State of the Economy

and Prospects
1
CHAPTER

The fiscal year 2009-10 began as a difficult one. There was a significant slowdown
in the growth rate in the second half of 2008-09, following the financial crisis that
began in the industrialized nations in 2007 and spread to the real economy across
the world. The growth rate of the gross domestic product (GDP) in 2008-09 was
6.7 per cent, with growth in the last two quarters hovering around 6 per cent. There
was apprehension that this trend would persist for some time, as the full impact of
the economic slowdown in the developed world worked through the system. It was
also a year of reckoning for the policymakers, who had taken a calculated risk in
providing substantial fiscal expansion to counter the negative fallout of the global
slowdown. Inevitably, India’s fiscal deficit increased from the end of 2007-08, reaching
6.8 per cent (budget estimate, BE) of GDP in 2009-10. A delayed and severely sub-
normal monsoon added to the overall uncertainty. The continued recession in the
developed world, for the better part of 2009-10, meant a sluggish export recovery
and a slowdown in financial flows into the economy. Yet, over the span of the year,
the economy posted a remarkable recovery, not only in terms of overall growth
figures but, more importantly, in terms of certain fundamentals, which justify
optimism for the Indian economy in the medium to long term.

1.2 The real turnaround came in the second quarter
of 2009-10 when the economy grew by 7.9 per cent.
As per the advance estimates of GDP for 2009-10,
released by the Central Statistical Organisation
(CSO), the economy is expected to grow at 7.2 per
cent in 2009-10, with the industrial and the service
sectors growing at 8.2 and 8.7 per cent respectively.
This recovery is impressive for at least three reasons.
First, it has come about despite a decline of 0.2 per
cent in agricultural output, which was the
consequence of sub-normal monsoons. Second, it
foreshadows renewed momentum in the
manufacturing sector, which had seen continuous
decline in the growth rate for almost eight quarters
since 2007-08. Indeed, manufacturing growth has
more than doubled from 3.2 per cent in 2008-09 to
8.9 per cent in 2009-10. Third, there has been a
recovery in the growth rate of gross fixed capital
formation, which had declined significantly in 2008-09
as per the revised National Accounts Statistics
(NAS). While the growth rates of private and
Government final consumption expenditure have
dipped in private consumption demand, there has
been a pick-up in the growth of private investment
demand. There has also been a turnaround in
merchandise export growth in November 2009, which
has been sustained in December 2009, after a
decline nearly twelve continuous months.
1.3 The fast-paced recovery of the economy
underscores the effectiveness of the policy response
of the Government in the wake of the financial crisis.
Moreover, the broad- based nature of the recovery
creates scope for a gradual rollback, in due course,
of some of the measures undertaken over the last
fifteen to eighteen months, as part of the policy
response to the global slowdown, so as to put the
economy back on to the growth path of 9 per cent
per annum.
2 Economic Survey 2009-10

Key indicators
Data categories and components Units 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

1 GDP and Related Indicators

GDP (current market prices) Rs crore 3239224 3706473 4283979 4947857 5574449QE 6164178 AE

Growth Rate % … 14.4 15.6 15.5 12.7 10.6

GDP (factor cost 2004-05 prices) Rs crore 2967599 3249130 3564627 3893457 4154973 QE
4453064 AE

Growth Rate % 9.5 9.7 9.2 6.7 7.2

Savings Rate % of GDP 32.2 33.1 34.4 36.4 32.5 na
Capital Formation (rate) % of GDP 32.7 34.3 35.5 37.7 34.9 na
Per Cap. Net National Income
(factor cost at current prices) Rs 24095 27183 31080 35430 40141 43749
2 Production
Foodgrains Mn tonnes 198.4 208.6 217.3 230.8 233.9 a na
Index of Industrial Production
(growth) Per cent 8.4 8.2 11.6 8.5 2.6 na
Electricity Generation
(growth) Per cent 5.1 5.2 7.3 6.3 2.7 na
3 Prices
Inflation (WPI) (52-week average) %change 6.5 4.4 5.4 4.7 8.4 1.6 b

Inflation CPI (IW) (average) %change 3.8 4.4 6.7 6.2 9.1 11.4 b

4 External Sector
Export Growth ( US$) %change 30.8 23.4 22.6 29.0 13.6 -20.3 c

Import Growth (US$) %change 42.7 33.8 24.5 35.5 20.7 -23.6 c

Current Account Balance (CAB)/GDP Per cent -0.4 -1.2 -1.0 -1.3 -2.4 -3.3 d

Foreign Exchange Reserves Us$ Bn. 141.5 151.6 199.2 309.7 252 283.5 e

Average Exchange Rate Rs/ US$ 44.93 44.27 45.25 40.26 45.99 47.94 f

5 Money and Credit

Broad Money (M3) (annual) %change 12.0 16.9 21.7 21.4 18.6 16.5 g

SCheduled Commercial Bank Credit

(growth) %change 27.0 30.8 28.1 22.3 17.5 13.9 g

6 Fiscal Indicators (Centre)

Gross Fiscal Deficiti % of GDP 3.9 4.0 3.3 2.6 5.9 h 6.5 j

Revenue Deficit i
% of GDP 2.4 2.5 1.9 1.1 4.4 h
4.6 j

Primary Deficiti % of GDP 0.0 0.4 -0.2 -0.9 2.5 h 2.8 j

7 Population Million 1089 1106 1122 1138 1154 1170

AE
GDP figures for 2009-10 are advance estimates; QE quick estimates
na not yet available / released for 2009-10
a
for 2008-09 the figures are the 4th advance estimates as on July 21, 2009.
b
Average Apr.-Dec. 2009.
c
Apr.-Dec. 2009.
d
CAB to GDP ratio for 2009-10 is for the period Apr.-Sept. 2009
e
as of December 31, 2009
f
Average exchange rate for 2009-10 (Apr.-Dec. 2009).
g
As on January 15, 2010.
h
fiscal indicators for 2008-09 are based on the provisional actuals for 2008-09.
i
fiscal indicators are as per revised GDP at current market prices based on National Accounts 2004-05 series.
j
fiscal deficit, revenue deficit and primary deficit were envisaged at 6.8, 4.8 and 3.0 per cent of GDP respectively at the
time of presentation of the 2009-10 Budget.

1.4 A major concern during the year 2009-10,
especially in the second half, was the emergence of
high double-digit food inflation. On a year-on-year
basis, wholesale price index (WPI) headline inflation
in December 2009 was 7.3 per cent but for food items
(primary and manufactured) with a combined weight
of 25.4 per cent in the WPI basket, it was 19.8 per
cent. Thus, unlike the first half of 2008-09 when global
cost-push factors resulted in WPI inflation touching
nearly 13 per cent in August 2008, with inflation in
primary and manufactured products just below the
overall average and that in the fuel and power group
at over 17 per cent, the upsurge in prices in the
second half of 2009-10 has been more concentrated
and confined to food items only. As of the week
ending January 30, 2010 the inflation in primary food
articles stood at 17.9 per cent, and that in fuel, power
light and lubricants at 10.4 per cent. A significant
part of this inflation can be explained by supply-side
bottlenecks in some of the essential commodities,
precipitated by the delayed and sub-normal south-
west monsoons. Since December 2009, there have
been signs of these high food prices, together with
the gradual hardening of non-administered fuel
product prices, getting transmitted to other non-food
items, thus creating some concerns about higher-
than-anticipated generalized inflation over the next
few months.
1.5 At global level, following one of the deepest
downturns in recent times, economic growth took
root and extended to advanced economies in the
second half of 2009. The pace and shape of recovery,
however, remains uncertain. The International
Monetary Fund’s (IMF) World Economic Outlook
update of January 26, 2010 suggests that following
a sharp decline of 3.2 per cent in 2009, output in the
advanced economies has begun to expand since
State of the Economy and Prospects 3
the second half of 2009 and is now expected to grow
by 2.1 per cent in 2010. In the case of emerging and
developing economies, the modest 2.1 per cent
output growth in 2009 is expected to be followed by
a rise of about 6 per cent in 2010. For the world as a
whole an output decline of 0.8 per cent in 2009 is
projected to turn into a growth of 3.9 per cent in
2010. The rapid rebound in world output has been
driven by the extraordinary amount of policy stimulus,
monetary as well as fiscal. The concern about the
recovery losing momentum, once the stimulus is
withdrawn, remains. High unemployment rates,
growing fiscal deficit and contraction of credit to
productive sectors are areas of concern for the
developed economies. For the emerging economies,
which are already on the path to recovery, there are
challenges emanating from increased capital flows
with ramifications for monetary growth, inflation and
exchange rate uncertainty, along with policy
implications for the capital account.
ECONOMIC GROWTH DURING 2009-10
Overall GDP growth
1.6 With the release of the Quick Estimates of
National Income for 2008-09, the CSO has effected a
revision in the base year of its NAS from 1999-2000
to 2004-05. It includes changes on account of certain
refinements in definitions of some aggregates,
widening of coverage, inclusion of long-term survey
results and the normal revision in certain data in
respect of 2008-09. While there are no major changes
in the overall growth rate of GDP at constant 2004-
05 prices, except for 2007-08 where it has been
revised upward from 9.0 to 9.2 per cent, there are
some changes in growth rates at sectoral level and
in the level estimates of GDP. Thus, for instance,

Table 1.1 : Rate of growth at factor cost at 1999-2000 prices (per cent)
2005-06 2006-07 2007-08 2008-09 2009-10
Agriculture, Forestry & Fishing 5.2 3.7 4.7 1.6 -0.2
Mining & Quarrying 1.3 8.7 3.9 1.6 8.7
Manufacturing 9.6 14.9 10.3 3.2 8.9
Electricity, Gas & Water Supply 6.6 10.0 8.5 3.9 8.2
Construction 12.4 10.6 10.0 5.9 6.5
Trade, Hotels & Restaurants 12.4 11.2 9.5 5.3 8.3*
Transport, Storage & Communication 11.5 12.6 13.0 11.6
Financing, Insurance, Real Estate & Business Services 12.8 14.5 13.2 10.1 9.9
Community, Social & Personal Services 7.6 2.6 6.7 13.9 8.2
GDP at Factor Cost 9.5 9.7 9.2 6.7 7.2
Source : CSO.
* Transport & communication included for 2009-10 in trade, hotels and restaurants.
4 Economic Survey 2009-10
the contribution of the agriculture sector to the GDP
at factor cost in 2004-05 has declined from 17.4 per
cent in the old series to 15.9 per cent in the new
series. Similarly, while the contribution of registered
manufacturing has declined from 10.9 per cent in
the old series to 9.9 per cent in the new series, that
of unregistered manufacturing has increased from
4.9 to 5.4 per cent. There is also an increase in the
contribution of real estate, ownership of dwellings
and business services from 8.2 per cent to 8.9 per
cent. In the case of level estimates of GDP at current
prices, the difference ranges from 3.1 per cent in
2004-05 to 6 per cent in 2008-09. As a result, there
are also changes in the expenditure estimates of
the GDP, which, as can be seen in the following
paragraphs, has altered the analysis related to the
impact of the global slowdown on the Indian economy
as presented in the Economic Survey 2008-09.
1.7 The advance estimate of GDP growth at
7.2 per cent for 2009-10, falls within the range of
7 +/- 0.75 projected nearly a year ago in the
Economic Survey 2008-09. With the downside risk
to growth due to the delayed and sub-normal
monsoons having been contained to a large extent,
through the likelihood of a better-than-average rabi
agricultural season, the economy has responded
well to the policy measures undertaken in the wake
of the global financial crisis. While the GDP at factor
costs at constant 2004-05 prices, is placed at Rs
44,53,064 crore, the GDP at market prices, at
constant prices, is estimated at Rs 47, 67,142 crore.
The corresponding figures at current prices are
Rs 57,91,268 crore and Rs 61, 64,178 crore
respectively. It is worthwhile to note here that the
Figure 1.1 Quarterly growth rates at constant 2004-05 prices
11
10
9 average
Per cent
5
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2005-06 2006-07
growth rates of GDP at market prices, at constant
2004-05 prices, in 2008-09 and 2009-10 at 5.1 per
cent and 6.8 per cent have been considerably lower
than the growth rates of GDP at factor cost. This is
due to the significant decline in net indirect taxes
(i.e. indirect taxes minus subsidies) in the said years
on account of the fiscal stimulus implemented by
the Government, which included tax relief to boost
demand and increase in the expenditure on
subsidies.
1.8 The recovery in GDP growth for 2009-10, as
indicated in the advance estimates, is broad based.
Seven out of eight sectors/sub-sectors show a growth
rate of 6.5 per cent or higher. The exception, as
anticipated, is agriculture and allied sectors where
the growth rate is estimated to be minus 0.2 per
cent over 2008-09. Sectors including mining and
quarrying; manufacturing; and electricity, gas and
water supply have significantly improved their growth
rates at over 8 per cent in comparison with 2008-09.
The construction sector and trade, hotels, transport
and communication have also improved their growth
rates over the preceding year, though to a lesser
extent. However, the growth rate of community,
social and personal services has declined
significantly, though it continues to be around its
pre-global crisis medium-term trend growth rate.
Financing, insurance, real estate and business
services have retained their growth momentum at
around 10 per cent in 2009-10. In terms of sectoral
shares, the share of agriculture and allied sectors in
GDP at factor cost has declined gradually from 18.9
per cent in 2004-05 to 14.6 per cent in 2009-10.
During the same period, the share of industry has
Growth rate
3-quarter
moving
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2007-08 2008-09 2009-10 2010-11
Year
 State of the Economy and Prospects 5
remained the same at about 28 per cent, while continued momentum in the recovery, which is
that of services has gone up from 53.2 per cent in reflected in the advance estimates for 2009-10.
2004-05 to 57.2 per cent in 2009-10.
Per capita growth
Quarterly trend
1.10 The growth rates in per capita income and
1.9 As per the revised quarterly GDP data on consumption, which are gross measures of welfare
the new series of NAS, it now turns out that the in general, have declined in the last two years. This
GDP growth rate for Q3 2008-09 was 6.2 per cent is a reflection of the slowdown in the overall GDP
as against 5.8 per cent on the old series. Thus growth. While the growth in per capita income,
the growth rates in the three quarters following measured in terms of GDP at constant market prices,
the flare-up of the global financial crisis in has declined from a high of 8.1 per cent in 2007-08
to 3.7 per cent in 2008-09 and then recovered to 5.3
September 2008, were 6.2, 5.8 and 6.1 per cent.
per cent in 2009-10, per capita consumption growth
As anticipated in the Economic Survey 2008-09, as captured in the private final consumption
the economy exhibited a sharp ‘V’-shaped expenditure (PFCE) shows a declining trend since
recovery within a span of a few months of the 2007-08 with its growth rate in 2009-10 falling to one-
stimulus measures, both fiscal and monetary, third of that in 2007-08 (Table 1.3). The growth rate
working through the system. The turnaround in
the growth momentum was confirmed with the Q2 Table 1.3 : Per capita income and
2009-10 estimates, when the economy recorded consumption at 2004-05 prices
a GDP growth of 7.9 per cent as against 7.5 per Income Consumption
cent in the corresponding quarter of 2008-09. The
Rs (%) Rs (%)
recovery was broad based with mining and Growth Growth
quarrying; manufacturing; and electricity, gas and
water supply recording impressive growth rates. 2004-05 29,745 17,620
Understandably, as a consequence of the 2005-06 32,012 7.6 18,909 7.3
continued fiscal expansion, and in particular with 2006-07 34,533 7.9 20,168 6.7
the release of 60 per cent of the Sixth Pay 2007-08 37,328 8.1 21,841 8.3
Commission arrears in September 2009, 2008-09 38,695 3.7 23,012 5.4
community, social and personal services recorded 2009-10 40,745 5.3 23,626 2.7
a significant pick-up in growth. The partial data Source: CSO.
available since Q2 estimates on industrial growth, Note : Income is taken as GDP at market prices,
Consumption is PFCE.
agriculture, as well as exports indicate the

Table 1.2 : Quarterly growth rates of GDP at constant 2004-05 prices

Sectors 2007-08 2008-09 2009-10

AN Q1 Q2 Q3 Q4 AN Q1 Q2 Q3 Q4 AN Q1 Q2
Agriculture, Forestry 4.7 3.1 3.9 8.7 2.1 1.6 3.2 2.4 -1.4 3.3 -0.2 2.4 0.9
& Fishing
Mining & Quarrying 3.9 1.1 4.6 4.5 5.1 1.6 2.6 1.6 2.8 -0.3 8.7 7.9 9.5
Manufacturing 10.3 12.1 10.3 10.7 8.3 3.2 5.9 5.5 1.3 0.6 8.9 3.4 9.2
Elec., Gas & Water Supply 8.5 10.2 9.1 7.1 7.8 3.9 3.3 4.3 4.0 4.1 8.2 6.2 7.4
Construction 10.0 10.7 13.1 9.6 7.1 5.9 7.1 8.0 3.0 5.6 6.5 7.1 6.5
Trade, Hotels, Transport 10.7 11.9 9.5 10.7 10.9 7.6 10.8 10.0 4.4 5.7 8.3 8.1 8.5
and Communication
Financing, Insurance, 13.2 14.0 13.8 13.3 11.9 10.1 9.1 8.5 10.2 12.3 9.9 8.1 7.7
Real Estate & Business
Services
Community, Social & 6.7 4.2 7.0 5.3 9.8 13.9 8.7 10.4 28.7 8.8 8.2 6.8 12.7
Personal Services
GDP at Factor Cost 9.2 9.3 9.4 9.7 8.5 6.7 7.6 7.5 6.2 5.8 7.2 6.1 7.9
6 Economic Survey 2009-10

of per capita consumption was lower than that of per
capita income up to 2007-08; however since then it
was higher in two years and became lower again in
2009-10. The average growth in per capita
consumption over the period 2005-06 to 2009-10 was
slower at 6.08 per cent than that in per capita income
at 6.52 per cent. These year to year differences in
growth rates can be explained by the rising savings
rate and also the rise in tax collections that have
been observed in some of these years.
Aggregate demand and its composition
1.11 The change in the NAS series from the old
base of 1999-2000 to the new base of 2004-05 has
brought about significant revision in the expenditure
estimates of the GDP for 2008-09. While growth of
the PFCE in 2008-09 was revised upward from 2.9
per cent to 6.8 per cent, growth in Government final
consumption expenditure was revised downwards
from over 20 per cent in 2008-09 on the old base to
16.7 per cent on the new base. In 2009-10 a growth
of 4.1 per cent is expected in private final expenditure
and 8.2 per cent in Government final expenditure.
There is therefore a significant decline in the growth
of consumption expenditure in 2009-10. However,
the overall share of consumption expenditure, both
private as well as Government in GDP at market
prices, at constant 2004-05 prices, has declined only
marginally from 70.9 per cent in 2008-09 to 69.6 per
cent in 2009-10 (Table 1.4).
1.12 At the same time, the growth rate of gross
fixed capital formation in 2008-09 has also undergone
a revision due to the change in the NAS base year.
It was revised downward from 8.2 per cent in the
earlier base to 4 per cent in the revised base for
2008-09. It is, however, estimated to grow by 5.2 per
cent in 2009-10. Moreover, gross capital formation
adjusted shows a negative 4 per cent growth in
2008-09 in the new NAS base. This is because of a
significant decline in inventories (change in stocks)
from Rs1,08,739 crore in the old base to Rs 59,812
crore in the new base. The share of gross fixed
capital formation in GDP remains nearly the same
at 32.5 per cent in 2009-10 and 32.9 per cent in
2008-09.
1.13 Thus it now appears that moderation in the
decline in GDP growth rate, in the second half of

Table 1.4 : Demand side growth of GDP, growth contribution and relative share at
2004-05 market prices (per cent)
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

GDP at Market Prices 9.3 9.4 9.6 5.1 6.8

Consumption (Private) 9.0 8.2 9.8 6.8 4.1
Consumption (Govt) 8.3 3.8 9.7 16.7 8.2
Gross Capital Formation 14.7 14.5 16.9 -4.0 na
Gross Fixed Capital Formation 15.3 14.3 15.2 4.0 5.2
Change in Stocks 24.8 35.0 15.1 -61.2 4.7
Exports 25.9 21.8 5.2 19.3 -15.8
Imports 32.5 22.0 10.0 23.0 -17.2
Contribution to Growth
Consumption (Private) 57.3 51.3 59.7 78.2 36.0
Consumption (Govt) 9.8 4.4 10.4 33.6 13.9
Gross Capital Formation 51.4 52.6 62.7 -29.6 na
Gross Fixed Capital Formation 47.3 46.1 50.1 25.8 25.5
Net Exports -18.6 -8.0 -15.0 -36.2 20.4
Relative Share
Consumption (Private) 59.2 59.1 58.4 58.5 59.5 58.0
Consumption (Govt) 11.0 10.9 10.3 10.3 11.5 11.6
Gross Capital Formation 32.7 34.2 35.8 38.2 34.9 na
Gross Fixed Capital Formation 28.8 30.3 31.7 33.3 32.9 32.5

Source: CSO.
Note: Does not add to 100 because only major items are included in the table. Figures for 2009-10 are based on
advance estimates.

