The rebound in growth is expected on fiscal consolidation which would boost domestic savings and investment rate. Also, the easing inflation would allow the RBI to cut interest rates to support investment activity. further, an increase in working age population of India is also anticipated to improve growth prospects in the medium to long term. The Economic Survey has expressed the need for greater attention to agriculture sector with all round efforts raise productivity levels with higher investments in agriculture. As per the survey, the growth of the agriculture is necessary to stimulate overall economic growth and tame inflation.

Economic Survey expects the inflation to moderate to 6.5-7.0% by March 2012. As per the survey, the government measures to address supply-side issues, especially on the food side, and monetary tightening will help to keep inflationary pressures low during 2011-12.

The Economic Survey has urged for fiscal consolidation to improve India's growth prospects as fiscal slippage crowds out private investment while weighing up on inflation dynamics. The survey highlights the need to raise the tax to GDP ratio and trim unnecessary spending to bring down the fiscal gap. It suggests increasing the tax-to-GDP ratio from 10.5% in 2011-12 to 13% by 2016-17. On the expenditure side, the survey argues the need to lower expenditure leakages.

Fiscal consolidation: Center to miss targets for FY2012, states doing well

Economic developments in the current fiscal have panned out very differently than was envisaged at the time of budget formulation. With a sharp deceleration in real GDP growth, particularly in the industry sector and continued high levels of prices in key commodities, a slippage is likely in the deficit targets envisaged at the time of Budget Estimates. However, with states performing better in overall terms, the combined deficit of the centre and states appears to be on firmer footing, which augurs well for strengthening medium-term macroeconomic prospects. The medium-term outlook is firmly on the consolidation path; albeit with a likely longer tail in terms of time horizon.

Going forward, Economic Survey 2011-12 has expressed the need to anchor fiscal consolidation on structural reforms in expenditure. As per Economic Survey, there may be some slippage in the current year, the medium-term stance of fiscal consolidation could be salvaged, though the timelines may have to be redrawn. 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 risks like global oil prices that have acquired a systemic nature.

Prices: Inflation to ease during 2012

The monetary policy tightening coupled with a favourable base effect in prices and continued global slowdown, are expected to moderate inflation to around 6.5-7.0% by March 2012; inflation is expected to come down further during 2012-13. Meanwhile, Economic Survey 2011-12 has urged to keep constant vigilance on inflation and to take steps in dealing with any unexpected developments. Recent geopolitical uncertainties are once again putting pressures on crude oil prices globally. This represents a major risk and challenge ahead and the best course of action would be to persist with regular step-adjustment of domestic energy prices, which will help with both reducing incipient structural inflationary pressures and fiscal consolidation efforts.

ES has expressed the need for renewed attention to structural ways of improving medium-term supply responses in agriculture and supply chains and infrastructure more broadly may be vital. Greater attention needs to be given to asset price bubbles in real estate and stock markets and their implications for the economy and to the strength of the financial system. As part of such a policy, greater attention to improved supply capacities-- speeding private and public investment--rather than to demand-side management, is once again gaining heightened importance and will represent a major challenge.

Financial Intermediation: Risk and liquidity management assumes greater significance

Since the Indian financial system is bank dominated, banks' ability to withstand stress is critical to overall financial stability. Indian banks, however, remain robust, notwithstanding a decline in capital to risk-weighted assets ratio and a rise in non-performing asset levels in the recent past. Capital adequacy levels remain above the regulatory requirements. The financial market infrastructure continues to function without any major disruption. With further globalization, consolidation, deregulation, and diversification of the financial system, the banking business may become more complex and riskier. Issues like risk and liquidity management and enhancing skill therefore assume greater significance.

On recent liberalization of ECB policy, Economic Survey 2011-12 said that it has to keep in view the need to maintain sustainable levels of external debt ratios. This is more important because of the fact that high levels of external debt ratios contributed to the BOP crisis of the early 1990s. Development of the corporate bond market therefore is the key to infrastructure development. While, the introduction of CDS is expected to help in the process, innovative steps are needed to bring the corporate bond market centre stage of infrastructure financing. Economic Survey 2011-12 has expressed greater need for Pension reform to facilitate the flow of long-term savings for development and establish a credible and sustainable social security system in the country.

