Economic Context

3. The Indian economy has continued to exhibit both growth and resilience that have characterized its performance in the past few years. Overall economic growth this year is expected to be about 6 per cent despite a series of unexpected setbacks. We have had a second successive year of irregular monsoon resulting in low agricultural growth. World petroleum prices have continued to stay at high levels placing strains on the economy as a whole, and have led to a significant increase in inflation over the past year. Fortunately, despite the increase in energy prices, the prices of essential commodities, and of manufactured products as a whole, have remained stable. Inflation, excluding energy, was around 4 per cent during the year. The economy remained secure with record levels of foreign exchange reserves and public food stocks. The creditable export performance recorded last year improved further: exports grew by over 20 per cent in dollar terms in April-December 2000.

4. It is now 10 years since economic reforms began in 1991. During this period, the economy has grown at an average rate of 6.4 per cent per year since 1992-93 compared to the 5.8 per cent recorded in the 1980s. Poverty has fallen from 36 per cent in 1993-94 to 26 per cent or less now.

5. While economic reforms have placed the country on a much more secure and sustained growth path, we still have some serious concerns and cannot afford to be complacent.

l Agricultural reforms have been inadequate and our agriculture continues to be subject to the vagaries of the monsoon.

l Despite major industrial sector reforms, industrial growth has not accelerated to the double-digit level as expected.

l Inadequate fiscal adjustment has remained the most intractable problem over the past decade.

w Interest payments now constitute over 69 per cent of the Centre’s tax revenues.

w Subsidies continue to increase to unaffordable levels and do not necessarily reach the deserving beneficiaries.

w The pension liability of the Government is becoming onerous.

l Public investment in infrastructure and social sectors is inadequate due to falling total public sector savings.

l Private investment is constrained due to high real interest rates and inadequate infrastructure.