2008-09, was primarily a result of the boost provided
by the fiscal stimulus to consumption demand, both
private as well as Government, rather than the
continued buoyancy in investment growth, as
indicated in the Economic Survey 2008-09. This in
fact was the intended purpose of the fiscal stimulus,
which was not captured by the earlier NAS data. It
implies that expansion in investments in the
manufacturing sector may have declined a lot faster
and, perhaps, earlier than the estimates for 2008-09
suggested in May 2009. This is, for example,
reflected in the data on contribution to growth (Table
1.4), where the contribution of consumption, private
as well as Government, to growth saw a steep rise
in 2008-09 while that of gross capital formation
declined. Further, though the growth in gross fixed
capital formation (a proxy for investment growth) in
2009-10 has recovered to 5.2 per cent from 4 per
cent in 2008-09, it is still below the GDP growth rate
unlike in the pre-global crisis phase. This makes it
necessary, therefore, to watch the growth recovery
in private investment in the third and fourth quarters,
in sequencing the rollback of the stimulus measures.
Moreover, the contribution of net exports has become
positive in 2009-10, after a considerable period of
time. It may again turn negative as the demand for
imports increases with a deepening of industrial
recovery and a pick-up in domestic demand.
State of the Economy and Prospects 7
1.14 With growth in private expenditure on food,
beverages and tobacco falling behind the overall
growth in private consumption expenditure, the share
of expenditure on food items has gradually been
declining over the years. As per the CSO data, it
was 35.3 per cent in 2008-09 as against 39.6 per
cent in 2004-05. At the same time, the growth in
expenditure on transport and communication and
miscellaneous goods and services has been
increasing, though with occasional aberrations, with
the result that together they account for nearly the
same share in total private consumption as the
expenditure on food items.
PRODUCTION AND SUPPLY
Agriculture
1.15 Total foodgrains production in 2008-09 was
estimated at 233.88 million tonnes as against 230.78
million tonnes in 2007-08 and 217.28 million tonnes
in 2006-07. In the agricultural season 2009-10, the
impact of the delayed and sub-normal monsoon is
reflected in the production and acreage data for kharif
crops. As per the first advance estimates, covering
only the kharif crop, production of foodgrains is
estimated at 98.83 million tonnes in 2009-10, as
against the fourth advance estimates of 117.70 million

Table 1.5 : Private final consumption : Annual growth and share at 2004-05 prices

2004-05 2005-06 2006-07 2007-08 2008-09

Annual Growth (per cent)

Food, Beverages & Tobacco 7.5 3.8 7.2 2.7
Clothing & Footwear 24.0 23.2 8.1 -0.6
Gross Rent, Fuel & Power 3.4 4.0 4.8 3.4
Furniture, Furnishings Etc. 14.1 15.9 14.6 3.7
Medical Care & Health Services 5.8 4.5 2.5 8.1
Transport & Communication 5.0 7.6 8.8 12.3
Recreation, Education & Cultural Services 8.9 7.0 13.2 5.4
Miscellaneous Goods & Services 15.9 21.2 25.6 19.3
Total Private Consumption 8.6 8.3 9.6 6.8
Share of Total (per cent)
Food, Beverages & Tobacco 39.6 39.2 37.6 36.8 35.3
Clothing & Footwear 6.6 7.6 8.6 8.5 7.9
Gross Rent, Fuel & Power 13.0 12.4 11.9 11.4 11.0
Furniture, Furnishings, etc. 3.4 3.5 3.8 4.0 3.9
Medical Care & Health Services 5.0 4.8 4.7 4.4 4.4
Transport & Communication 19.6 19.0 18.9 18.7 19.7
Recreation, Education & Cultural Services 3.4 3.4 3.4 3.5 3.4
Miscellaneous Goods & Services 9.4 10.0 11.2 12.8 14.4
Total Private Consumption 100.0 100.0 100.0 100.0 100.0
Source: CSO.
8 Economic Survey 2009-10
Table 1.6 : Production of selected kharif crops
2007-08(4th 2008-09 (4th
advance advance
estimates) estimates)
Coarse Cereals 31.89
Cereals 114.55
Pulses 6.40
Foodgrains 120.95
Oilseeds 20.71
tonnes for the kharif crop in 2008-09 and a target of
125.15 million tonnes for 2009-10. Overall production
of kharif cereals in 2009-10 has shown a decline of
18.51 million tonnes over 2008-09. Both for rice and
coarse cereals, there has been a shortfall as
compared to the targeted production and also the
production level achieved in the previous year. In the
case of rice the decline is about 15 per cent over the
2008-09 level and 17 per cent in comparison with
the target for 2009-10. The decline in kharif coarse
cereals in 2009-10 in comparison with 2008-09 is
nearly 20 per cent and the shortfall with respect to
the target for kharif 2009-10 is nearly 10 million
tonnes. 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. Similarly, total kharif production of the nine
oilseeds in 2009-10 is about 15 per cent lower than
the kharif production in 2008-09.
1.16 Sugarcane production in 2009-10 is estimated
at 249.48 million tonnes, which is 9 per cent lower
than the previous year and 27 per cent lower than
the targeted production for 2009-10. 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. However, it is lower than the target
set for 2009-10 by 9 per cent.
1.17 In terms of acreage, the kharif 2009-10 season
saw a decline of nearly 6.5 per cent or 46.18 lakh ha
in the area covered under foodgrains. Almost the
entire decline in this acreage was confined to the
kharif rice crop. While the decline in kharif acreage
under pulses was 5.63 per cent, the area under the
nine oilseeds declined by 5.14 lakh ha. Some of
this decline in acreage may have been made up by
the increased acreage in the rabi season. As per
the available estimates, wheat, pulses and groundnut
(million tonnes)
2009-10 (1st Difference between
advance 2009-10 and 2007-08
estimates)
28.34 22.76 -9.13
112.92 94.41 -20.14
4.78 4.42 -1.98
117.70 98.83 -22.12
17.88 15.23 -5.48
have seen an increase in acreage as compared to
last year.
1.18 During the south-west monsoon of 2009, the
country as a whole received 23 per cent less rainfall
as compared to the long period average (LPA). Central
India, north-east India, north-west India and the
southern peninsula experienced 20 per cent, 27 per
cent, 36 per cent and 4 per cent deficient rainfall
respectively. At district level, 9 per cent of the districts
in the country received excess rainfall, 32 per cent
normal rainfall, 51 per cent deficient rainfall and
8 per cent scanty rainfall. Monsoon rainfall over the
country as a whole was 53 per cent of the LPA during
June, 96 per cent during July, 73 per cent in August
and 79 per cent during September. Some of this
shortfall was made up during the post-monsoon
season (October-December) of 2009, when the
country as a whole received 8 per cent excess
rainfall.
1.19 The total designed storage capacity at full
reservoir level (FRL) of 81 major reservoirs in the
country monitored by the Central Water Commission
is 151.77 billion cubic metres (BCM). At the end of
monsoon 2009, total water availability in the reservoirs
was 90.48 BCM, which is less than the water
availability of 113.74 BCM at the end of monsoon
2008 and the average of 100.95 BCM for the last 10
years.
Industry and Infrastructure
1.20 The cyclical slowdown in the industrial sector
which began in 2007-08 got compounded by the
global commodity price shock and the impact of the
global slowdown during the course of calendar year
2008 was arrested at the beginning of 2009-10. After
the first two months of the current fiscal, there were
clear signs of recovery. This is evident from the NAS
data as well as the index of industrial production

(IIP). While the CSO’s advance estimates place
industrial-sector growth at 8.2 per cent, as against
3.9 per cent in 2008-09, the IIP industrial growth is
estimated at 7.7 per cent for the period April-
November 2009-10, significantly up from 0.6 per cent
during the second half of 2008-09. The manufacturing
sector, in particular, has grown at the rate of 8.9 per
cent in 2009-10.
1.21 Growth in the major industrial groups has been
a mixed bag. There was strong growth in
automobiles, rubber and plastic products, wool and
silk textiles, wood products, chemicals and
miscellaneous manufacturing; modest growth in non-
metallic mineral products; no growth in paper, leather,
food and jute textiles; and a slump in beverages and
tobacco products in 2009-10. In terms of use-based
classification, there was strong growth in consumer
durables and intermediate goods (partly aided by
the base effect); moderate growth in basic and capital
goods; and sharp deceleration in consumer non-
durables.
1.22 The improvement in the cost structure of
manufacturing companies seems to have catalysed
the recovery. As the data on gross capital formation
are available with a considerable lag, the investment
picture is not yet clear. Growth in the production of
capital goods, a proxy for investment, is improving,
but different components of the “capital goods” group
reflect a mixed picture during the current year. The
strength of the recovery so far has been helped by
the favourable base effect and mild inflation in
manufacturing articles, especially of industrial inputs.
The declining trend in the number of mandays lost
because of strikes and lockouts witnessed in recent
years has continued in 2009-10.
1.23 Core industries and infrastructure services,
led by the robust growth momentum of telecom
services and spread across power, coal and other
infrastructure like ports, civil aviation and roads, have
also shown signs of recovery in 2009-10. In the
current fiscal, electricity generation emerged from
the lacklustre growth witnessed in the previous year
and equalled its performance in 2007-08. That this
was achieved despite constraints imposed by the
inadequate availability of coal and the dismal hydel-
generation scenario due to the sub-normal monsoon,
attests well to its potential. During April-December
2009, the peak deficit and total energy deficit came
down considerably to 12.6 per cent and 9.8 per cent
respectively from 13.8 per cent and 10.9 per cent
during the corresponding period of the previous year.
State of the Economy and Prospects 9
This happened mainly due to the increase in the
growth in electricity generation. The availability of
gas from the KG basin (D6) and surplus utilization
of gas available on fallback basis resulted in better
utilization of capacity and higher plant load factor
(PLF) as also high growth in electricity generated
from gas-based plants. The overall PLF also improved
during April-December 2009.
1.24 The domestic supply of crude oil remained
around 34 million metric tonnes (mmt) and natural
gas at about 32 billion cubic metric tonnes during
the past five years. With 15 new oil and gas
discoveries during 2009-10, the domestic availability
is expected to improve. During 2009-10, the projected
production for crude oil is 36.7 mmt, which is about
11 per cent higher than the actual crude oil production
of 33.5 mmt in 2008-09.
1.25 Better resource management, through
increased wagon load, faster turnaround time and a
more rational pricing policy, led to perceptible
improvement in the performance of the railways.
There has been no across-the-board increase in
freight rates in recent years. Railways have taken a
number of steps to attract additional traffic, one of
which is the dynamic pricing policy through which
differential tariff is charged to take care of skewed
demand during different periods of the year and
between different regions. A new class of non-stop
super fast passenger-carrying “Duronto” trains has
been introduced in September 2009. Seven Duronto
trains have already been launched.
1.26 In 2009-10, as against the stipulated target of
developing about a 3,165 km of national highways
under various phases of the National Highway
Development Project (NHDP), the achievement up
to end November 2009 has been about 1,490 km.
Similarly, as against the 2009-10 target of about 9,800
km for awarding projects under various phases of
the NHDP, projects totalling a length of about 1,285
km have been awarded up to end November 2009.
1.27 The opening of the telecom sector has not
only led to rapid growth in subscriber base, but has
also significantly helped in maximization of consumer
benefits, particularly in terms of price discovery,
following the forbearance approach in tariffs. From
only 54.6 million telephone subscribers in 2003, the
number increased to 429.7 million at the end of March
2009 and further to 562 million as of October 31,
2009 showing an addition of 96 million subscribers
during the period from March to December 2009.
10 Economic Survey 2009-10

Table 1.7 : Ratio of savings and investment to GDP

(Per cent at current market prices)
2004-05 2005-06 2006-07 2007-08 2008-09
Gross Domestic Saving 32.2 33.1 34.4 36.4 32.5
Public Sector 2.3 2.4 3.6 5.0 1.4
Private Sector 29.9 30.7 30.9 31.4 31.1
Household Sector 23.3 23.2 22.9 22.6 22.6
Financial Saving 9.8 11.4 10.9 11.2 10.4
Saving in Physical Assets 13.5 11.8 11.9 11.5 12.2
Private Corporate Sector 6.6 7.5 8.0 8.7 8.4
Gross Capital Formation (Investment) 32.7 34.3 35.5 37.7 34.9
Public Sector 7.4 7.9 8.4 8.9 9.4
Private Sector 23.8 25.3 26.4 27.6 24.9
Corporate Sector 10.3 13.5 14.5 16.1 12.7
Household Sector 13.5 11.8 11.9 11.5 12.2
Gross fixed Capital Formation 28.8 30.4 31.4 33.0 33.0
Stocks 2.5 2.8 3.4 3.5 1.3
Valuables 1.3 1.1 1.2 1.1 1.3
Saving-investment Gap
Public Sector -5.1 -5.5 -4.8 -3.9 -8.0
Private Sector 6.1 5.4 4.4 3.8 6.2
Source: CSO.
Note: Totals may not tally due to adjustment for errors and omissions.

Service Sector Savings and investments

1.28 The service sector which has been India’s
Gross domestic savings
workhorse for well over a decade has continued to 1.29 Gross domestic savings (GDS) at current
grow rapidly. Following the NAS classification, it prices in 2008-09 were estimated at Rs 18,11,585
comprises the sub-sectors trade, hotels, transport crore, amounting to 32.5 per cent of GDP at market
and communications; financing, insurance, real Figure 1.2 Sectoral share in domestic
estate and business services; and community, social saving 2008-09
and personal services. As against a growth of 9.8
per cent in 2008-09 it grew at 8.7 per cent in 2009-
Public sector
10. While there has been a significant dip in the 4%
growth of community social and personal services Private
in 2009-10, the other sub-sectors have either retained corporate sector
their growth momentum or improved upon it. A 26%

comparison between the old and the new series of

NAS reveals considerable difference in the level
estimates of the value added of service sub-sectors
to GDP at current prices. Thus, for instance, there
has been a decline, ranging from around 8 per cent
in 2004-05 to 30 per cent in 2008-09, in the
communication sub-sector. This has been partly
offset by the increase in the level estimates of value
added in real estate, ownership of dwellings, business
and legal services, ranging from 11.6 per cent in Household sector
70%
2004-05 to nearly 34.4 per cent in 2008-09.

prices as against 36.4 per cent in the previous year.
The fall in the rate of GDS has mainly been due to
the fall in the rates of savings of the public sector
(from 5.0 per cent in 2007-08 to 1.4 per cent in
2008-09) and private corporate sector (from 8.7 per
cent in 2007-08 to 8.4 per cent in 2008-09). In respect
of the household sector, the rate of saving has
remained at the same level of 22.6 per cent in
2007-08 and 2008-09. Indeed, the change in the NAS
series has had the most conspicuous effect on the
savings and investment rates. The rate of GDS on
the new series increased from 32.2 per cent in
2004-05 to 36.4 per cent in 2007-08 before declining
to 32.5 per cent in 2009-10, as against the old series
where it rose from 31.7 per cent in 2004-05 to
37.7 per cent in 2007-08. Thus, from 2005-06 to
2007-08, the GDS rate was overestimated in the NAS
old series by an average of 1.3 per cent. Definitional
refinements, better estimates of savings and a higher
denominator due to an increase in the level estimates
of GDP have contributed to the lowering of the rate
of GDS in the new NAS series.
Capital formation
1.30 Gross domestic capital formation(GDCF) at
current prices (adjusted for errors and omissions)
increased from Rs18,65,899 crore in 2007-08 to
Rs19,44,328 crore in 2008-09 and at constant (2004-05)
prices, it decreased from Rs16,22,226 crore in 2007-
08 to Rs15,57,757 crore in 2008-09. The rate of gross
capital formation at current prices rose from 32.7
per cent in 2004-05 to 37.7 per cent in 2007-08 before
declining to 34.9 per cent in 2008-09.
Figure 1.3
Sectoral share in gross
domestic capital formation
2008-09
Valuables
4%
Household Public
sector sector
34% 26%
Private corporate sector
36%
State of the Economy and Prospects 11
1.31 At sectoral level, the rate of gross capital
formation or simply the investment rate has increased
in both the public and private sectors. In the former
it rose continuously from 7.4 per cent in 2004-05 to
9.4 per cent in 2008-09, whereas in the latter, it
increased from 23.8 per cent in 2004-05 to 27.6 per
cent in 2007-08 before falling to 24.9 per cent in
2008-09. Between 2007-08 and 2008-09, the
investment rate for the private corporate sector
declined significantly from 16.1 per cent to 12.7 per
cent, whereas that of the household sector increased
from 11.5 to 12.2 per cent.
1.32 The sectoral savings-investment gap,
reflecting the gap between gross domestic savings
and gross capital formation of a sector, declined
significantly for the public sector as its savings
increased until 2007-08. However, with a sudden drop
in its savings rate by nearly 4 percentage points in
2008-09, this gap shot to a negative 8 per cent. In
the case of the private corporate sector, the savings-
investment gap has been consistently positive and
has risen in 2008-09 to 6.2 per cent after falling to 3.8
per cent in 2007-08 from 6.1 per cent in 2004-05.
Sectoral investment
1.33 The sectoral investment rate is a useful
indicator of the direction of new investments. While
the overall growth of investment in India was in the
range of 15 to 16 per cent per annum during the last
few years, it plunged to - 2.4 per cent in 2008-09 as
a result of the external shock-led slowdown. At
sectoral level, there has been a welcome rebound in
the growth rate of investment in the agricultural sector,
which grew at 16.5 per cent and 26.0 per cent in
2007-08 and 2008-09 respectively. This is in contrast
to the growth rate of 1.4 per cent recorded in
2006-07. Growth of investment in the industrial sector
has been more than the total investment growth up
to 2007-08. However, in 2008-09, this was reversed,
when investment in the industrial sector declined by
- 17.6 per cent as compared to a decline of - 2.4 per
cent in total investment. Within the industrial sector,
the decline was more prominent in manufacturing
and the construction sector. Investment in the
unorganized manufacturing sector declined by a
negative 42 per cent, indicative, perhaps, of the
difficulty faced by the sector in accessing credit due
to the tight market conditions in the post financial-
crisis phase. Investment in the services sector
registered a growth of 20.2 per cent in 2006-07, which
suddenly declined to - 16.0 per cent in 2007-08 as a
result of a decline in investment in the trade, hotels
12 Economic Survey 2009-10