The development of the financial sector is critically dependent on financial inclusion, which is seen as an important determinant of economic growth. A major challenge in the times ahead would be to meet financing requirements, particularly of the unorganized sector and the self-employed in the micro and small business sector. Economic Survey 2011-12 expressed concerns that Indian insurance sector is well capitalized but significantly exposed to the banking system. Inter-linkages between the insurance and banking sectors are a matter of concern, with many insurance companies being part of financial conglomerates. Any financial stability issue regarding banks in the conglomerate may have an amplifying effect on the insurer. Efforts therefore have to be made towards building firewalls to prevent contagion from one sector to another, especially in times of stress.

Balance of Payment: Discourage unproductive imports

ES worries about India's BoP with trade deficit of more than 8% of GDP and CAD of more than 3%, which is a sign of growing imbalance. Thus, Economic Survey 2011-12 has expressed the need to discourage unproductive imports like gold and consumer goods to restore balance. In this respect, some weakening of the rupee is a positive development, as it improves trade balance in the long run by increasing export competitiveness and lowering imports. Greater attention therefore has to be given to improving the composition of capital flows towards FDI.

A more aggressive stance to check rupee volatility, which impairs investor confidence, is necessary. The size of foreign exchange reserves could be a constraining factor in checking depreciation of local currency in the event of external shock and reversal of capital. It is therefore imperative that during times of surge in capital flows, when currency is under pressure to appreciate, measures are taken to build up reserve levels.

International Trade: Goods and Services trader may show some sluggishness

The prospects for India's Trade Sector which was performing very well in the first half of 2011-12, seems to have slightly deteriorated since the second half of the year with the deepening euro zone crisis casting a shadow on the trade prospects of countries with close linkages to the euro zone area. Exports are likely to grow slowly in the coming months. On the other hand, import growth may only moderate with oil prices still above the US$100 per barrel mark and gold prices still at a high.

On services trade front, the performance of software exports could largely depend on the developments in the major economies like the US, UK, and major euro area economies. However, there is no significant exposure to the countries which are presently facing crisis. Nevertheless, software exports may show some sluggishness. Import growth of services appears to be less elastic downwards as seen during the 2008 global crisis.

The challenges for India on the trade front, are due to the current emerging global situation, while some are systemic and long term in nature. India needs to do a lot on the trade facilitation front. Despite the rhetoric in India on the potential of tourism services exports, results on the ground could improve further. Finally, India's push towards regional and bilateral agreements should result in meaningful and result-oriented FTAs and CECAs.

Agriculture: Need for speedy improvement in yield

As per Economic Survey 2011-12 achieving minimum agricultural growth is a pre-requisite for inclusive growth, reduction of poverty levels, development of the rural economy and enhancing of farm incomes. In order to make 4% agricultural growth a reality, adequate efforts are required to focus on addressing the challenges in this sector. Declining per capita availability of foodgrains has been a matter of major concern. There is a need for speedy improvement in yield in order to increase production through adequate investment in research and development.

Major recommendations of Economic Survey 2011-12 for agriculture sector are as follows:

- Pooling of many landholdings may yield better economies of scale, for which land laws for leasing with sufficient safeguards in place should be considered.

- The country has to step up efforts for increasing production of milk and other dairy products, egg, poultry, fish, meat, etc.

- A thrust on horticulture products is required for enhancing per capita availability of food items as well as ensuring nutritional security.

- Climate change and extreme weather conditions impacting agriculture; there is need to devise insurance schemes linked to indices of various vulnerability parameters.

- Addressing infrastructure requirements in the agriculture sector, especially storage, communication, roads, and markets should be a priority.

- Public private partnership models can be of help in ensuring faster development of these requirements.

- Another area for improvement is the generation of real-time market intelligence and also agricultural market reforms.

- The demand for processed food is expected to increase. Investment in food processing, cold chains, handling, and packaging of processed food needs encouragement.

