Current State of the Indian Economy

Current State of the Indian Economy

The current scenario of Indian economy has been characterised by optimistic growth and strong macro-economic fundamentals, particularly with tangible progress towards fiscal consolidation and a strong balance of payments position. The advance estimates (AE) of Gross Domestic Product (GDP) at factor cost for 2006-07 has been placed at 9.2 per cent.

The industrial sector has shown impressive growth in the current year. Year-on-year industrial growth of 10.6 per cent in the first nine months of 2006-07 was the highest recorded since 1995-96. The main reason being the robust growth in manufacturing sector. In seven of the eight months of the current year, the year-on-year growth of the manufacturing sector was in double-digits.

India’s telecom sector has been one of the biggest success stories of market oriented reforms, and India is now amongst the fastest growing telecom markets in the world. Tele-density has increased from 12.7 per cent in March 2006 to 16.8 per cent in December, 2006. The total number of telephones has increased from 54.63 million on March 31, 2003 to 142.09 million on March 31, 2006 and 189.92 million on December 31, 2006. With this growth, the number of telephones is expected to reach 250 million by the end of 2007.

The infrastructure sector has been expanding on a massive scale. The overall index of six core industries having a direct bearing on infrastructure registered a growth of 8.3 per cent in the current year, which is higher than the 5.5 per cent growth registered during the previous year. In the first nine months of 2006-07, crude petroleum, refinery products and electricity generation registered an acceleration in their growth rates, but there was a decline in the growth rates of coal, cement and finished steel. Also, the Government is actively pursuing Public Private Partnership (PPPs) to bridge the infrastructure deficit in the country. Several initiatives have been taken to promote PPPs in sectors like power, ports, highways, airports, tourism and urban infrastructure.

In terms of the Wholesale Price Index (WPI), annual point-to-point inflation was 6.11 per cent on January 20, 2007, as compared to 4.24 per cent in the corresponding week of the previous year. Similarly, primary articles recorded an inflation rate of 9.76 per cent on January 20, 2007 as compared to 5.87 per cent a year ago, and contributed 34.87 per cent to over-all inflation this year as against 29.73 per cent last year.

The monetary sector also continues to be growing at a sustainable rate during 2006-07 to reconcile the twin objectives of facilitating the momentum of economic growth and containing inflation. During the current year, on January 19, 2007, year-on-year growth in M3 and credit to the commercial sector were at 21.1 per cent and 26.9 per cent respectively.

In the secondary market, the uptrends continued in 2006-07 with BSE Sensex and NSE Nifty indices closing above 14,000 (14,015) and 4,000 marks (4,024) for the first time, respectively on January 3, 2007. The pick up in the stock indices could be attributed to impressive growth in the profitability of Indian corporates, overall higher growth in the economy, and other global factors such as continuation of relatively soft interest rates and fall in crude oil prices in international