Table 1.8 : Sectoral investment growth rates at 2004-05 prices

Rate of growth of GCF
2005-06 2006-07 2007-08 2008-09
Agriculture, Forestry & Fishing 18.1 1.4 16.5 26.0
Agriculture 18.7 0.5 17.7 27.4
Forestry & Logging 27.3 16.0 -20.0 16.0
Fishing 9.5 9.5 9.5 9.5
Mining & Quarrying 40.0 3.5 14.6 -7.8
Manufacturing 14.8 25.5 19.8 -21.9
Registered 39.1 18.8 24.4 -17.6
Unregistered -40.6 61.5 1.4 -42.5
Electricity, Gas & Water Supply 28.6 23.7 8.7 1.3
Construction 0.7 45.5 23.5 -22.8
Trade, Hotels & Restaurants 26.3 20.2 -16.0 19.4
Trade 24.9 23.2 -21.0 23.9
Hotels & Restaurants 33.6 5.4 12.2 1.7
Transport, Storage & Communication 14.7 1.0 26.3 30.3
Railways 10.6 15.8 14.0 17.5
Transport by Other Means 6.8 -2.0 27.8 13.7
Storage -268.5 19.3 8.4 32.8
Communication 27.0 -4.4 34.1 65.1
Financing, Insurance, Real Estate & Business Services 5.7 1.3 16.8 10.5
Banking & Insurance 46.3 38.3 1.4 -18.0
Real Estate, Ownership Of Dwellings & Business Services 4.4 -0.4 17.8 12.0
Community, Social & Personal Services 18.0 12.3 16.4 6.2
Public Administration & Defence 16.0 13.9 15.7 8.5
Other Services 20.8 10.2 17.4 3.0
Total 16.0 16.1 15.2 -2.4
Source : CSO.

and restaurants sub-sector. This decline in the said
sub-sector was made up in 2008-09 when, on the
strength of a growth of 19.4 per cent, there was a
revival in investment growth rate in the services sector
as a whole. Within the services sector, the global
financial crisis has had a dampening effect on
investment growth in the banking and insurance sub-
sector in 2008-09.
Behaviour of Prices and Inflation
1.34 The year-on-year WPI inflation rate has been
fairly volatile in 2009-10. It was 1.2 per cent in March
2009 and then declined continuously to become
negative during June-August 2009, assisted in part
by the large statistical base effect from the previous
year. It turned positive in September 2009 and
accelerated to 4.8 per cent in November 2009 and
further to 7.3 per cent in December 2009. For the
fiscal year so far (March over December 2009) WPI
inflation is estimated at 8 per cent.
1.35 Year-on-year inflation in the composite food
index (with a weight of 25.4 per cent) at 19.8 per
cent in December 2009 was significantly higher than
8.6 per cent last year. In respect of food articles,
inflation on year-on-year basis in December was 19.2
per cent and on fiscal-year basis (i.e. over March
2009) it was 18.3 per cent. At the same time, the
composite non-food inflation within the manufactured
group of the WPI (with a weight of 53.7 per cent) at
2.4 per cent in December 2009, was lower than the
6.7 per cent recorded last year. This suggests
concentrated inflation. Indeed, for several months,
rapidly rising food inflation has been a cause for
concern.
1.36 In December 2009, nearly 67 per cent of the
overall WPI inflation could be attributed to food items
(primary and manufactured), followed by 12 per cent
in the fuel and power commodity group, the remaining
21 per cent being explained by manufactured non-
food and primary non-food articles. Among food items
the major contributors to inflation are milk (20 per

cent), eggs, meat and fish (over 20 per cent), rice
(about 10 per cent), wheat (6 per cent), pulses (about
9 per cent), potatoes (9 per cent) and tomatoes
(6 per cent).
1.37 The recent period has witnessed significant
divergence in the WPI and CPI inflation rates,
principally on account of the larger weights assigned
to the food basket in the CPIs and due to the fact
that retail prices are relatively sticky downwards.
Thus, due to the sharp increase in essential
commodity prices, while all the four CPIs remained
elevated since March 2008, rising gradually from about
7 to 8 per cent (month-on-month) to around 15 to 17
per cent in December 2009, WPI inflation first went
up from around 8 per cent in March 2008 to 13 per
cent in August 2008, then declined to about 1 per
cent in March 2009, turned negative during June to
August 2009 before rising again to over 7 per cent in
December 2009.
1.38 A significant part of this inflation can be
explained by supply-side bottlenecks in some of the
essential commodities, precipitated by the delayed
and sub-normal south-west monsoons as well as
drought-like conditions in some parts of the country.
The delayed and erratic monsoons may also have
prevented the seasonal decline in prices, normally
seen during the period from October to March for
most food articles other than wheat, from setting in.
At the same time, it could be argued that excessive
hype about kharif crop failure, not taking into account
the comfortable situation in respect of food stocks
and the possibility of an improved rabi crop, may
have exacerbated inflationary expectations
encouraging hoarding and resulting in a higher
inflation in food items. This is supported by the
estimates on shortfall in production / availability of
major food items in 2009-10 for rice and wheat, as
also for some other items, except pulses. In the
case of sugar, delay in the market release of imported
raw sugar may have contributed to the overall
uncertainty, thereby allowing prices to rise to
unacceptably high levels in recent months.
1.39 The implicit deflator for GDP at market prices
defined as the ratio of GDP at current prices to GDP
at constant prices is the most comprehensive
measure of inflation on annual basis, Unlike the WPI,
the GDP deflator also covers prices in the services
sector which now accounts for well over 55 per cent
of the GDP. Overall inflation, as measured by the
aggregate deflator for GDPMP, increased from 4.7 per
cent in 2005-06 to 5.6 per cent in 2006-07 and then
declined to 5.3 per cent in 2007-08, before rising
State of the Economy and Prospects 13
again to 7.2 per cent in 2008-09. It has been
estimated at 3.6 per cent in 2009-10 as per the
advance estimates.
1.40 Similarly, in the absence of an economy-wide
consumer price index, it is useful to look at the
deflator for the PFCE as a more comprehensive
measure of consumer inflation on an annual basis.
It is defined as the ratio of PFCE at current prices to
PFCE at constant prices. Thus consumer inflation,
as measured by the deflator for the PFCE, increased
from 2.9 per cent in 2005-06 to 5.9 per cent in
2006-07, followed by a decline in 2007-08 to 4 per
cent, before rising again to 7 per cent in 2008-09
and estimated at 6.4 per cent in 2009-10, as per the
advance estimates.
External-sector Developments
1.41 The global economy, led by the Asian
economies especially China and India, has shown
signs of recovery in fiscal 2009-10. While global trade
is gradually picking up, the other indicators of
economic activity such as capital flows, assets and
commodity prices are more buoyant.
BOP developments H1 2009-10
1.42 As per the latest data for fiscal 2009-10,
exports and imports showed substantial decline
during April-September (H1) of 2009-10 vis-à-vis the
corresponding period in 2008-09. However, there has
been improvement in the balance of payments (BoP)
situation during H1 of 2009-10 over H1 of 2008-09,
reflected in higher net capital inflows and lower trade
deficit. The trade deficit was lower at US$ 58.2 billion
during H1 (April-September) of 2009 as compared
to US$ 64.4 billion in April-September 2008 mainly
on account of decline in oil import.
1.43 Merchandise exports on a BoP basis posted
a decline of 27.0 per cent in H1 (April-September
2009) of 2009-10 as against a growth of 48.1 per
cent in the corresponding period of the previous year.
Import payments declined by 20.6 per cent during
April-September 2009 as against a sharp increase
of 51.0 per cent in the corresponding period of the
previous year. The decline in imports is mainly
attributed to the base effect and decline in oil prices.
1.44 The net invisibles surplus (invisibles receipts
minus invisibles payments) stood lower at US$ 39.6
billion during April-September of 2009 as compared
to US$ 48.5 billion during April-September 2008. The
current account deficit increased to US $ 18.6 billion
in April-September 2009, despite a lower trade deficit,
as compared to US $ 15.8 billion in April-September
2008, mainly due to the lower net invisibles surplus.
14 Economic Survey 2009-10
1.45 Net capital flows to India at US $ 29.6 billion
in April-September 2009 remained higher as
compared to US $ 12.0 billion in April-September
2008. All the components, except loans and banking
capital, that comprise net capital flows showed
improvement during April-September 2009 from the
level in the corresponding period of the previous year.
Net inward FDI into India remained buoyant at
US$ 21.0 billion during April-September 2009
(US $ 20.7 billion in April-September 2008) reflecting
better growth performance of the Indian economy.
Due to large inward FDI, the net FDI (inward FDI
minus outward FDI) was marginally higher at
US$ 14.1 billion in April-September 2009, reflecting
better growth performance of the Indian economy.
Portfolio investment mainly comprising foreign
institutional investors’ (FIIs) investments and
American depository receipts (ADRs)/global
depository receipts (GDRs) witnessed large net
inflows (US $ 17.9 billion) in April-September 2009
(net outflows of US $ 5.5 billion in April-September
2008) due to large purchases by FIIs in the Indian
capital market reflecting revival in growth prospects
of the economy and improvement in global investors’
sentiment.
Trade
1.46 Given the uncertain global context, the
Government did not fix an export target for 2009-10,
instead the Foreign Trade Policy (FTP) 2009-14 set
the objective of an annual export growth of 15 per
cent with an export target of US$ 200 billion by March
2011. With the deepening of the global recession,
the beginning of 2009-10 saw acceleration in the fall
of export growth rate. The upwardly revised export
figures for the first half of 2008-09 also contributed
to the faster decline in the growth rate. While the
export growth rate was a negative 22.3 per cent in
April-November 2008-09, in November 2009, it
became a positive 18.2 per cent after a 13-month
period of negative growth. This significant turnaround
is due to the low base figures in November 2008 (at
$11.2 billion compared to $14.1 billion in October
2008 and $13.4 billion in December 2008). The export
growth rate in November 2009 over October 2009
was marginally positive at 0.04 per cent. In December
2009 the recovery in export growth has continued
with a positive year-on-year growth of 9.3 per cent
and a growth of 10.7 per cent over the previous month.
1.47 During 2009-10 (April-December) import
growth was a negative 23.6 per cent accompanied
by a decline in both POL and non-POL imports of
29.8 per cent and 20.7 per cent respectively. Gold
and silver imports registered negative growth of 7.3
per cent primarily on account of the volatility in gold
prices. The continuous rise in prices of gold also
dampened the demand. Non-POL non-bullion imports
declined by 22.4 per cent reflecting slowdown in
industrial activity and lower demand for exports.
Import growth was at a positive 27.2 per cent in
December 2009 due partly to the base effect and
partly the 42.8 per cent increase in the growth of
POL products with the pick-up in oil prices and
industrial demand. Non-POL items also registered a
significant growth in imports at 22.4 per cent, despite
a high negative growth of gold and silver imports.
1.48 Trade deficit fell by 28.2 per cent to US$ 76.2
billion (as per customs data) in 2009-10 (April–
December) from US$ 106 billion in the corresponding
period of the previous year. There have been
significant changes in the composition and direction
of both exports and imports in this period.
Foreign Exchange Reserves
1.49 During fiscal 2009-10, foreign exchange
reserves increased by US$ 31.5 billion from US$
252.0 billion in end March 2009 to US$ 283.5 billion
in end December 2009. Out of the total accretion of
US$ 31.5 billion, US$ 11.2 billion (35.6 per cent)
was on BoP basis (i.e excluding valuation effect),
because of higher inflows under FDI and portfolio
investments, while accretion of US$ 20.3 billion (64.4
per cent) was on account of valuation gain due to
weakness of the US dollar against major currencies.
Besides, the Reserve Bank of India (RBI) concluded
the purchase of 200 metric tonnes of gold from the
IMF, under the IMF’s limited gold sales programme
at the cost of US$ 6.7 billion in the month of
November 2009. Further, a general allocation of SDR
3,082 million (equivalent to US$ 4,821 million) and a
special allocation of SDR 214.6 million (equivalent
to US$ 340 million) were made to India by the IMF
on August 28, 2009 and September 9, 2009
respectively.
Exchange Rate
1.50 In fiscal 2009-10, with the signs of recovery
and return of FII flows after March 2009, the rupee
has been strengthening against the US dollar. The
movement of the exchange rate in the year 2009-10
indicated that the average monthly exchange rate of
the rupee against the US dollar appreciated by 9.9
per cent from Rs 51.23 per US dollar in March 2009
to Rs 46.63 per US dollar in December 2009, mainly
on account of weakening of the US dollar in the
international market.
 State of the Economy and Prospects 15
Figure 1.4 Y-o-Y Growth in broad money (M3) and non-food credit (% month end data)
30
25 Broad
money (M3)
Per cent

20
15 Non-food
10 credit
5
0
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
15 Jan
2007-08 2008-09 2009-10
Year

Conduct of Monetary Policy The downward revisions in policy rates announced

by the RBI post-September 2008 got transmitted
1.51 Since the outbreak of the global financial crisis
into the money and G-Sec markets; however, the
in September 2008, the RBI has followed an
transmission has been slow and lagged the in the
accommodative monetary policy. In the course of
case of the credit market. Though lending rates of
2009-10, this stance was principally geared towards
all categories of banks (public, private and foreign)
supporting early recovery of the growth momentum,
declined marginally from March 2009 (with
while facilitating the unprecedented borrowing
requirement of the Government to fund its fiscal benchmark prime lending rates [BPLR] of scheduled
deficit. The fact that the latter was managed well commercial banks [SCBs] having declined by 25 to
with nearly two-thirds of the borrowing being 100 basis points), the decline was not sufficient to
completed in the first half of the fiscal year not only accelerate the demand for bank credit. Consequently,
helped in checking undue pressure on interest rates, while borrowers have turned to alternate sources of
but also created the space for the revival of private possibly cheaper finance to meet their funding needs,
investment demand in the second half of the year. banks flush with liquidity parked their surplus funds
under the reverse repo window.
1.52 The transmission of monetary policy measures
continues to be sluggish and differential in its impact 1.53 There has been continuous moderation in the
across various segments of the financial markets. growth in broad money (M3) from around 21 per cent

Table 1.9 : Deployment of gross bank credit by major sectors

Sector % Variation (year-on-year)
2008-09(Nov. 21) 2009-10(Nov. 20)
Non-food Gross Bank Credit (1 to 4) 28.0 10.4
1. Agriculture and Allied Activities 21.5 21.4
2. Industry 37.0 14.2
3. Personal Loans 13.2 0.7
Housing 9.1 7.3
Advances against Fixed Deposits 27.7 -11.8
Credit Card Outstanding 25.7 -24.7
Education 38.3 31.0
Consumer Durables -9.8 -11.8
4. Services 32.9 7.9
Transport Operators 24.4 10.6
Professional Services 80.1 7.0
Trade 20.5 14.4
Real Estate Loans 49.0 15.3
Non-banking Financial Companies 54.0 19.5
Priority Sector 22.6 15.4
16 Economic Survey 2009-10
at the beginning of the fiscal year to 16.5 per cent
as of mid-January 2010 and it has remained below
the indicated growth projection for the period. While
in the first half of the year, credit to the Government
remained the key driver of money growth, since the
third quarter of 2009-10 that too has moderated.
1.54 Demand for bank credit/non-food credit
remained muted during 2009-10. It was only from
November 2009 that some signs of pick-up became
evident. On financial-year basis (over end March),
growth in non-food credit remained negative till June
2009. It picked up thereafter, only to hover between
0.0 to 1.8 per cent till mid-September 2009.
Consistent growth in non-food credit was recorded
only after November 2009. As per the latest available
data, non-food credit has recorded an increase of
8.7 per cent on financial-year basis (till January 15,
2010). It is also noteworthy that growth in aggregate
deposits has remained higher than the growth in bank
credit during 2009-10. The lower expansion in credit
relative to the significant expansion in deposits during
2009-10 has resulted in a decline in the credit-deposit
ratio from 72.4 in end March 2009 to 70.8 in mid-
January 2010, though with some signs of revival since
December 2009.
1.55 Growth in sectoral deployment of gross bank
credit on a year-on-year basis (as on November 20,
2010) shows that retail credit has not picked up during
2009-10 (Table 1.9). While growth in credit to
agriculture remained more or less the same as on
the corresponding date of the preceding year, for the
other broad sectors–industry, personal loans and
services—growth in credit decelerated as compared
to the corresponding period of the preceding year.
The personal loans category has fared the worst with
credit deployment showing negative variation for sub-
categories like (i) Advances against Fixed Deposits,
(ii) Credit Card Outstanding and (iii) Consumer
Durables. It would be necessary to monitor these
indicators for an improvement in credit growth, while
sequencing measures to roll back the stimulus.
Table 1.10 : Contribution to total flow of resources to commercial sector (per cent)
2007-08
Adjusted Non-food Bank Credit* 44.2
Flow from Non-banks 55.8
Domestic Sources 25.4
Foreign Sources 30.4
Source: RBI.
* Includes Non-food Credit and Non-SLR Investment by SCBs.
1.56 There has been significant increase by
Rs 50,000 crore during April-January 2009-10 in the
availability of non-banking resources, which has
helped industry meet its credit needs. Thus adjusted
non-food credit that accounted for nearly 48 per cent
of the total flow of funds to the commercial sector in
2008-09 (April-January), accounted for only 39 per
cent of the flow of funds in 2009-10 (April-January).
On the other hand, the contribution of non-bank
sources increased from 52 per cent in 2008-09 to
nearly 61 per cent in 2009-10 for the same period.
This increase in flow of funds from non-banking
sources was both from domestic and foreign sources
and is indicative of structural rigidities that affect the
monetary transmission mechanism (Table 1.10)
particularly in respect of the credit markets.
Fiscal Policy Developments
1.57 The fiscal expansion undertaken by the Central
Government as a part of the policy response to
counter the impact of the global economic slowdown
in 2008-09 was continued in fiscal 2009-10. The
expansion took the form of tax relief to boost demand
and increased expenditure on public projects to
create employment and public assets. The net result
was an increase in fiscal deficit from 2.6 per cent
in 2007-08 to 5.9 per cent of the revised GDP
(new series) in 2008-09 (provisional) and 6.5 per
cent in the budget estimates for 2009-10 (as
against 6.8 per cent of the GDP on the old series,
reported earlier). Thus the fiscal stimulus
amounted to 3.3 per cent of the GDP in 2008-09
and 3.9 per cent in 2009-10 from the level of the
fiscal deficit in 2007-08.
1.58 As part of the fiscal stimulus, the Government
also enhanced the borrowing limits of the State
Governments by relaxing the targets by 100 basis
points. As a result, the gross fiscal deficit of the
States combined rose from 1.4 per cent of the GDP
in 2007-08 to 2.6 per cent in 2008-09 (revised
estimates [RE]) and was estimated at 3.2 per cent
of the GDP in 2009-10 (BE).
2008-09 2008-09 2009-10
(Apr.-Jan.)
45.7 47.7 39.2
54.3 52.3 60.8
34.0 28.1 33.0
20.3 24.2 27.8