- The issue of efficient food stocks management and offloading of stocks in time needs urgent attention.

- Address the challenges of the agriculture sector through comprehensive and coordinated efforts

Industry: To rebound during 2012-13

As per Economic Survey, Industrial-sector growth during the current financial year is expected to be between 4 and 5%, which would be far below the potential growth rate. Thus, the challenge in the short term would, therefore, be to shore up business sentiment, spur investment in productive activities, and identify bottlenecks that can be removed in a reasonably short period of time. Economic Survey 2011-12 expects India's industrial sector to rebound during the next financial year.

New Manufacturing Policy (NMP), a growth of 14% per annum is necessary to take the share of manufacturing in GDP to 25% and increase the absorption of labour in this sector from around 50 million as of today to more than 150 million by 2022.

There are several policy measures, briefly discussed here, that would have to be pursued simultaneously.

- There is need to resolve the issue of availability of land for industrial and infrastructure use.

- Both forward and backward linkages of the manufacturing sector will need to be strengthened for making progress on the objectives laid out in the New Manufacturing Policy (NMP).

- Within manufacturing, there is a need to shift structurally in favour of high value addition industries.

- Investment requirements in India will continue to exceed the availability of resources from domestic savings. The best way of covering this gap is through FDI.

- With the implementation of the direct tax code (DTC), it would become difficult to incentivize industry through tax exemptions. The new incentive mechanism will need to rely on providing non-tradable infrastructure services at global prices and in keeping with global standards.

- The new manufacturing sector will need to be environment-friendly.

Services Sector: Challenge is to accelerate growth

The services sector has been a major and vital force steadily driving growth in the Indian economy for more than a decade. Growth in ‘trade, hotels & restaurants, transport, storage and communication' is more robust at 11.2% and retail-sector growth is expected to be more robust in 2012-13. With hardening of interest rates, the real worry would be with the real estate/ ownership of dwellings and business services segment, the growth of which has started decelerating and construction services with growth falling by nearly half. The outlook of the services sector in the domestic economy is linked to the prospects of the sector externally. While software service exports have continued to be steady, the unfolding events in the euro area could lead to some sluggishness in this sector. The fair-weather business services exports which have already shown signs of deceleration may not get better. Among the other two major services, transportation has already been affected, while travel and tourism could also be affected when the pockets of euro zone tourists are affected. However, the domestic economy is more dominant in the case of services and any changes in government spending in community, social, and personal services within the fiscal space available or newly created fiscal space could strengthen the growth prospects of the services sector with ripple effects in related sectors. The challenge is to not only maintain the present growth tempo in the service sector but also to accelerate it.

Energy and Infrastructure: Innovative schemes needed attract large investment in infra

Total investment in infrastructure during the Eleventh Plan is estimated to increase to more than 8% of GDP in the terminal year of the Plan --higher by 2.47 percentage points as compared to the Tenth Plan. The private sector is expected to be contributing nearly 36% of this investment. The key to global competitiveness of the Indian economy lies in building world class infrastructure and service delivery at competitive rates. The realization of investment targets for infrastructure during the Eleventh Plan gives hope that the financing of an even more ambitious Twelfth Plan target may be possible. Private-sector participation in financing of infrastructure has also generated optimism that public funding need not necessarily be the exclusive route for infrastructure investment. A conducive environment for private sector participation with a transparent and credible regulatory mechanism, therefore, could reduce the pressure on public-sector funding. There is a need for introducing more innovative schemes to attract large-scale investment into infrastructure. 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.

Outlook

The economic survey has given insightful information and data on various sectors. It has indicated that India's GDP growth is set to improve in the next two years. But advocates fiscal consolidation, which is critical for RBI to usher in easy monetary policy. The government of India is sandwiched between spike in expenditure and sluggish revenues, leading to ballooning of fiscal deficits. So, we expect partial roll back of cut in taxes effected, which means higher incidence of excise duties and service taxes. The Budget is expected to be populist, given the political developments but all eyes are on how far is the government ready to go to achieve fiscal consolidation.