rate.com and are for an indication purpose
only.)

India's Monetary Policy

Bank Credit:

1. In the starting of 2009 the stance of the monetary policy was towards supporting the early
recovery of the growth momentum.
2. The monetary measures have been slow & sluggish as far as its impact on various
segments of the economy is concerned.
3. The measures taken by the monetary policy were successful in bringing down the lending
rates , including BPLR (Benchmark Prime Lending Rates) , yet the decline of these rates
was not sufficient in accelerating the demand for the bank Credit.
4. The borrowers turned to alternate sources of money (cheaper finance) and banks flushed
with liquidity (due to monetary policy decisions) parked their surplus funds under the
reverse repo window.
5. This means that in spite of the monetary policy being focused on maintaining a market
environment which was to bring about a flow of credit to the productive sectors of the
economy the growth of Bank Credit was low in 2009-10.
 6. This was partly attributed to economic conditions prevalent during 2009-10. In addition,
banks also reined in credit to the retail sector due to perceptions of increased risk on
account of the general slowdown and to guard against bad loans.
7. The bank credit increased by 17.5 % in 2008-09 partly due to above mentioned reasons
against the growth of 22.3% in 2007-08.
8. The above achieved growth rate was against Reserve Bank of India's set target of 20.0%
credit growth for the year 2009-10 which the RBI had set in first quarterly review of the
monetary policy.
9. In the second quarterly review of the policy RBI had cut down this target to 18.0 %. Still
for the entire year, the target seems to be unachieved.

Deposit rates

1. Domestic Deposit Rates declined in 2009-10.

2. The Interest rates offered by Public Sector banks on deposits of maturity of 1-3 years
declined from 8.00-9.25 % (March 2009) to 6.00-7.25 %. For on deposits with maturity
longer than 3 years was from 7.50-9.00 % and declined to 6.25-7.75%.

Lending Rates:

1. The benchmark prime lending rates (BPLRs) of the public sector banks too declined from
the 12.25-13.50 % in March 2008 to 11.50-14.00 % in March 2009 and 11.00-13.50 per
cent in December 2009.
2. This change is not a clear cut indication of changes in effective lending rates because
67% (in March 2009) which grew to 70.4% (in September 2009) fraction of the lending
took place at sub BPLR rates.
3. This anomaly led the Reserve bank of India to constitute a Working group on BPLR
which submitted its report in October 2009.
4. This working group has recommended that the system of BPLR should be scrapped and
replaced with a Base Rate system.
5. This base rate will represent a bare minimum rate for lending below which lending will
not be viable for the commercial banks and thus it will bring more transparency in the
lending & credit pricing.
6. This base rate will include all the cost elements which are common to all borrowers. The
actual rate of lending may be worked out as base rate plus borrower specific costs
associated therewith.

Sectoral Deployment of credit:

1. Credit to the priority sector grew by 15.4 % (From November 2008 to November 2009).
Credit to the agriculture recorded a growth of 21.4 % against 23.0 % in March 2009 and
credit to industry recorded a growth of 12.8 % against 18.6 % in March 2009.
2. Public food procurement credit showed a percentage variation of 4.1% (from march 2008
to March 2009) to -15.3% (from November 2008-November 2009)
Lending targets

1. The overall target set for priority sector lending was set 40% for year 2009-10. Out of 27
Public Sector banks 24 could achieve this target and 3 banks could not achieve this target.
Only 17 private banks (out of 22) could achieve this target.
2. The target set for agricultural lending was 18% which was achieved by 14 public sector
banks only.
3. Only 15 Public sector banks (out of 27) achieved the target of 10% lending to the weaker
sections of the society. (all figures March 2009)
4. Various Policy measures were taken by the government to increase the lending and
improve flow of credit.

Performance of the banks:

1. As per the balance sheets of scheduled commercial banks in India of 2008-09 the
performance of the banks remained robust while not competently insulated from the
ripples of the economic slowdown, the consolidate balance sheets of the scheduled
commercial banks expanded by 21.2 % in March 2009 as compared to 25.0% in 2007-08.