1.59 In implementing the fiscal stimulus, the
Central Plan expenditure was frontloaded. This is
evident from its growth of 34.3 per cent and 18.0 per
cent in 2008-09 and 2009-10 (BE), respectively. As
a proportion of the GDP, the Plan expenditure at 5.3
per cent of the GDP in 2009-10(BE) was the highest
in recent years. Non-Plan expenditure grew by 19.4
per cent and 14.8 per cent respectively in 2008-09
and 2009-10 (BE).
1.60 The relative success of the fiscal stimulus in
supporting effective demand, particularly the
consumption demand, in 2008-09 and 2009-10 could
be traced to its composition. The approach of the
Government was to increase the disposable income
in the hands of the people, for instance by effecting
reductions in indirect taxes (excise and service tax)
and by expanding public expenditure on programmes
like the National Rural Employment Guarantee Act
(NREGA) and on rural infrastructure. The
implementation of the Sixth Pay Commission
recommendations and the debt relief to farmers also
contributed to this end. The fact that the approach
worked is attested to by the GDP growth rate and
more specifically by the growth in private
consumption demand in 2008-09 and also in
2009-10 as reflected in the relevant data on the NAS
new series. Consumption expenditure, by its very
nature, has short lags, and affects demand quickly,
with little or no effect on productivity, while productive
infrastructure expenditure takes much longer to
translate into effective demand. The recovery having
taken root now necessitates a review of public
spending. It has to be geared towards building
medium-term productivity of the economy and
making up for the decline in investment growth in
certain sectors of the economy.
1.61 The recommendations of the Thirteen Finance
Commission (FC-XIII) have to be taken on board in
shaping the fiscal policy for 2010-11 and in the
medium term. The FC-XIII has recommended a
calibrated exit strategy from the expansionary fiscal
stance of 2008-09 and 2009-10 as the main agenda
of the Central Government. Further, it has suggested
that the revenue deficit of the Centre needs to be
progressively reduced and eliminated, followed by
emergence of revenue surplus by 2014-15. Perhaps
for the first time, a cap on the overall debt of the
Government has been recommended. It has
suggested a target of 68 per cent of the GDP for the
combined debt of the Centre and the States to be
achieved by 2014-15. Thus the fiscal consolidation
State of the Economy and Prospects 17
path embodies steady reduction in the augmented
debt stock of the Centre to 45 per cent of the GDP
by 2014-15, and that of the States to less than 25
per cent of the GDP by 2014-15. The FC-XIII has
also suggested the need for the FRBM Act to specify
the nature of shocks that would require a relaxation
of targets under the Act. It has recommended that
the share of States in the net proceeds of shareable
Central taxes be 32 per cent in each of the financial
years from 2010-11 to 2014-15. (see Box 1.1)
Social-sector Development
1.62 Fiscal 2009-10 saw the strengthening of
several public initiatives and programmes with a view
to cushioning the impact of the global slowdown on
the more vulnerable segments of the population in
the country. While some of these programmes were
a part of the ongoing interventions to give effect to a
more inclusive development strategy, there were
some measures that were undertaken as a direct
response to the slowdown of growth, especially in
the tradable sectors of the economy. Thus emphasis
in favour of higher allocation to social-sector
development given in recent years continued to be
reflected in the allocations under the Union Budget
2009-10. The share of Central Government
expenditure on social services including rural
development in total expenditure (Plan and non-Plan)
increased to 19.46 per cent in 2009-10 (BE) from
about 10.46 per cent in 2003-04. Similarly,
expenditure on social services by General
Government (Centre and States combined) as a
proportion of total expenditure increased from 19.9
per cent in 2004-05 to 23.8 per cent in 2009-10 (BE).
Further, sector-specific increases including in
education, health and rural development were
reinforced in the Budget allocations for 2009-10.
1.63 A major concern was regarding the possibility
of a rise in unemployment due to the slowdown of
the economy. While comprehensive employment
data for the current financial year are not available,
some sample surveys conducted by the Labour
Bureau, Ministry of Labour and Employment,
Government of India, indicated job losses in the wake
of the global financial crisis, which seem to have
been reversed in recent months. Thus employment
is estimated to have declined by 4.91 lakh during
the third quarter (October-December) of 2008; it
increased by 2.76 lakh during January-March 2009,
followed by a decline of 1.31 lakh during April-June
2009, and then an increase of 4.97 lakh during the
second quarter (July-September) 2009. On the
whole, for the period October 2008 to September
18 Economic Survey 2009-10

Box 1.1 : Thirteenth Finance Commission

Following the mandate under the Presidential Order indicating the terms of reference, which flow from the articles 270, 275
and 280 of the Indian Constitution, the FC-XIII submitted its report on December 30, 2009. The FC-XIII’s overall approach
was to foster “inclusive and green growth promoting fiscal federalism”. Observing that as against the level of 75 per cent
targeted by the Twelfth Finance Commission, the combined debt-GDP ratio was 82 per cent in the terminal year (2009-10),
the FC-XIII focused on anchoring the fiscal consolidation process in a medium-term debt reduction framework. The FC-XIII
proposes reducing the combined debt-GDP ratio to 68 per cent by 2014-15 with the Centre’s debt-GDP ratio declining to
45 per cent. It recommended a calibrated exit strategy from the expansionary fiscal stance of 2008-09 and 2009-10.
The FC-XIII has recommended fiscal consolidation through the elimination of revenue deficit as the long-term target for both
the Centre and States. Following a design similar to that adopted by the recent Finance Commissions, the FC-XIII indicated
a normative discipline for both Centre and States; with equal treatment which entailed no automatic priority for any level of
Government and a focus on equalization (and not equity). The latter signalled the intent of the FC-XIII to ensure that States
and local bodies have the fiscal potential to provide comparable levels of public service at reasonably comparable levels of
taxation. This principle does not guarantee uniformity in public services across the country; but it addresses the fiscal
requirements of each jurisdiction to enable such uniformity.
Terming the goods and services Tax (GST) as a game-changing tax reform measure which will significantly contribute to the
buoyancy of tax revenues and acceleration of growth as well as generate positive externalities, the FC-XIII proposed a grand
bargain. The six elements of the grand bargain for the GST included: 1. the design; 2. operational modalities; 3. binding
agreement between the Centre and States with contingencies for change in rates and procedures; 4. disincentives for
non-compliance; 5. the implementation schedule and; 6. the procedure for States to claim compensation. For this purpose,
the FC-XIII recommended the sanction of Rs 50,000 crore as compensation for revenue losses of States on account of the
implementation of the GST. This amount would shrink to Rs 40, 000 crore were the implementation to take place on/after
April 1, 2013 and further to Rs 30,000 crore were it to take place on/after April 1, 2014.
The following are some of the key recommendations of the FC-XIII:
 The share of States in net proceeds of shareable Central taxes shall be 32 per cent every year for the period of the award.
 Revenue accruing to a State is to be protected to the levels that would have accrued to it had service tax been a part
of the shareable Central taxes, if the 88th Amendment to Constitution is notified and followed up by a legislations
enabling States to levy service tax.
 Centre is to review the levy of cesses and surcharges with a view to reducing their share in its gross tax revenue.
 The indicative ceiling on overall transfers to States on revenue account may be set at 39.5 per cent of gross revenue
receipts of the Centre.
 The Medium Term Fiscal Plan (MTFP) should be a statement of commitment rather than intent.
 New disclosures have been specified for the Budget/MTFP including on tax expenditure, public-private partnership
liabilities and the details of variables underlying receipts and expenditure projections.
 The Fiscal Responsibility and Budget Management (FRBM) Act needs to specify the nature of shocks that would
require relaxation of the targets thereunder.
 States are expected to be able to get back to their fiscal correction path by 2011-12 and amend their FRBM Acts to the
effect.
 State Governments are to be eligible for the general performance and special area performance grants only if they
comply with the prescribed stipulation in terms of grants to local bodies.
 The National Calamity Contingency Fund (NCCF) should be merged with the National Disaster Response Fund
(NDRF) and the Calamity Relief Fund (CRF) with the State Disaster Response Funds (SDRFs) of the respective States.
 A total non-Plan revenue grant of Rs 51,800 crore is recommended over the award period for eight States. A performance
grant of Rs 1500 crore is recommended for three special category States that have graduated from a non-Plan revenue
deficit situation.
 An amount of Rs 19,930 crore has been recommended as grant for maintenance of roads and bridges for four years
(2011-12 to 2014-15).
 An amount of Rs 24,068 crore has been recommended as grant for elementary education.
 An amount of Rs 27,945 crore has been recommended for State-specific needs.
 Amounts of Rs 5,000 crore each as forest, renewable energy and water sector-management grants have been
recommended.
 A total sum of Rs 3,18,581 crore has been recommended for the award period as grants-in-aid to States.

2009, there may have been a net addition of 1.51
lakh jobs in the sectors covered under the said
surveys.
1.64 Under the NREGA, which is a major rural
employment initiative, during the year 2009-10, 4.34
crore households have been provided employment
so far. Out of the 182.88 crore person days created
under the scheme during this period, 29 per cent
and 22 per cent were in favour of Scheduled Caste
and Scheduled Tribe population respectively and 50
per cent in favour of women.
Climate change
1.65 While engaging constructively with the
international community on the issue of climate
change, India has pursued a strong domestic agenda
for addressing the issue. The Copenhagen conference
on climate change (CoP 15) was held from
December 7-18, 2009 to discuss and reach an
outcome on climate change issues. At the
Copenhagen conference, the Danish Presidency of
CoP15 had invited some of the participating countries
for a discussion on relevant aspects of climate
change and presented the results to the CoP in the
form of a “Copenhagen Accord”. The CoP did not
adopt the results of the discussion and only took
note of the “Accord”. It has been decided to continue
the negotiations with a view to concluding them at
the next CoP scheduled in Mexico from November
29 to December 10, 2010. India recognizes that a
strategy for addressing climate change has to be
based on sustainable development. This is reflected
in many of the major programmes addressing
climate variability concerns. Current Government
expenditure in India on adaptation to climate
variability exceeds 2.6 per cent of the GDP, with
agriculture, water resources, health and sanitation,
forests, coastal zone infrastructure and extreme
events being specific areas of concern.
Prospects, Short Term and Medium Term
1.66 There are several factors that have emerged
from the performance of the economy in the last 12
months, which, combined with an analysis of
performance over the last couple of years, augur well
for the Indian economy. There are some deep changes
that have taken place in India, which suggest that
the economy’s fundamentals are strong. First, the
rates of savings and investment have reached levels
that even ten years ago would have been dismissed
as a pipedream for India. On this important dimension,
India is now completely a part of the world’s fast-
State of the Economy and Prospects 19
growing economies. In 2008-09 gross domestic
savings as a percentage of GDP were 32.5 per cent
and gross domestic capital formation 34.9 per cent.
These figures, which are a little lower than what had
been achieved before the fiscal stimulus was put
into place, fall comfortably within the range of figures
one traditionally associated with the East Asian
economies. In 2007 South Korea had a savings rate
of 30 per cent, Japan 28 per cent, Malaysia 38 per
cent and Thailand 33 per cent. Since these indicators
are some of the strongest correlates of growth and
do not fluctuate wildly, they speak very well for India’s
medium-term growth prospects. It also has to be
kept in mind that, as the demographic dividend
begins to pay off in India, with the working age-group
population rising disproportionately over the next two
decades, the savings rate is likely to rise further.
Second, the arrival of India’s corporations in the
global market place and informal indicators of the
sophisticated corporate culture that many of these
companies exhibit also lend to the optimistic
prognosis for the economy in the medium to long
run.
1.67 In the medium term it is reasonable to expect
that the economy will go back to the robust growth
path of around 9 per cent that it was on before the
global crisis slowed it down in 2008. To begin with,
there has been a revival in investment and private
consumption demand, though the recovery is yet to
attain the pre-2008 momentum. Second, Indian
exports have recorded impressive growth in
November and December 2009 and early indications
of the January 2010 data on exports are also
encouraging. Further, infrastructure services,
including railway transport, power,
telecommunications and, more recently but to a
lesser extent, civil aviation, have shown a remarkable
turnaround since the second quarter of 2009-10. The
favourable capital market conditions with
improvement in capital flows and business
sentiments, as per the RBI’s business expectations
survey, are also encouraging. Finally, and even
though it is too early to tell if this is a trend, the
manufacturing sector has been showing a buoyancy
in recent months rarely seen before. The growth rate
of the index of industrial production for December
2009—the latest month for which quick estimates
are available—was a remarkable 16.8 per cent. There
is also a substantial pick-up in corporate earnings
and profit margins.
1.68 Hence, going by simple calculations based
on the above-mentioned variables, coupled with the
20 Economic Survey 2009-10
fact that agriculture did have a set-back this year
and is only gradually getting back to the projected
path, a reasonable forecast for the year 2010-11 is
that the economy will improve its GDP growth by
around 1 percentage point from that witnessed in
2009-10. Thus, allowing for factors beyond the reach
of domestic policymakers, such as the performance
of the monsoon and rate of recovery of the global
economy, the Indian GDP can be expected to grow
around 8.5 +/- 0.25 per cent, with a full recovery,
breaching the 9 per cent mark in 2011-12.
1.69 Given the steadily improving fundamentals of
the economy discussed at the start of this
subsection, over and above the short-term
improvements that occurred during the current fiscal
year, the medium-term prospects of the Indian
economy are really strong. If, in addition to this, there
are improvements in infrastructure, both urban and
rural, and reform in governance and administration,
which cuts down bureaucratic transactions costs
that slow down enterprise in India and breed
corruption, it is entirely possible for India to move
into the rarefied domain of double-digit growth and
even attempt to don the mantle of the fastest-growing
economy in the world within the next four years. If
this can be coupled with targeted Government
interventions, some of which have recently been
undertaken and some that are on the agenda, to
include the marginalized segments of the population
in this development process, then the ultimate aim
of rapid growth, which is to raise the standard of
living of the disadvantaged and to eradicate poverty,
should also be within reach in the not-too-distant
future.
Micro-foundations of
Inclusive Growth
2
CHAPTER

There have been few fiscal years in India’s history in which the outlooks at the start
and the end have been as different as in the present one. In April 2009, India seemed
to be mired in an economic slowdown that had begun over a year ago in the
industrialized nations and had engulfed the entire world. During the two preceding
quarters India had clocked an annualized growth rate of 5.8 per cent, which was
much below the near-9 per cent that the nation had continuously achieved for five
years. It appeared that while we were a little late in joining the global recession we
were now firmly in it. A variety of stimulus packages were put in place in the second
half of 2008-09, in the Interim Budget 2009-2010 and, again, three months later,
in the main Budget 2009-2010. By the second quarter the economy showed signs of
turning; and now, close to the end of the year, India seems to be rapidly returning to
the buoyant years preceding 2008. As always with any economy, there are risks.
The drought-hit agricultural sector is not yet back to normal performance. The risk
of a second-dip recession in the industrialized nations continues to cast a shadow on
our nascent recovery. Nevertheless, at the year’s end, it is good to see India having
averted a recession and come out of the slowdown faster than pundits predicted in
April 2009; and an analysis of various statistical trends that gird the economy
suggests that the nation’s medium- and long-term prognosis is excellent. If we can
put into effect some important structural policy measures, there is no reason why
India cannot achieve double-digit gross domestic product (GDP) growth and a rapid
diminution of poverty.

2.2 Detailed analyses of the performance of various
sectors of the Indian economy and sector-specific
policy options, and especially those pertaining to
our immediate concerns, are conducted in the
chapters that follow. The aim of this chapter is to go
beyond these short-term and sector-specific
concerns to broader questions of policymaking in
India and, at the same time, to focus on the relatively
neglected subject of the micro-foundations of
macroeconomic policy. In the rush to attend to the
immediate imperatives of policy, some of the
foundational questions, for instance those pertaining
to individual incentives to perform better, which have
significant long-run implications for the Indian
economy, are often neglected. Policy changes which
are important but not so in any specific year run the
risk of not being implemented in any year. The aim
of this chapter is to make amends for this by
deliberately thinking outside the box and taking an
analytical look at the base of policymaking in India.
Some of the policy alternatives discussed here are
for debate and discourse, rather than immediate
implementation. The hope is that this will lead to
important practical ideas for India’s sustained
development and inclusive growth and that some of
them may enable us to create a road map for actual
medium- and long-term policies.
DEVELOPMENT AND DISTRIBUTION
2.3 In recent times India has grown fast not only
compared to its own past but also in comparison
22 Economic Survey 2009-10
Table 2.1 : Ranks of 109 nations, by PPP-corrected GDP per capita
Rank 1975 1984
58 Paraguay Dominican Rep.
75 Grenadines Honduras
77 Ghana Sri Lanka
80 Mauritania Solomon Islands
89 Solomon Islands India
90 India Rwanda
96 Bangladesh China
108 China Nigeria
Source: Computation based on World Bank data.
Legend : The Table shows the ranks of 109 nations for which purchasing power parity (PPP)-corrected
income data were available from 1975. In 1975 India was the 90th poorest nation, among these 109 nations. Over
the 19-year period illustrated here, India steadily improved its rank. It was 75th poorest by 2004. The one nation
that outstrips this performance is China, moving up from 108th rank to 58th, crossing over India somewhere
between 1984 and 1994.
with other nations (see Table 2.1). But there cannot
be any room for complacency because it is possible
for the Indian economy to develop even faster and
also to spread the benefits of this growth more widely
than has been done thus far. Before going into details
of the kinds of micro-structural changes that we need
to conceptualize and then proceed to implement, it
is worthwhile elaborating on the idea of inclusive
growth that constitutes the defining concept behind
this Government’s various economic policies and
decisions. A nation interested in inclusive growth
views the same growth differently depending on
whether the gains of the growth are heaped primarily
on a small segment or shared widely by the
population. The latter is cause for celebration but
not the former. In other words, growth must not be
treated as an end in itself but as an instrument for
spreading prosperity to all. India’s own past
experience and the experience of other nations
suggests that growth is necessary for eradicating
poverty but it is not a sufficient condition. In other
words, policies for promoting growth need to be
complemented with policies to ensure that more and
more people join in the growth process and, further,
that there are mechanisms in place to redistribute
some of the gains to those who are unable to partake
in the market process and, hence, get left behind.
2.4 A simple way of giving this idea of inclusive
growth a sharper form is to measure a nation’s
progress in terms of the progress of its poorest
segment, for instance the bottom 20 per cent of the
population. One could measure the per capita income
1994 2004
Dominican Rep. China
Zimbabwe India
China Georgia
India Papua New Guinea
Georgia Bangladesh
Senegal Solomon Islands
Congo,Dem.Rep. Burkina Faso
Rwanda Malawi
of the bottom quintile of the population and also
calculate the growth rate of its income; and evaluate
our economic success in terms of these measures
that pertain to the poorest segment. This approach
is attractive because it does not ignore growth like
some of the older heterodox criteria did. It simply
looks at the growth of income of the poorest sections
of the population. It also ensures that those who are
outside of the bottom quintile do not get ignored. If
that were done, then those people would in all
likelihood drop down into the bottom quintile and so
would automatically become a direct target of our
policies. Hence the criterion being suggested here
is a statistical summing up of the idea of inclusive
growth. The policy discussions that follow do not
explicitly refer to this but are inspired by this idea of
inclusive growth, which, in turn, leads to two
corollaries, to wit that India must strive to achieve
high growth and that we must work to ensure that
the weakest segments benefit from the growth.
2.5 For achieving inclusive growth there is critical
need to rethink the role of the state. The early debate
among economists about the size of the Government
can be misleading. The need of the hour is to have an
enabling Government. India is too large and complex
a nation for the state to be able to deliver all that is
needed. Asking the Government to produce all the
essential goods, create all the necessary jobs, and
keep a curb on the prices of all goods is to, at best,
court failure, and, in greater likelihood, lead to a large,
cumbersome bureaucracy and widespread corruption.
The aim must be to stay with the objective of inclusive

growth that was laid down by the founding fathers of
the nation, but to take a more modern view of what
the state can realistically deliver. This is what leads
to the idea of an enabling state, that is, a Government
that does not try to directly deliver to the citizens
everything that they need. Instead, it (1) creates an
enabling ethos for the market so that individual
enterprise can flourish and citizens can, for the most
part, provide for the needs of one another, and
(2) steps in to help those who do not manage to do
well for themselves, for there will always be
individuals, no matter what the system, who need
Micro-foundations of Inclusive Growth 23
support and help. Hence we need a Government that,
when it comes to the market, sets effective, incentive-
compatible rules and remains on the sidelines with
minimal interference, and, at the same time, plays
an important role in directly helping the poor by
ensuring that they get basic education and health
services and receive adequate nutrition and food.
This rollback of the Government in the former will
enable it to devote more energy and resources to
and be more effective in the latter. This changing
view of the state will briefly be elaborated upon and
then some detailed policy suggestions taken up.

Box 2.1 : Growth, poverty and the quintile income

India’s growth performance over the last couple of decades or so has been a subject of a great deal of scholarly
enquiry, as well as a cause for celebration. A measured optimism, in this regard, would be understandable–-but a
spillover into unbridled euphoria would not. The case against complacence resides in the large magnitudes of both
poverty and inequality which coexist with growth. A natural question that arises is: is there a simple summary
statistic that might throw some light, all at once, on the phenomena of growth, inequality, poverty, and inclusion? In
a broad and suggestive way, yes: the statistic in question is the “quintile income”, or average income, of the poorest
20 per cent of population.

What can we say about the performance of the quintile consumption expenditure level in India? Based on data in
various rounds of the National Sample Survey (NSS) on the distribution of consumption expenditure, and employing
the Consumer Price Index of Agricultural Labourers (CPIAL) as a price deflator, the table below presents information
on quinquennial trends in real average per capita consumption expenditure and real quintile expenditure. The vastly
lower consumption of the bottom quintile is evident from this.

From eyeballing the data it is evident that, in comparison with one’s own consumption, the poorest quintile has done
better than the average person in the economy. But the qualifier, “in comparison with one’s own income,” gives the
bottom quintile a natural advantage since you have to give them less for them to have as high a percentage gain as the
rich. One way of correcting this is to define a “neutral” growth regime as one in which every quintile group gets the
same share of the increase in aggregate income. Treating 1977-78 and 2004-05 as the base year and the terminal year
respectively, it can be checked using the table below that the poorest quintile gets less than the 0.2 per cent of the
aggregate increase in income which is its neutral growth share. This simple arithmetic exercise shows that, while the
bottom quintile in India has seen good growth using the benchmark of its own starting income, it has had a smaller
share of the aggregate growth accrue to it.

Some statistics on mean and quintile monthly consumer expenditure

for rural India
1977-78 1983 1987-88 1993-94 1999-2000 2004-05

Per Capita Average Consumption

Expenditure (at 1977-78
Prices, in Rs) 68.89 71.17 78.27 77.95 84.55 90.35

Quintile
Consumption Expenditure
(at 1977-78 Prices, in Rs) 29.14 31.43 35.91 37.29 42.79 44.91

Source: S. Subramanian, “A Practical Proposal for Simplifying the Measurement of Income Poverty”, in
K. Basu and R. Kanbur (eds): Arguments for a Better World: Essays in Honour of Amartya Sen, Volume 1: Ethics,
Welfare, and Measurement. Oxford University Press: Clarendon, 2009.
Note : The price index employed is the CPIAL. The base year is taken to be 1977-78.
24 Economic Survey 2009-10
2.6 In many poor nations the Government takes
the stance that, when in doubt about the goodness
or badness of two or more adults voluntarily
conducting an exchange, stop them. An enabling
state, on the contrary, takes the view that, when
in doubt, do not interfere. There are, of course,
many actions of individuals and groups that will
need to be stopped for the welfare of society at
large. But the default option of an enabling state
is to allow rather than stop, to permit instead of
prevent. This altered conception of the state can
have dramatic effect on the functioning of an
economy, in general by promoting greater
efficiency and higher productivity. A concrete
example can help clarify this. One repeated
question that comes up in policy discussions
concerns futures trade. Should we allow traders
to strike advance deals about buying and selling
wheat or rice or pulses in the future? Since for
vital goods like these, a natural concern of every
Government is to adopt policies that do not lead
to inflationary pressures, our policy stance on
futures markets depends on what we expect them
to do to the spot prices. In other words, it depends
on our view of what the existence of futures
markets does to the level of prices in today’s
market. An enabling Government takes the view
that if we cannot establish a connection between
the existence of futures trading and inflation in
spot prices, we should allow futures trade. This
is in contrast to what an intrusive Government
tends to do. In the event of finding no firm
connection between the two markets, it takes the
stance that it will not give individuals the freedom
to conduct futures trade. In fact, it is true that the
theoretical literature maintains a somewhat
ambivalent position on this. While allowing futures
trade does take us towards a more complete
market system, it is not true that allowing each
additional market always leads to greater
efficiency. However, the converse of these claims
is not true either. What is being argued here is
that, under these circumstances, Government
should, ideally, desist from imposing an outright
ban on futures trade and, instead, provide it with
a regulatory structure to promote transparency
and to discourage collusion.
THE CHALLENGE OF POVERTY
2.7 The ultimate test of our policies has to be in
terms of their success in curbing poverty.
Unfortunately, on poverty India has some distance
to go. The recent Expert Group Report (also
known as the Tendulkar Report), commissioned
by the Planning Commission, estimates India’s
aggregate poverty to be 37.2 per cent. That is, a
little over 37 per cent of our population lives below
the poverty line, and, in particular, 41.8 per cent
of the rural population and 25.7 per cent of the
urban population is poor. It is, however, worth
clarifying that the higher poverty estimates that
Tendulkar reports, compared to existing estimates
of the Planning Commission based on NSS data,
do not reflect an increase in poverty, but merely a
changed definition of what constitutes poverty. As
calculations in a later chapter show, if we use the
Tendulkar method to calculate poverty in earlier
years those rates go up as well compared to
standard estimates based on NSS data.
Nevertheless, whether we take India’s poverty rate
to be 37.2 per cent or 27.5 per cent (as is implied
by the 61st round of NSS data of 2004-05), it is
easy to argue that it is too high for a nation growing
as rapidly as India, and that special initiatives
are needed to combat it.
2.8 Over the last five years the Government has
undertaken a large increase in budgetary
allocations for anti-poverty programmes. In fact,
one of the features of India’s stimulus package
that distinguishes it from stimulus packages in
many other nations is that the injection of demand
has taken the form, largely, of enhancing the
buying power of the poor and promoting social
services. The share of Central Government
expenditure on social services, including rural
development, in total expenditure, Plan and non-
Plan, was 10.46 per cent in 2003-04 and rose to
19.46 per cent in 2009-10. The subsequent firming
up of the prices of food items consumed by the
poor is testimony to the fact that some of this
near doubling of social and welfare-related
expenditures must have reached the poor and
bolstered their incomes.
2.9 There are also numerous product-based
subsidies, such as the ones given to fertilizer
production and use, basic foodgrains, diesel and
kerosene, which have been accumulated over the
years with the ostensible purpose of helping the
weaker sections of the population, be they merely
consumers or farmers trying to eke out a living

from their little land. The impact of these
subsidies, using the yardstick of poverty
mitigation, is, however, questionable. On the other
hand, the steady build up of these numbers now
constitutes a major fiscal burden and tends to
crowd out the government’s ability to finance other
vital activities in the economy that could promote
productivity and eradicate poverty. Take, for
instance, the fertilizer subsidy. The prices of
fertilizers have been constant since 2002, which
means that in real terms the price has declined.
Since firms have to be compensated enough for
them to remain in production, the gap between
what the producers are paid and what farmers have
to pay to buy fertilizers has steadily risen. As a
consequence, the total subsidy that the Central
Government gives to the fertilizer sector reached
Rs 76,606 crore in 2008-09 and though this is
expected to be lower this fiscal year, it remains
large.
2.10 The main challenge is to direct the money
already allocated to help eradicate poverty. The
inability to do so has more to do with ideas than
vested interests. Some propositions are obvious
as soon as one gives them some thought; but not
obvious when one gives them a lot of thought.
These are the ones prone to policy mistakes. And
once a policy is put into effect and kept in place
for a while, vested interests gather in its favour
and those interests resist change. But beyond
that it is a question of having a road map of where
we can go and demonstrating to the larger public
that it is a potential beneficiary of the proposed
change. Fortunately such a road map is feasible.
There are systems of delivery of subsidies to the
poor that can be vastly more effective, entail
substantial savings and involve no extra
organizational cost. In discussing these, it is
useful to keep a few principles in mind. For goods
that are important for the poor, it is only correct
that the state should intervene to cushion the poor.
The standard way to do this is by using some
kind of a subsidy. However, a common mistake is
to suppose that a subsidy scheme has to be
coupled with price control. This is typically a
slippery slope. In a large and complex economy,
it is difficult for the state to gauge what the right
price of a good is. Moreover, once the Government
becomes involved in setting the price of a
commodity, this becomes a matter of politics and
lobbying, which cumulatively adds to the
distortion. Hence prices are best left to the market.
Micro-foundations of Inclusive Growth 25
If we want to ensure that poor consumers are not
exposed to the vagaries of the market, the best
way to intervene is to help the poor directly instead
of trying to control prices, which almost invariably
does more harm than good in the long run, and
often even not so long a run. On agriculture-
sector policy and price control there is need to
go the way India did with industry in 1991. Keeping
this in mind, it is possible to outline systems of
supporting the poor which are more efficient and
better targeted than the present ones.
2.11 Through a vast network of public distribution
system (PDS) outlets across the nation, we try
to deliver some minimal supplies of heavily
subsidized grain to our below poverty line (BPL)
households and also some to our above poverty
line (APL) households. The PDS stores are first
given this subsidized grain and then instructed to
deliver it at below market price to these specified
households. It is believed many of these store-
keepers (i) sell off this subsidized grain on the
open market, and (ii) then adulterate the remaining
grain and sell the diluted product to the BPL and
APL households, who have no choice in the
matter. We may harangue about the dishonesty
of PDS store-keepers and all those entrusted with
delivering the subsidies. It is indeed true that
personal integrity, honesty and trustworthiness
in the citizenry are vital ingredients for a nation’s
economic progress—there is enough cross-
country evidence of this. But when crafting policy,
there is need to be realistic about the system
within which we work. To assume that all those
entrusted with the task of administering the
programme will do so flawlessly and then to blame
them when the system fails, is not the mark of a
good policy strategist. For effective policy, what
is needed is to take people to be the way they
are and then craft incentive-compatible
interventions.
2.12 This paragraph outlines an altered system
that, once in place, will be no more costly to run
than the existing one and is likely to be much
more effective. The plan suggested here is not
novel and has been suggested on occasion by
Indian policymakers and even in Budget
documents. However, it has never been fully
spelled out. The two planks of this system are
(i) the subsidy should be handed over directly to
the households, instead of giving it to the PDS
store-keeper in the form of cheap grain and then
have him deliver it to the needy households and
26 Economic Survey 2009-10

(ii) the household should be given the freedom to
choose which store it buys the food from. Suppose
the BPL household gets a net subsidy of Rs x for
wheat each month. Instead of giving this by
charging the household less than the market price
for wheat, it should be given coupons worth Rs x,
which can be used at PDS stores in lieu of money
when buying wheat. Under this new system no grain
will be given at a subsidized rate to the PDS stores
and they will be free to charge the market price when
selling grain irrespective of who the customer is. The
only change is that the PDS stores are now allowed
to accept these coupons which they can then take
to the local bank and change to money, and the
banks, in turn, can go to the government and have
them changed to money. Further, households that
get these coupons should be allowed to go to any
PDS store of their choice.
2.13 Such a system will be more impervious to
corruption. Since the store owner will get the same
price for grain from all buyers, poor and rich, he will
have no incentive, to turn the poor buyers away, as
happens currently, and cater to those buying at
market price. (If it is felt that changing coupons to
money is a bother, we can have a provision for paying
store owners an extra 2 per cent when they change
coupons to money.) Second, since BPL buyers can
go to any store with their coupons, they will be able
to boycott stores that try to sell them poor-quality
grain or mix gravel with the grain.
2.14 For the full success of this “coupons system”
what is needed is an effective method of identifying
the poor. This is where the Unique Identification (UID)
System, an initiative already launched by the present
Government, under the Unique Identification Authority
of India (UIDAI) (see Box 2.2) comes into play. Since
the UID System will come into effect in 2012 and
the roster of individuals registered in it will gradually
move towards completion, it is possible to plan on a
switch to a coupons system by 2012 and also let it
achieve full maturity as the UID registration moves
to completion. Since the Unique Identification will
not, in itself, have information on people’s poverty
status, these kinds of tailoring of information will
need to be added on to the UID System. Further,
since households do move in and out of BPL status
there has to be provision for updating on information.
However, it is not necessary to wait for the entire
UID System to be in place to begin the switch to the
coupons system. This is because even our current
method of rations relies on ration shops having with
them lists of BPL customers whom they are meant
to serve. So some identification of BPL citizens is
already available and this can be used to hand over
coupons to these individuals. In the final measure,
to keep the scheme lean and simple and also to
maximize choice, we should not give individuals
separate coupons for rice and wheat but a certain
value of coupons that can be used to buy rice or
wheat—the break-up between the two will be each
individual’s decision, depending on her preference.
Eventually, there will be no need to have separate
PDS outlets. Food will be available on the open
market and poor people will get a monthly ration of
coupons which they can take anywhere and buy
food.

Box 2.2 : UID System

The UID System is envisioned as a means for residents to easily establish their identity, anywhere in the country. It will be an
important step towards ensuring that residents in India can access the resources and benefits they are entitled to. The resident
will be able to enrol for a UID number by providing basic demographic as well as biometric details (which may include
photograph, fingerprints and iris scan) to the enrolling agency. The enrolling agency will transmit these details to a central
UID server. The server will then perform a de-duplication check using the resident’s key demographic and biometric fields
against existing UID records in the database, to ensure that she does not already have a UID number. Once the check
confirms that a duplicate record does not exist, the central system will issue a UID number to the resident. The resident can
then use the number with different service providers, who can verify his or her identity online. The agency has to transmit the
UID number and information provided by the resident to the UID server, and the server immediately responds with a yes or
a no.

The UID can have a significant impact on service delivery. The existing patchwork of multiple agency databases in India
gives individuals the incentive to provide different personal information to different agencies and also impersonate someone
else. In the UID infrastructure, all resident records are stored in a central database, and each new entry is de-duplicated--
consequently, residents can only have one UID number, which is mobile and can be used anywhere in the country. The lack
of duplicates, and accuracy and mobility in identity verification, would reduce opportunities for fraud and enable agencies
across the country to provide residents with targeted, effective services and benefits.

Source : UIDAI, Planning Commission.