NBFCs (Non Banking Financial Corporations)

1. Out of the total assets in the Financial System, NBFCs account for 9.1 % . To preserve
the financial stability and keep on the growth momentum RBI took some measures for
NBFCs which include a single repo window under the Liquidity Adjustment facility of
RBI.
2. The total number of NBFCs registered with the Reserve Bank, consisting of deposit-
taking NBFCs (NBFCs-D), residuary non-banking companies (RNBCs), mutual benefit
companies (MBCs), miscellaneous non-banking companies (MNBCs) and Nidhi
companies, declined from 12,809 in end-June 2008 to 12,740 in end-June 2009.
3. The number of NBFCs-D also declined from 364 in end-June 2008 to 336 in end-June
2009, mainly due to the exit of many NBFCs from deposit-taking activity

Survey Notes:

1. On Bank Credit: The Survey says that the marginal decline in the lending rates of banks
-- public, private and foreign -- was "not sufficient to accelerate the demand for bank
credit."
2. On Indian Stock Markets: Survey mentions that Indian stock market aligning with
global bourses. Domestic equity markets are fast integrating themselves with the major
global peers, a trend that helped in larger capital inflows from overseas investors during
the current fiscal.
3. On Regulatory measures: The regulatory measures initiated were clearly in the
direction of introducing greater transparency, protecting investors' interest and improving
efficiency in the working of the Indian equity markets, while also ensuring soundness and
stability.
 4. On Recovery in Equity Markets: The equity markets, started on a subdued note in 2009
and remained range bound during April-March last year, but after that it showed signs of
recovery particularly May July 2009.
5. This recovery has been particularly attributed to revival of foreign institutional investors'
(FIIs) interest in emerging market economies, including India.
6. FIIs investment in equity market rose to Rs 83,424 crore in 2009 compared to
withdrawals of Rs 52,987 crore in 2008.
7. Total net investment by FIIs in equity and debt markets taken together, increased
considerably to Rs 87,987 crore in 2009 compared to a net decline of Rs 41,216 crore in
2008.

Human Development, Poverty and Public Programmes

 United Nations Development Programme (UNDP) Human Development Report 2009 (HDR
2009), the Human Development Index (HDI) for India in 2007 was 0.612 on the basis of which
India is ranked 134 out of 182 countries of the world placing it at the same rank as in 2006.
 The HDI is based on three indicators, namely GDP er capita (PPP US $), life expectancy at
birth, and education as measured by adult literacy rate and ross enrolment ratio (combined for
primary, secondary and tertiary education).
 The value of HDI for India gradually increased from 0.427 in 1980 to 0.556 in 2000 and
went up to 0.612 in 2007.
 The movement of the index value in some of the comparable countries indicates that
improvement in HDI in India in recent years has been better than in most of them.
 With a budgetary outlay of over Rs 70,000 crore on various poverty alleviation and
employment generation schemes, nearly four and half crore households have availed job
opportunities.
 During the year 2009-10, 4.34 crore households have been provided employment under the
National Rural Employment Guarantee Scheme (NREGS).
 In the previous financial year, over 4.51 crore households were provided employment under
the scheme
 As against the budgetary outlay of Rs 39,100 crore for 2009-10 for NREGS, an amount of Rs
24,758.50 crore has been released to the states and union territories till December 2009.
 The current IMR stands at 53, substantially lower than the figure of 80 in 1991. Infant deaths
to fall below 30/1,000 live births by 2012. The survey says that with the gradual fall of crude
birth and death rates, the country expects to lower its infant mortality rate to below 30 per 1,000
live births by 2012. The survey mentions the special role to be played by NRHM (National Rural
Health Mission) which was launched in 2005.
 India has successfully brought down its crude birth rate (CBR) to 22.8 in every 1,000 people
from 29.5 in 1991, this led to decrease in crude death rate (CDR) to 7.4 from 9.8 in 1,000 people
in the same period.