2.15 This new coupons system has one risk that
one must be prepared for. In the event of a national
food shortage, since the BPL individuals will have
coupons to help them out of the problem, for non-
BPL individuals the shortage will be more acute. The
state will in such situations have to import or use
whatever other means available to release foodgrains
on the market to balance the amount taken away by
the recipients of coupons. This is not a serious
problem of the coupons system because, at one
level, the current system encounters the same
problem. Since the BPL consumers are somewhat
shielded through food rations, during shortages the
crisis gets more acute for non-BPL consumers.
Under the current system the corrective measure of
food release takes place automatically, since the
BPL population receives not coupons but actual grain.
Hence, even while the present system for targeting
subsidies is being reformed, there is need to continue
with the strategy of holding buffer stocks of essential
foodgrains and releasing them in times of shortage.
This is elaborated upon in a subsequent section.
Subsidies and Development
2.16 Similar ideas can be carried over to other
products. The Expert Group on A Viable and
Sustainable System of Pricing of Petroleum
Products (also known as the Kirit Parikh Committee)
has made similar proposals for subsidies on
petroleum and related products. Another candidate
for this kind of analysis is fertilizer subsidy, which
has grown over the years into a large burden on the
budget. Yet, somewhat like with other subsidies,
these reach the target population, namely farmers
and especially small farmers, in a trickle, with
enormous leakages on the way. Farmers have also
complained that what they get is frequently of poor
quality, and the pricing and availability is such that
they end up using less suitable fertilizers in larger
quantities. In addition, differently from the case of
food, since the subsidy is given across the board for
fertilizers produced, all those who buy fertilizers,
whether or not they are poor and need the subsidies,
get them. If this system can be improved, it is
arguable that by spending even half the money that
is currently spent on subsidies, we can be much
more effective in helping poor farmers; and, further,
by improving quality, increase agricultural productivity
across the nation, with beneficial multiplier effects
spreading to all sectors. And the saved money can
be used to retire a part of the fiscal deficit or directed
to other use.
Micro-foundations of Inclusive Growth 27
2.17 This problem of fertilizer quality was part
of the Finance Minister’s Budget Speech on July
6, 2009: “In the context of the nation’s food
security, the declining response of agricultural
productivity to increased fertilizer usage is a
matter of great concern.” The Budget then
proposed making the much needed move towards
a nutrient-based subsidy regime. It further noted:
“In due course it is also intended to move to a
system of direct transfer of subsidy to the farmers.”
The idea of giving subsidies via coupons, in the
same way as discussed above for food, merely
takes the idea of “direct transfer of subsidy to the
farmers” to its natural conclusion. Again, to jump
to what the final design will be, the idea is that
Government will have no dealing with fertilizer
producers. Any firm will be free to produce any
kind of fertilizer and sell it in the market at any
price. The farmers, on the other hand, by whatever
selection criterion that is decided upon, will be
given coupons that can be used to buy fertilizers
on the open market. Any seller of fertilizers who
receives these coupons will be free to encash
them at any bank and the bank, in turn, can give
these coupons to the Government and collect
cash.
2.18 A switchover to a coupons system for fertilizer
subsidies will entail several ancillary decisions.
There will be need to decide who gets these coupons.
One option is to give a fixed quota of these to every
farming household. This will mean giving a subsidy
to all farmers but for small farmers the subsidy will
be a larger fraction of their farming needs whereas
for large farmers this will turn out to be a smaller
fraction. A more sophisticated approach is to give
larger amounts to farmers with larger land. And yet
another approach is to take a page out of the idea
behind progressive income taxation and not give any
coupons to large farmers. Whatever system is
adopted, we will need some form of identification of
farmers and will need to have some information about
their landholdings. This once again means that for
the full-fledged adoption of the coupons system, there
will be need to dovetail it to our UID System. If we
are to move towards this, we should in fact work in
tandem with the UID work so that some information
that we will need alongside a person’s pure identity,
such as whether or not the person belongs to a
BPL household, whether her profession is agriculture
and, if so, the amount of land she owns and so on
can be fed into the system from the start. We may
be able to save on some duplication of effort if we
begin early in building such an information system.
28 Economic Survey 2009-10

2.19 This system can easily be tweaked to ensure
that we discourage the use of fertilizers that may be
harmful for the soil in the long run or have negative
externalities for neighbouring farms. All we have to
do is to have different coupons for different kinds of
fertilizers and vary the amount of subsidy for different
fertilizers to keep individual incentives in line with
long-run social objectives.
2.20 Moreover, it may be desirable to not impose
any restrictions on farmers selling off the coupons.
If the recipient of a coupon decides that she does
not want to buy fertilizers but would rather spend
the money on buying a television set instead, we
have every right to have misgivings about this
preference, but it is not a good idea to use the state’s
enforcement machinery to correct this. Modern
behavioural economics reminds us that there are
situations where individuals act against their own
interests because of lack of self-control or
inconsistencies in their inter-temporal preferences,
and so some paternalistic interventions can be good
for them. While this is true, Government action to
redirect individual choice ought to be measured and
minimal. To try to meddle excessively in individuals’
preferences is a mistake because it encourages
Government to reach out to doing more than it
realistically can, creating unnecessary bureaucratic
hurdles and breeding corruption.
2.21 The benefits of this coupons system can be
very large. With many producers engaged in
supplying fertilizers and buyers having the freedom
to shop from anybody, the largest cause of sub-
standard fertilizer production will be cut out. We
would see a large improvement in the quality of
fertilizers and, with it, in overall agricultural
productivity. In the present system Government has
to do elaborate calculations about the costs that
firms incur in producing fertilizers, with firms trying
to inflate these costs. Under the new system, there
will be no need for this, since the Government will
not be paying anything to (or fixing the price of
fertilizers produced by) the firms. The switchover to
this organizationally leaner and directly targeted
system means that even if the state substantially
cuts back on the total size of the subsidy, say by
Rs 20,000 crore, we should still see farmers getting
more benefits than they currently do and agricultural
productivity in the nation rising.
Bureaucratic Costs and Delays
2.22 India has one advantage over most emerging
economies and even some industrialized ones–its
vibrant democratic institutions and independent
judiciary. This has greatly helped India gradually take
its place among the leading global economies of the
world. While this has helped the nation, there is
another feature that has been a hindrance–India's
high bureaucratic delays. Thanks to recent data
collection from around the world on bureaucratic
transactions costs, there are now hard statistics on

Table 2.2 : Doing business : Cross-country experience

Sl. Country Ease of How many Days to Time to Days to

No. doing days to enforce a close a export
business start a contract business
(rank) business (days) (years)
(days)
1 Brazil 129 120 616 4.0 12
2 Chile 49 27 480 4.5 21
3 China 89 37 406 1.7 21
4 India 133 30 1,420 7.0 17
5 Indonesia 122 60 570 5.5 21
6 Japan 15 23 360 0.6 10
7 Malaysia 23 11 585 2.3 18
8 Mexico 51 13 415 1.8 14
9 Pakistan 85 20 976 2.8 22
10 Russian Fed. 120 30 281 3.8 36
11 Singapore 1 3 150 0.8 5
12 Sri Lanka 105 38 1,318 1.7 21
13 Thailand 12 32 479 2.7 14
14 USA 4 6 300 1.5 6
Source : World Bank, Doing Business 2010.
 Micro-foundations of Inclusive Growth 29
Table 2.3 : Doing business in India - Comparison among major cities/capitals

Sl. Places in India Ease of How many Days to Time to Days to

No. doing days to enforce a close a export
business start a contract business
(rank) business (days) (years)
(days)
1 Ludhiana 1 33 862 7.3 21
2 Hyderabad 2 33 770 7 26
3 Bhubaneshwar 3 37 735 7.5 17
4 Gurgaon 4 33 1,163 7 25
5 Ahmedabad 5 35 1,295 6.8 17
6 New Delhi 6 32 900 7 25
7 Jaipur 7 31 1,033 9.1 22
8 Guwahati 8 38 600 8.3 22
9 Ranchi 9 38 985 8.5 21
10 Mumbai 10 30 1,420 7 17
11 Indore 11 32 990 8 21
12 Noida 12 30 970 8.7 25
13 Bengaluru 13 40 1,058 7.3 25
14 Patna 14 37 792 9.3 19
15 Chennai 15 34 877 7.5 25
16 Kochi 16 41 705 7.5 28
17 Kolkata 17 36 1,183 10.8 20
Source : World Bank, Doing Business in India 2009.

where India stands. In terms of the ease of doing
business, India ranks 133rd in the world. Singapore
ranks 1st, Malaysia 23rd, and China 89th. The
number of days it takes in India to enforce a contract
is 1,420. It can no longer be argued that this is
inevitable given the complexity of contracts because
it takes 150 days for the same in Singapore, 300
days in the US and 406 days in China (see Table
2.2 and Table 2.3 for comparative data on 17 Indian
cities). Likewise, for the time taken to close
a business that has gone bankrupt. This takes
9 months in Singapore, 18 months in the US,
20 months in China and 7 years in India.
2.23 If one were to look at this from a brighter angle,
India’s unpardonably large bureaucratic costs are
like a valuable resource buried under the ground,
waiting to be excavated and used. Cutting down these
costs is like unearthing a free, valuable resource
that was lying idle. It can release large energies in
the nation and boost productivity and growth.
Ironically, this can be India’s gold rush.
2.24 This problem is at times put down to the size
of India’s bureaucracy. But that is not right. A
complex economy such as that of India’s does need
substantial numbers to regulate and run it. By
comparison with even some vibrant market
economies, the actual number of people running the
Indian Government is not large (see Box 2.3 for
illustration in the context of India’s tax
administration). Further, there is a lot of talent in the
Indian bureaucracy, since the selection process is
highly competitive. The problem lies elsewhere, in
our conception of the state, to wit that it has to directly
deliver on every front and not be content with an
enabling role; and also in the rules, regulations and
procedures inherited from our colonial times, and
made more cumbersome with layers of further
procedures and regulations added like on a
palimpsest. The situation is like a traffic jam–asking
each person to move is useless advice. The need is
to reform the system. If the current system of
subsidies can be reformed, this itself will release a
lot of human resource that is presently tied up in the
pointless complexities of running an inefficient
system. Also the changes in the tax system—the
Goods and Services Tax and the Direct Tax Code—
that are being contemplated can have substantial
impact on not just improving the efficiency of the
taxes but on simplifying the procedures for paying
taxes.
2.25 The export sector is a good example of some
of the principles discussed above. India has steadily
30 Economic Survey 2009-10

Box 2.3 : Higher revenue from reforms in income tax administration

Low income tax compliance is known to limit the capacity of Governments in developing countries to raise revenue for
developmental purposes. Many factors have been acknowledged as contributing to this problem, such as the large informal
sector, weak legal system, ambiguity in tax laws, inadequate information and accounting system, and corruption. In
rectifying this problem it is important to be realistic and separate out what can be changed in the short run and what cannot.
Experience from around the world shows that reforming certain aspects of the tax administration–such as increasing the
number of audit officers and their supporting staff and altering procedures for grouping taxpayers into assessment units–
can be implementable options for reforming the tax system for generating higher revenues for the Government.

Interestingly, a detailed econometric study shows that, in India, significant compliance gains would accrue from expanded
employment. With regard to increased support staff in circles, both own and cross revenue effects turn out to be statistically
positive and significant. Further, issues such as taxpayers strategically selecting into wards or circles, variation in support
staff or enforcement effort generating spillover effects on workload and compliance in related units may be considered for
change to increase the efficacy of tax collection. Hence the problem is not of the size of bureaucracy. If anything, there is scope
for growth. The need is for administrative reform so that the resource of bureaucratic personnel can be used more effectively
in promoting individual initiative.

Research results show that consideration should be given to removing the ward/circle distinction, replacing it with random
assignment rules. This will remove the strategic underfiling incentive, with beneficial compliance effects. Revenue gains may
be achieved by reallocating support staff from wards to circles, where they can be more productive. Penalty and prosecution
effort appears to have significant effect on compliance (though here one has to be cautious not to encourage corrupt officials
to misuse the system). Encouraging efforts to improve the quality of information available to assessing officers and including
measures of penalty effort in their performance evaluation will also be helpful in reforming the tax administration.

Source : Arindam Das-Gupta, Dilip Mukherjee and Shanto Ghosh: “Tax Administration, Reform and Taxpayer
Compliance in India” , International Tax and Public Finance, vol. 11, pp. 575-600.

done better over the years. The groundwork for this
was laid over a long time. In the Budget Speech of
1983, for instance, the need for “basic reforms in
the international financial and trading system” was
stressed. India is today in a position to see another
expansion in exports. To achieve this quickly it will
be useful for Government to undertake some
coordinated policy actions, but there is one critical
action that can single-handedly give India’s exports
sector a boost. This is to do with governance and
may be illustrated with the example of textiles and
clothing. The aggregate global textile and clothing
exports happen to be large. In the year 2008, these
were worth $ 612 billion. China alone exported $185
billion worth of textiles and clothing that year, which
constituted 30.3 per cent of the global value. In the
same year, India exported textiles worth $21 billion,
which was a paltry 3.5 per cent of global exports.
Vietnam, a much smaller country than ours, had an
export of $10.6 billon. Moreover, Vietnam’s share of
global trade has been growing by leaps and bounds.
In the year 2000 it had a share of 0.6 per cent,
whereas it now has a 1.7 per cent share. In the year
2000, India had a share of 3.2 per cent, which rose
to 3.5 per cent by 2006 and has remained at the
same level since. The phasing out of the quota
system in 2005 does not appear to have helped
Indian exports. Given the abundance of cheap labour,
aiming to double our share of global exports in three
years is not an impossible target.
2.26 There are many factors behind India’s sub-
par performance, despite its natural comparative
advantages (see Box 2.4). Our ports take long to
clear and, because they are not well-equipped, often
products have to travel by feeder ships to be
transferred to larger vessels at other major ports,
leading to delays. It, therefore, takes an unduly long
time for garments and apparel to travel from our
factory gates to stores in industrialized nations
where they are to be retailed. Since timing is the
heart of success for these fashion-sensitive
industries, much can be achieved by bettering
performance in this dimension. India has recently
begun some welcome intiatives to attract foreign
direct investment (FDI) in the textile and clothing
sector. This can help modernize this industry and
aid its integration into the global textile market. Apart
from being labour-intensive, this sector also happens
to be one that employs a large number of women
labourers and labourers belonging to minority and
disadvantaged groups.

Box 2.4 : Delays in infrastructure projects
A recent study, based on comprehensive data from the
Ministry of Statistics and Programme Implementation,
of 894 projects completed during April 1992 and March
2009, provides information about the extent and nature
of delays in India’s infrastructure projects and insights
into the causes. First of all, delays are ubiquitous. The
percentage of projects with positive time overruns goes
from 60.75 per cent in the power sector (the star
performer), through 79.67 per cent in the petroleum
sector, 95.08 per cent in shipping and ports and 98.36
per cent in railways, to a well-rounded 100 per cent in
health and family welfare. Further, most of these time
overruns are accompanied by cost overruns. On the plus
side, since the 1980s the propensity towards cost
overruns has come down steadily and time overruns
have come down marginally. In terms of region, the
southern states—Andhra Pradesh, Karnataka, Kerala
and Tamil Nadu—have fewer delays and smaller cost
overruns.
Among the causes of delay in completing these
infrastructural projects and the cost overruns, the study
identifies administrative delays by government
departments, which, in turn, is caused by the hierarchical
organizational structure of decision making in
government. By way of policy prescription it is
suggested that speeding up be effected at the stages of
project approval, awarding of contracts and
implementation. It is pointed out that incomplete
contracts are a major cause of cost overruns.
Source : Ram Singh, ‘Delays and Cost Overruns in
Infrastructure Projects: An Enquiry into Extents, Causes
and Remedies,’ Working Paper No. 181, Centre for
Development Economics, Delhi School of Economics.
2.27 Boosting our textile and clothing exports
would, therefore, amount to an anti-poverty
programme and a pro-employment programme
rolled into one. India’s textile and clothing sector
currently employs 35 million people and is, after
agriculture, the second largest provider of
employment. Unlike agriculture, which has a
natural tendency to shrink in terms of share of
GDP as the economy grows, there is no such
secular trend that has been observed for clothing
and textiles around the world. Hence this can
potentially be a major absorber of low-skilled
labour and give a much-needed boost to our
organized manufacturing sector.
Micro-foundations of Inclusive Growth 31
LABOUR REGULATION, WAGES AND
EMPLOYMENT
2.28 Almost all international studies conclude
that India’s labour regulatory structure does not
have the flexibility commensurate with a buoyant,
growing economy. For firms in the organized
sector having more than a certain critical number
of labourers it is extremely hard to retrench
workers or downsize the labour force. At first sight
this looks like a pro-labour legislation, one that
protects the interests of workers. On the other
hand, it can be argued that most potential firms
are far-sighted enough to realize that, once they
become sufficiently large in terms of employment,
if they later need to retrench workers because
the demand for their product slacks off, they will
not be able to do so easily. This is likely to prompt
them to remain small or not go into business at
all, since all laws also play an expressionist role
whereby they affect behaviour beyond the actual
ambit of the law. Hence it is arguable that our
labour laws, such as the Industrial Dispute Act of
1947, if appropriately reformed, can lead to a
greater demand for labour, and through that
improve economic well-being of workers.
2.29 As a counter argument to this it has been
suggested that, since most of these laws apply
to the organized sector and India’s organized
sector is miniscule, changes in this law are likely
to have negligible effect one way or the other.
However, it can be argued that the causality goes
the other way around. India’s organized sector
would grow if, in keeping with the times, we could
amend the labour regulatory system, which would
also influence the culture and custom of the labour
market and encourage employment in the
organized sector.
2.30 There are two different ways in which
workers can gain power. One is through the
conferring of rights to them and the other is by
creating market conditions that result in greater
demand for labour and thereby increase the ability
of workers to ask for more and realistically expect
the demands to be satisfied. In India, while there
has been appreciation of the former, justice has
not been done to the latter. The need is to bring
these laws into the public space for open
discussion and the weighing of the available
scientific evidence, and then take decisions based
on what emerges from such an exercise.
32 Economic Survey 2009-10

A FAMILY OF INFLATIONS AND in 1992-93 and 1996-97. And food inflation of over
10 per cent, non-food inflation negative and fuel,
FOOD-SECTOR INTERVENTIONS power, light and lubricant (FPL&L) inflation less than
2.31 The fiscal year 2009-10 has been a time of 10 per cent has never occurred.
inflationary concerns. It was a year of a somewhat
2.32 This experience points to the need for
unusual inflation. While food inflation soared, inflation
developing a new system of nomenclature for
in the non-food sector was negligible. The
inflations. What was occurring from the middle of
Government was concerned that the upward pressure
last year to now (and is so nicely visible in Figure 2.1
on prices should not escalate to all sectors. And, at
in which the different graphs literally fan out from
least till January, the experience has been that of a
early 2009) is best described as “skewflation”, which,
highly skewed food-sector inflation. The weekly food-
while not the most aesthetic of terms, captures the
price inflation on a year-on-year calculation reached
concept of lopsided inflation well. There is actually a
a maximum of 19.95 per cent for the week ending
need for creating some new terminology and
December 5, 2009. Since then the pressure has
concepts to differentiate between different kinds of
eased off a little. The skewedness of inflation that
inflation, since each type may require a different
has been observed—some sectors are facing huge
policy prescription. In most industrialized nations
inflation, some no inflation and some deflation—is
nowadays there is a practice of separating out “core
rather rare in the country’s history. For instance, in
inflation” and overall inflation. Core inflation refers to
1973-74 food inflation was 22.7 per cent and non-
inflation in sectors other than food and fuels, in the
food 36.4 per cent, in 1980-81 food inflation was 11.4
belief that these are areas where prices often
per cent and non-food 11.9 per cent, in 1986-87 food
fluctuate because of sector-specific causes and one
inflation was 10.2 per cent and non-food 11.4 per
should not want to jump to economy-wide demand
cent, in 1991-92 food inflation was 20.2 per cent and
management measures to counter these sector-
non-food 18.0 per cent, and there are several other
specific price fluctuations.
years where the pattern was the same. The current
inflation is of a different kind. It stands out for its 2.33 India faced this same dilemma in December
lopsidedness across sectors. In 2009-10 (April- 2009 when our core inflation remained negligible while
November) , food inflation was 12.6 per cent and non- food inflation was large. One silver lining of such
food inflation minus 0.4 per cent. If we look at India’s skewflations is that, unless one injects excessive
inflation history from 1971, this kind of inflation, where demand into the economy through lax monetary
food inflation is above 10 per cent and non-food policy, they do not last long. After each of the two
inflation is negative, has happened only twice before– previous episodes of skewflation, the food price

Figure 2.1 Trends in food and non-food inflation in WPI (per cent)
22
20 All
commdities
18 (wt.100%)
16
14 Food
inflation (wt.
12 25.43%)
10
Per cent

Non-food
8 inflation (wt.
74.57%)
6
4
2
0
-2
-4
-6
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

2006-07 2007-08 2008-09 2009-10

Year

inflation came down rapidly. On the other hand,
regular, balanced inflation tends to be more long-
lasting. The most famous one in India’s history,
starting in 1972, saw three consecutive years of
double-digit, food price inflation. Sustained inflations
were also observed starting in 1980 and 1991. These
all began as generalized, across-the-board inflation.
The primary cause of the recent food-price inflation
was the severe drought of 2009, which caused a
downturn in food production in the third quarter of
2009-10 and the expectation of the resultant price
rise itself fed further into the inflation. Government
reacted carefully by easing up imports of relevant
foodgrains and sugar and also releasing wheat and
rice from the stocks held by the Food Corporation
onto the market.
2.34 Interestingly, this problem has led to some
rethinking of the strategy of foodgrain procurement
and release. In general, while India has been effective
in procuring foodgrains, mainly wheat and rice, its
strategy of food release has scope for improvement.
Fortunately, there is a lot of research in economics
that can help Government device better policy. The
standard method that we have used is to have a
minimum support price (MSP) for wheat and another
one for rice, and the state commits to buying
whatever amount the farmers are willing to sell at
these prices. The idea is that, in years of high
production, the Government’s granaries will stock
up, as indeed they do. Then, in years of low food
production, when prices begin to rise, the
Government will release this food onto the market to
dampen the price rise. It is, however, easy to fall
into two fault-lines in devising this release strategy.
2.35 First, as any reasonable authority would, the
Government has stipulated norms for how much
buffer stocks of foodgrains the Food Corporation of
India (FCI) should hold. Thus there are pre-specified
“buffer norms” and “strategic reserves”. However, if
the Government becomes too steadfast in making
sure that these norms will never be violated, they
cease to play any role. In other words, if there are
certain minimal amounts of grain that we are
committed to holding at all times, then it is the same
as not holding them. The traders and speculators
realize this and so cease to worry about the
dampening effect that the stocks could have on
prices. In short, the FCI needs to make it amply
clear that there are situations where it will offload all
stocks, if need be, and violate the buffer norms. An
inviolable buffer norm is indistinguishable from no
buffer norm.
Micro-foundations of Inclusive Growth 33
2.36 The second problem pertains to the “how” of
releasing the grains that we decide to release.
Suppose the Government has decided to release
10,000 tonnes of wheat on the market in some state
and does it by forming batches of 1,000 tonnes (as
it often does in reality) and offloading each batch
through some form of open market sales, such as
setting a reserve price and asking for tenders. There
will in such a case be 10 persons or firms that will
buy up the grain. Now consider the alternative of
releasing the same total grain in much smaller
batches to traders and millers or directly to retail
consumers. The price impact of these two kinds of
releases will be vastly different. The former creates
an oligopoly, whereas the latter creates a competitive
market by giving little amounts of grain to lots of
people, and the downward pressure on prices in this
latter case will be much greater. This use of standard
industrial organization theory (Box 2.5 elaborates
on this) can costlessly improve the efficacy of the
FCI.
2.37 In January 2010 Government began using
some of these kinds of interventions to improve its
foodgrains release strategy. The decision was taken
to release foodgrains in multiple locations in small
quantities, at prices substantially below the market
price. The effect of this action was soon evident on
the market prices. On January 29, 2010, the Reserve
Bank of India (RBI), also took some steps to mop
up some excess liquidity from the market by
announcing an increase in the cash reserve ratio
(CRR) by 75 basis points. Given that food inflation is
beginning to go down and there is slight increase in
non-food inflation, this was a useful signal. Since it
was coupled with substantial increase in the growth
estimate for 2009-10 (which brings the RBI estimate
virtually in line with the forecast that the Ministry of
Finance made some time ago) this staved off any
adverse reaction from the market.
2.38 The need now is to put together a standing
plan, a kind of Standard Operating Procedure (SOP),
for the kinds of actions that the state ought to take
in the event of a skewed price rise in the food sector.
An SOP will enable the FCI and other Government
organizations to go into action as soon as the
inflationary situation in food crosses a threshold, in
particular, when the food price inflation is high and
the gap between food and non-food price inflations
goes above a certain critical level. Some of
34 Economic Survey 2009-10

Box 2.5 : The economics of foodgrain procurement and release

The supply curve of wheat will be high in years of bounty and low in years of drought. If it follows that in years of bounty
the price of wheat will be low, pL, and in years of drought it will be high, pH. The purpose of a procurement policy is to even
out some of this price fluctuation without having to necessarily rely on food imports from other nations. So what the
government does is to set an MSP somewhere above pL and buy up all the excess supply at that price. It follows, if the
Government does this and then does not release the food thus procured, it will be contributing to a rise in prices on average
because now in years of bounty the price will be MSP and in years of drought the price will be pH. To counter this, Government
needs a policy of releasing food in years of food shortage.

This is where the tricky problem of how the grains are released comes up. If they are released in large batches to a few traders
or millers, the market structure that gets created is that of an oligopoly with a competitive fringe. Fortunately, the theory for
this is well understood and this can be used to design effective interventions. At each price take the demand for wheat and
subtract from this the supply of wheat that comes from the price-taking sellers. By doing this at each price we are left with
what may be thought of as the “residual demand curve” for wheat. This is the demand curve that the oligopolistic sellers who
buy the large releases of the Government come into play. They buy up wheat from the Government and then release it on this
residual market. It can be shown that, if the number of oligopolists is small, the market price for wheat will be high and,
moreover, not all the wheat on offer by the Government will be picked up by the sellers. Hence the Government’s problem is
not just deciding how much wheat to release but in how many batches, since this will determine how many oligopolists are
brought into the market. The larger this number, the lower will be the price.

There is another corollary problem. At what price should the government release the grain? Earlier a somewhat mechanical
accounting rule was used, which was to take the MSP price at which the wheat had been acquired and add to this the costs
of freight and storage so as to ensure that the whole operation yielded an accounting profit. However, this method at times
led to a price very close to the market price and, on some occasions, higher than the market price. Of course, that would mean
no buyers for the grain and so no impact on the market price. This was corrected in January when it was decided that the
release price must not be pegged to the historical purchase price and other costs but be released at a price substantially below
the market price. There is, however, a risk that if the price is too low, it may be worthwhile for sellers to buy up what is on offer
and sell it back to the Government at the MSP. If the release price is set below the anticipated MSP, this is bound to happen.
But even if this is set slightly above the MSP, it may be worthwhile for large traders and millers to buy it up and sell it back
at MSP. This operation will of course cause them a small loss but evacuating the wheat from the market could raise its price
sufficiently for this to be worthwhile.

Reference : Avinash Dixit and Nick Stern “Oligopoly and Welfare: A Unified Presentation with Applications to
Trade and Development”, European Economic Review, vol. 13, 1982.

the specificities of the intervention can be modified
on each occasion through special orders of the
relevant empowered group but there ought to be a
minimal standing order.
SOCIAL NORMS, CULTURE AND
DEVELOPMENT
2.39 Hard-nosed Government documents usually
make no mention of the role of social norms and
culture in promoting development and economic
efficiency. However, there is now a growing body of
literature that demonstrates how certain social norms
and cultural practices are vital ingredients for
economic efficiency and growth. Groups and
societies that are known to be honest and trustworthy
tend to do better than societies that do not have this
reputation. There have been broad cross-country
studies and also laboratory experiments with the
“trust game” that illustrate this. More generally, what
is being argued is that a nation’s success depends
of course on its resources, human capital and
economic policies, for instance fiscal and monetary
policies, but also on the cultural and social norms
that permeate society. We go through life striking
hundreds and thousands of minor contracts and
deals..You give a person money one day and the
understanding is that that person will repair your
plumbing the next day or it can be the other way
around (the person repairs your plumbing today and
expects you to pay him the following day); you
supply garments to a store and the store then pays
you for it; someone gives you a hair-cut and, after
that, you pay her. It is difficult to have such minor
contracts enforced by a third party or some formal
legal/bureaucratic machinery. If we try to do it that
way, as we have on occasion in India, the result will
be a cumbersome bureaucracy that is anyway

unable to deliver. Societies that are endowed with
personal integrity and trustworthiness have the natural
advantage that no third party is required to enforce
contracts. For outsiders the mere knowledge that a
particular society is trustworthy is reason to do more
business and trade with it.
2.40 One reason why these “social” causes of
development do not get enough recognition in the
literature on economic policy is that the science of
how these economics-friendly social qualities are
acquired is not yet fully understood. Fortunately, the
new discipline of behavioural economics is beginning
to give us some insights into the formation of customs
and behaviour. It is, for instance, known that buildings
and office spaces which are cleaner and aesthetically
better maintained result in individuals being more
honest and desisting from corrupt activity. It is almost
as if we have a mental inclination not to defile a
good ambience through acts of corruption. New York
city’s notorious high crime was controlled, among
other things, by cleaning up the city and removing
graffiti from the walls. New York’s police department
took a decision to deter vandalism and graffiti that
scar public spaces. This act of making the cityscape
more aesthetic somehow made potential criminals
less prone to crime. One sees casual evidence of
this in the behaviour of Delhites using the metro. It
has been widely noted that people behave better
when they travel on Delhi’s well-maintained metro
(postponing their bad behaviour to when they come
up to the surface again, some would add). All this is
in keeping with the influential “broken windows” theory
in sociology, which maintains that, if we control low-
level, anti-social behaviour and take small steps to
improve the environment, this will have a natural
deterrent effect on larger criminal behaviour and acts
of corruption.
2.41 Also, the sheer recognition and awareness
that some collective qualities of citizens, such as
honesty and trustworthiness, enable the entire
society to do well prompts individuals to adopt those
qualities and overcome the ubiquitous free-rider
problem. Hence, for the long-run development of India,
people need to be educated about the customs and
qualities which, if possessed by all the people, can
lead the nation to progress and development. This
brings us back to the subject of education and
emphasizes that this has to be more than learning
from textbooks about facts and figures. While
discoursing on technical economic policy matters,
it is easy to be dismissive of the psychological and
sociological determinants of economic outcomes.
Micro-foundations of Inclusive Growth 35
While it is true that these interconnections have little
to do with short-term fiscal decisions, in
contemplating medium- to long-term policies for a
nation’s development, which was the subject matter
of this chapter, it would be remiss not to mention
these non-economic foundations of economic
prosperity.
A MISCELLANY OF CONCERNS
2.42 While these opening chapters draw heavily
from the rest of the Economic Survey devoted to
specific sectors and there is no need to be
comprehensive here, it may nevertheless be worth
putting in a foreword for some specific areas of
policymaking. For more than a decade now India’s
services sector has been the powerhouse of the
nation’s economic growth. This is also a sector that
now produces more than half the GDP of the nation.
In recent years the industrial sector has begun to
stir and, as discussed above, growth in this sector,
especially its labour-intensive sub-sectors, can be
an important antidote to poverty. Fortunately, major
manufacturing groups, like automobiles, rubber and
plastic products, and chemicals, have shown robust,
double-digit growth during April to November 2009;
and, according to the advance estimate for 2009-10,
the manufacturing sector as a whole has grown at
the remarkable rate of 8.9 per cent. The sector that
continues to cause concern and, all said and done,
is still the mainstay of the Indian population, is
agriculture. There is need to undertake serious policy
initiatives to reach the Government’s target of
sustained 4 per cent growth in this sector.
2.43 Here, as in other sectors, the aim of an
enabling Government must be to provide the
wherewithal of growth and enterprise and then leave
it to the farmers’ initiative and industry to take the
sector forward. This implies that the state has to
take purposive action to enhance rural infrastructure
and promote research and development (R&D)
pertaining to agricultural productivity. These are
elaborated upon later in this Economic Survey, but
it is worth mentioning here that innovative investment
in irrigation and water resources, and a steady supply
of energy and power from conventional and newer
sources, such as solar and wind, can go a long way
in empowering farmers. The need for R&D stems
from the fact that India’s agricultural productivity
continues to be low, and improvement in this can go
a great distance not only in helping us achieve the
growth target of 4 per cent but also in building food
security and keeping the lid on food price inflation.
36 Economic Survey 2009-10
The R&D sector is closely related to the state of
health of higher education and the research
institutes in the country. On these, India was once
in the forefront of emerging economies but that
may not be the case any longer. This is not
because there have been changes in our system
of higher education and research but, ironically,
because there have not been. While other
emerging economies, especially those in Asia,
have modernized the organization and financing
of higher education and research, India is only
now beginning to stir on these fronts. With a couple
of strategic steps to restructure, and the tapping
of private-sector resources, it is possible for India
to not only become a powerhouse in higher
education but to be a global hub of education and
research.
2.44 The idea of a global hub has implications
for India’s international and neighbourly relations.
If the country can become a place where students
come from not just all of South Asia but also Africa,
South East Asia, South America and (given India’s
cost advantage and long history of excellence in
higher education) also North America and Europe,
this can become a catalyst for international trade
and investment and, in general, create a greater
role for India in the global economy. Further, by
promoting civil society interaction and intellectual
cooperation among the neighbouring nations, this
can be a catalyst of peace.
Fiscal Developments
and Public Finance
3
CHAPTER

The fiscal space generated in the 2004-05 to 2007-08 period, following the Fiscal
Responsibility Budget Management Act (FRBMA) mandate, mitigated the knock
on effects of global financial and economic crisis in 2008-09 through facilitation of
an expansionary fiscal stance to boost aggregate demand. While traditionally the
assessment of public finances was confined to analysis of fiscal indicators, the macro-
economy-wide impact of the crisis underscored the importance of using national
accounts data in tandem in such assessments. As per the national accounts data, in
2008-09, the deceleration in growth in private final consumption expenditure was
partly made up for by the growth in Government consumption expenditure (over
2007-08), which resulted in a shoring up of the overall economic growth rate. The
reversal in major fiscal deficit indicators in 2008-09 and 2009-10 constitutes a
conscious policy-driven stimulus to counter the demand slowdown.

3.2 As the impact of the crisis continued through
2009-10, the expansionary fiscal stance was
continued in the Budget for 2009-10. Given the
relative levels of shares of private final consumption
expenditure and government consumption
expenditure, such expansion could only be a short-
term measure and the Medium Term Fiscal Policy
Statement presented along with the Budget for 2009-
10 favoured a resumption of the fiscal consolidation
process, albeit a gradual one, with fiscal deficit
declining to 5.5 per cent of the gross domestic
product (GDP) and 4.0 per cent of the GDP in 2010-
11 and 2011-12 respectively. In its Report, the
Thirteenth Finance Commission has traced the path
of fiscal consolidation for the Centre and States.
The resumption of the path of fiscal prudence would
complement the recovery process in the near term
and lay the foundation for reviving the growth
momentum in the long term.
3.3 The Budget for 2009-10, continuing with the
policy of fiscal expansion to boost aggregate
demand, envisaged a fiscal deficit of Rs 4,00,996
crore, equivalent of 6.8 per cent of the GDP (6.5 per
cent based on Advanced Estimates of GDP 2004-
05 series). In absolute terms, this implied a growth
of 21.5 per cent in the level of fiscal deficit over
2008-09 (provisional). With growth in nominal GDP
at only 10.6 per cent, as a proportion of the GDP,
fiscal deficit was higher. The higher estimated levels
of fiscal deficit in 2009-10 owe largely to the fuller
impact of the tax cuts announced as a part of the
fiscal stimulus packages late in the second half of
fiscal 2008-09. The bulk of the expansion was also
reflected in the rise in revenue deficit in 2008-09
and BE (budget estimate) 2009-10 (Table 3.1). The
reversal of the trend of fiscal consolidation was thus
marked in 2008-09 and BE 2009-10 (Figure 3.1).
3.4 The fiscal stimulus packages also facilitated
an expansion in the fiscal deficit of the States
through a relaxation in targets by 100 basis points.
As a result, the gross fiscal deficit of the States
combined rose from 1.4 per cent of the GDP in
2007-08 to 2.6 per cent in 2008-09 (RE) and was
estimated at 3.2 per cent of the GDP in 2009-10
(BE). Following the high levels achieved in 2007-
08, the reduced levels of revenue surplus at 0.1
38 Economic Survey 2009-10

Figure 3.1 Trends in deficits of Central Government

7
6 Fiscal
Deficit
Per cent of GDP

5
4
3 Revenue
Deficit
2
1
0 Primary
Deficit
-1
2004-05

2005-06

2006-07

2007-08

2008-09

2009-10(BE)
(Prov)
Year

per cent of the GDP in 2008-09 (RE) and a modest automatic stabilizers and discretionary fiscal
deficit of 0.6 per cent of the GDP in 2009-10 (BE) policies pursued to obviate the adverse impact of
also reflected this expansionary stance. With the the global financial and economic crisis was made
award of the Thirteenth Finance Commission, the possible by the space available and the largely
resumption of the progress in fiscal consolidation cyclical nature of the fiscal deficit. In the literature
has a distinct timeframe for both the Centre and the on the nature of fiscal deficits in India, available
States. evidence points to the predominance of the
structural features and the relatively small cyclical
3.5 In advanced economies, the operation of component. Therefore, the rapid and significant
fiscal consolidation achieved in the post- FRBMA
Table 3.1 : Trends in deficits of Central period up to 2007-08 was indeed an important
Government achievement that enabled greater fiscal space for
a macroeconomic policy stance to counteract the
Year Revenue Fiscal Primary Revenue
deficit deficit deficit deficit as impact of the global economic crisis. Besides, as
per cent a proportion of the GDP, the reductions in fiscal
of fiscal deficit in the period 2003-04 to 2007-08 were made
deficit possible in equal measure by higher tax revenues
(As per cent of GDP) and expenditure compression. This facilitated use
Enactment of FRBMA of both tax and expenditure measures in the
2003-04 3.6 4.5 0.0 79.7 expansionary fiscal policies to boost demand. As
such, the progress in fiscal consolidation in India
2004-05 2.4 3.9 0.0 62.3
is different from the typical models elsewhere driven
2005-06 2.5 4.0 0.4 63.0
purely by expenditure compression. Having regard
2006-07 1.9 3.3 -0.2 56.3
to the levels of tax-GDP ratio, expenditure
2007-08 1.1 2.6 -0.9 41.4
commitments and needs, smaller social security
2008-09(Prov.)* 4.4 5.9 2.5 74.8 contributions and weaker operation of automatic
2009-10(BE) 4.6 6.5 2.8 70.5 stabilizers, such a process was considered
Source : Union Budget documents. apposite and might inform the policy stance, going
BE–budget estimate. forward.
* Provisional and unaudited as reported by
Controller General of Accounts, Department of
Expenditure, Ministry of Finance. CENTRAL GOVERNMENT FINANCES
Notes: The ratios to GDP at current market prices 3.6 A low and stagnant tax-GDP ratio
are based on the Central Statistical characterized Central Government revenues for a
Organization’s(CSO) National Accounts 2004-
05 series.
considerable period since 1990-91. This reflected

in part the reform of the tax structure through lower
rates in indirect taxes and the levels of the tax base.
The rapid growth momentum in the post-FRBMA
period helped change the composition of taxes,
deepen the process of rationalization of taxes and
widen the base. As a proportion of gross tax
revenue, direct taxes rose from a level of 19.1 per
cent in 1990-91 to reach 49.9 per cent in 2007-08;
in 2008-09 (provisional), they were at 55.5 per cent.
In terms of year-on-year growth, in 2008-09,
reflecting the two distinct halves of the financial year
with different economic environments, direct taxes
grew by 14.3 per cent with personal income tax
rising by 20.8 per cent and corporate income tax
by 10.8 per cent. This represented moderation from
the levels that obtained in the period 2003-04 to
2007-08. There was corresponding decline in the
share of indirect taxes in the 1990-91 to 2007-08
period; however, service tax has emerged as a major
component with a 10 per cent share in 2008-09. In
terms of year-on-year growth, in 2008-09, indirect
taxes fared poorly with decline in both excise and
customs and service tax moderating to a lower
growth of 18.6 per cent. With non-tax revenues
remaining at a level of around 2 per cent of the GDP
and at the given levels of devolution, revenue receipts
which were at 11.0 per cent of the GDP in 2007-08
declined to a level of 9.8 per cent in 2008-09
(provisional).
3.7 As a proportion of GDP, total expenditure fell
from a level of 17.1 per cent in 2003-04 to 14.4 per
cent in 2007-08, largely driven by the steep fall in
capital expenditure with revenue expenditure falling
relatively slowly (Figure 3.2). Total expenditure was
Figure 3.2 Receipts and expenditure of the Central Government
16
14
Per cent of GDP
12
10
8
6 Capital
4
2 Capital
0
2004-05
2005-06
2006-07
Year
Fiscal Developments and Public Finance 39
placed at Rs 8,81,469 crore in 2008-09, which
implied a growth of 23.7 per cent over 2007-08 levels
and 17.4 per cent over that assumed in 2008-09
(BE). The front loading of Plan expenditure was
evident in the rise in its proportion to the GDP from
a level of 4.1 per cent in 2007-08 to 4.9 per cent in
2008-09 (estimated initially at 4.6 per cent in BE
2008-09) (Table 3.2). Thus the reversal in major fiscal
deficit indicators in 2008-09 and 2009-10 is a policy-
driven stimulus to counter the demand slowdown.
BUDGETARY DEVELOPMENTS IN
2009-10
3.8 The Budget for 2009-10 presented on July
6, 2009 was formulated in the midst of an uncertain
macroeconomic environment with a focus on
recovery from the economic slowdown following the
knock-on effects of the global financial and economic
crisis. The three challenges identified included
leading the economy back onto the high growth path
of 9 per cent at the earliest; deepening and
broadening the inclusive agenda for development;
and re-energizing the Government and improving the
delivery mechanism. In view of the uncertainties
associated with the impact of the crisis and not so
strong signs of recovery, the Budget for 2009-10
continued fiscal expansion to boost demand. The
Budget acknowledged the short-term nature of the
stance through a medium-term policy indication of
resumption of fiscal consolidation and the initiative
to rein in fiscal deficit through institutional reform
measures like the intention to move towards a
nutrient- based subsidy regime (and ultimately to
Revenue
Expenditure
Revenue
Receipts
Receipts
Expenditure
2007-08
2008-09
2009-10(BE)
(Prov)
40 Economic Survey 2009-10

Table 3.2 : Receipts and expenditure of the Central Government

2004-05 2005-06 2006-07 2007-08# 2008-09 2008-09 2009-10
(B.E.) (Prov.) (B.E.)
(Rs. crore)
1. Revenue Receipts (a+b) 3,05,991 3,47,077 4,34,387 5,41,864 6,02,935 5,44,651 6,14,497
(a) Tax Revenue (Net of States’ share) 2,24,798 2,70,264 3,51,182 4,39,547 5,07,150 4,47,726 4,74,218
(b) Non-tax Revenue 81,193 76,813 83,205 1,02,317 95,785 96,925 1,40,279
2. Revenue Expenditure 3,84,329 4,39,376 5,14,609 5,94,433 6,58,118 7,91,697 8,97,232
of which:
(a) Interest Payments 1,26,934 1,32,630 1,50,272 1,71,030 1,90,807 1,90,485 2,25,511
(b) Major Subsidies 44,753 44,480 53,495 67,498 67,037 1,23,640 1,06,004
(c) Defence Expenditure 43,862 48,211 51,682 54,219 57,593 72,836 86,879
3. Revenue Deficit (2-1) 78,338 92,299 80,222 52,569 55,183 2,47,046 2,82,735
4. Capital Receipts 1,92,261 1,58,661 1,49,000 1,70,807 1,47,949 3,36,818 4,06,341
of which:
(a) Recovery of Loans* 62,043 10,645 5,893 5,100 4,497 6,158 4,225
(b) Other Receipt 4,424 1,581 534 38,795 10,165 546 1,120
(Mainly PSU Disinvestment)
(c) Borrowings and Other Liabilities $ 1,25,794 1,46,435 1,42,573 1,26,912 1,33,287 3,30,114 4,00,996
5. Capital Expenditure** 1,13,923 66,362 68,778 1,18,238 92,766 89,772 1,23,606
6. Total Expenditure [2+5=6(a)+6(b)] 4,98,252 5,05,738 5,83,387 7,12,671 7,50,884 8,81,469 10,20,838
of which:
(a) Plan Expenditure 1,32,292 1,40,638 1,69,860 2,05,082 2,43,386 2,75,450 3,25,149
(b) Non-Plan Expenditure 3,65,960 3,65,100 4,13,527 5,07,589 5,07,498 6,06,019 6,95,689
7. Fiscal Deficit [6-1-4(a)-4(b)] 1,25,794 1,46,435 1,42,573 1,26,912 1,33,287 3,30,114 4,00,996
8. Primary Deficit [7-2(a)] -1,140 13,805 -7,699 -44,118 -57,520 1,39,629 1,75,485
(As per cent of GDP)
1. Revenue Receipts (a+b) 9.4 9.4 10.1 11.0 11.4 9.8 10.0
(a) Tax Revenue (Net of States’ Share) 6.9 7.3 8.2 8.9 9.6 8.0 7.7
(b) Non-tax Revenue 2.5 2.1 1.9 2.1 1.8 1.7 2.3
2. Revenue Expenditure 11.9 11.9 12.0 12.0 12.4 14.2 14.6
of which:
(a) Interest Payments 3.9 3.6 3.5 3.5 3.6 3.4 3.7
(b) Major Subsidies 1.4 1.2 1.2 1.4 1.3 2.2 1.7
(c) Defence Expenditure 1.4 1.3 1.2 1.1 1.1 1.3 1.4
3. Revenue Deficit (2-1) 2.4 2.5 1.9 1.1 1.0 4.4 4.6
4. Capital Receipts 5.9 4.3 3.5 3.5 2.8 6.0 6.6
of which:
(a) Recovery of Loans* 1.9 0.3 0.1 0.1 0.1 0.1 0.1
(b) Other Receipts (Mainly PSU Disinvestment) 0.1 0.0 0.0 0.8 0.2 0.0 0.0
(c) Borrowings and Other Liabilities $ 3.9 4.0 3.3 2.6 2.5 5.9 6.5
5. Capital Expenditure** 3.5 1.8 1.6 2.4 1.7 1.6 2.0
6. Total Expenditure [2+5=6(a)+6(b)] 15.4 13.6 13.6 14.4 14.2 15.8 16.6
of which:
(a) Plan Expenditure 4.1 3.8 4.0 4.1 4.6 4.9 5.3
(b) Non-Plan Expenditure 11.3 9.9 9.7 10.3 9.6 10.9 11.3
7. Fiscal Deficit [6-1-4(a)-4(b)] 3.9 4.0 3.3 2.6 2.5 5.9 6.5
8. Primary Deficit [7-2(a)] 0.0 0.4 -0.2 -0.9 -1.1 2.5 2.8
Memorandum Items (Rs crore)
(a) Interest Receipts 32,387 22,032 22,524 21,060 19,135 20,556 19,174
(b) Dividend and Profit 15,934 18,549 18,969 21,531 24,758 20,653 19,340
(c) Non-Plan Revenue Expenditure 2,96,835 3,27,518 3,72,191 4,20,861 4,48,351 5,56,521 6,18,834

Source : Union Budget documents.

# Based on Provisional Actuals for 2007-08.
* Includes receipts from States on account of Debt Swap Scheme for 2004-05.
** Includes repayment to National Small Savings Fund for 2004-05.
$ Does not include receipts in respect of Market Stabilization Scheme, which will remain in the cash balance of the Central
Government and will not be used for expenditure.
Note : 1. The ratios to GDP at current market prices are based on CSO’s National Accounts 2004-05 series.
2. The figures may not add up to the total due to rounding/ approximations.

direct cash transfers) in fertilizers; setting up of an
expert group to advise on viable and sustainable
pricing of petroleum products; encouraging people’s
participation in public sector undertakings (PSUs)
through disinvestment; and bringing about structural
changes in direct taxes through the draft Direct
Taxes Code and moving towards a harmonized
goods and services tax (GST).
3.9 The Budget for 2009-10, acknowledging the
importance of infrastructure development, significantly
raised the allocation for the sector. This included a
significant step up (by 87 per cent) in the allocation
under the Jawaharlal Nehru National Urban Renewal
Mission (JNNURM); a 23 per cent hike in the
allocation under the National Highway Development
Programme (NHDP); increase in allocation for the
Railways from Rs10,800 crore in the Interim Budget
2009-10 to Rs15,800 crore; and increase of 144 per
cent in the allocation under the National Rural
Employment Guarantee Scheme (NREGS) taking
the outlay to a level of Rs 39,100 crore.
Revenue and capital receipts
3.10 As the fiscal stimulus packages were
announced late in the second half of 2008-09, the
full impact of the measures was expected to kick in
the current fiscal, particularly on the revenue side. It
was initially estimated that the tax cuts announced
would entail a revenue loss of around 1per cent of
GDP. Given the above, and the need to continue
with the stimulus, the Budget for 2009-10 presented
in July 2009 envisaged a growth of 5.1 per cent in
gross tax revenue of the Centre and was estimated
at Rs 6,41,079 crore (Rs 6,09,075 crore in 2008-09
provisional accounts and Rs 6,87,715 in BE 2008-
09). While direct taxes were estimated to grow by
9.4 per cent from 2008-09 (prov.) levels, indirect taxes
were estimated to grow marginally reaching a level
of Rs 2,69,477 crore (Table 3.3). Within direct taxes,
revenue from personal income tax was estimated to
decline by 9.0 per cent and that from corporate
income tax to grow by 20.1 per cent. While revenue
from customs and excise was budgeted to decline
marginally, the growth in revenue from service tax
was estimated at 6.8 per cent, fully compensating
the shortfall in the former.
3.11 These trends in individual taxes carried
forward the tilt in composition in favour of direct taxes
with their share in total tax revenue rising from 55.5
Fiscal Developments and Public Finance 41
per cent in 2008-09 to 57.7 per cent in 2009-10
(BE)(Figure 3.3). As proportion of the GDP, revenue
from direct taxes marginally declined to a level of
6 per cent and revenue from indirect taxes
substantially declined to reach 4.4 per cent. Thus,
the marksmanship in indirect taxes took a knock in
2008-09. This also reflected the fact that as part of
fiscal stimulus package to revive demand, it was
excise that bore the brunt of tax cuts and the effect
of economic slowdown was more pronounced in
consumption than on income.
Indirect taxes
Customs
3.12 In the Budget for 2009-10, no change was
made in the overall rate structure of customs duties.
The peak rate for non-agricultural products at 10 per
cent and the two major ad valorem rates at 5 per
cent and 7.5 per cent were retained. However, some
sector-specific changes in the rates of duty were
made which are detailed below.
z The concessional rate of basic customs duty of
5 per cent on specified machinery for tea, coffee
and rubber plantations, which was earlier
available up to April 30, 2009, was extended up
to July 6, 2010. Basic customs duty on
‘mechanical harvesters’ for coffee plantations
was reduced from 7.5 per cent to 5 per cent.
Such harvesters were also exempted from
countervailing duty (CVD) by way of excise duty
exemption. On permanent magnets for
manufacture of PM synchronous generators
above 500 KW for use in wind-operated
electricity generators, basic customs duty was
reduced from 7.5 per cent to 5 per cent.
z Full exemption from customs duty presently
available to specified raw materials/inputs
imported by manufacturer-exporters of sports
goods was extended to five additional items.
Similarly, full exemption from customs duty
presently available to specified raw materials
and equipment imported by manufacturer-
exporters of leather goods, textile products, and
footwear industry was extended to some
additional items. The basic customs duty on
unworked corals was also reduced from 5 per
cent to nil.
z Full exemption from basic customs duty
available to set-top boxes was withdrawn and
42 Economic Survey 2009-10

Table 3.3 : Sources of tax revenue

2004-05 2005-06 2006-07 2007-08 2008-09 2008-09 2009-10
(BE) (Prov.)@ (BE)

(Rs. crore)
Direct Taxes (a) 1,32,181 1,57,557 2,19,722 2,95,938 3,65,000 3,38,213 3,70,000
Personal Income Tax 49,268 55,985 75,093 1,02,644 1,38,314 1,24,014 1,12,850
Corporate Tax 82,680 1,01,277 1,44,318 1,92,911 2,26,361 2,13,812 2,56,725
Indirect Taxes (b) 1,70,936 1,99,348 2,41,538 2,78,845 3,21,264 2,69,454 2,69,477
Customs 57,611 65,067 86,327 1,04,119 1,18,930 99,848 98,000
Excise 99,125 1,11,226 1,17,613 1,23,425 1,37,874 1,08,740 1,06,477
Service Tax 14,200 23,055 37,598 51,301 64,460 60,866 65,000
Gross Tax Revenue # 3,04,958 3,66,151 4,73,512 5,93,147 6,87,715 6,09,705 6,41,079
Tax revenue as a proportion of gross tax revenue (in per cent)
Direct Taxes (a) 43.3 43.0 46.4 49.9 53.1 55.5 57.7
Personal Income tax 16.2 15.3 15.9 17.3 20.1 20.3 17.6
Corporate Tax 27.1 27.7 30.5 32.5 32.9 35.1 40.0
Indirect Taxes (b) 56.1 54.4 51.0 47.0 46.7 44.2 42.0
Customs 18.9 17.8 18.2 17.6 17.3 16.4 15.3
Excise 32.5 30.4 24.8 20.8 20.0 17.8 16.6
Service Tax 4.7 6.3 7.9 8.6 9.4 10.0 10.1
Tax revenue as a proportion of gross domestic product* (in per cent)
Direct Taxes (a) 4.1 4.3 5.1 6.0 6.9 6.1 6.0
Personal Income Tax 1.5 1.5 1.8 2.1 2.6 2.2 1.8
Corporate Tax 2.6 2.7 3.4 3.9 4.3 3.8 4.2
Indirect Taxes (b) 5.3 5.4 5.6 5.6 6.1 4.8 4.4
Customs 1.8 1.8 2.0 2.1 2.2 1.8 1.6
Excise 3.1 3.0 2.7 2.5 2.6 2.0 1.7
Service Tax 0.4 0.6 0.9 1.0 1.2 1.1 1.1

Gross Tax Revenue # 9.4 9.9 11.1 12.0 13.0 10.9 10.4

Source: Union Budget documents.

@ Provisional and unaudited as reported by Controller General of Accounts, Department of Expenditure, Ministry of Finance.
# includes taxes referred to in (a) & (b) and taxes of Union Territories and “other” taxes.
* Refers to GDP at current market prices.
Notes: 1. Direct taxes also include taxes pertaining to expenditure, interest, wealth, gift and estate duty.
2. The ratios to GDP at current market prices are based on the CSO’s National Accounts 2004-05 series.

Figure 3.3 Composition of gross tax revenue

45
Per cent of gross tax revenue

40 Excise
35
Customs
30
25 Corporate
tax
20
15 Personal
income tax
10
5 Service
tax
0
1990-01

1995-96

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09 (Prov)

2009-10 (BE)

Year

basic customs duty of 5 per cent was
reimposed. Basic customs duty on LCD panels
for manufacture of LCD televisions was reduced
from 10 per cent to 5 per cent. Full exemption
from 4 per cent special CVD on parts for
manufacture of mobile phones and accessories
was reintroduced for one year, that is up to July
6, 2010.
z Basic customs duty on nine specified drugs and
bulk drugs for their manufacture, and one
vaccine was reduced from 10 per cent to 5 per
cent. These items were also exempted from
CVD by virtue of full exemption from excise duty.
Also, the basic customs duty on Patent Ductus
Arteriosus/Atrial Septal Defect occlusion
devices was reduced from 7.5 per cent to 5 per
cent with nil CVD by way of excise duty
exemption. Similarly, basic customs duty on
artificial hearts (left ventricular assist devices)
was reduced from 7.5 per cent to 5 per cent.
This device already attracts nil excise duty/
CVD.
z Basic customs duty on cotton waste and wool
waste was reduced from 15 per cent to 10 per
cent.
z On packaged or canned software, CVD
exemption has been provided on the portion of
the value which represents the consideration for
transfer of the right to use such software, subject
to specified conditions. Service tax is leviable
on this portion of the value as an “Information
Technology Software Service”.
z Customs duty on serially numbered gold bars
(other than tola bars) and gold coins was
increased from Rs100 per 10 g to Rs 200 per
10 g. On other forms of gold, the customs duty
was increased from Rs 250 per 10 g to Rs 500
per 10 g. Customs duty on silver was increased
from Rs 500 per kg to Rs 1,000 per kg.
3.13 Some other changes announced in the
Budget 2009-10 and thereafter are listed below:
z Basic customs duty on rock phosphate was
reduced from 5 per cent to 2 per cent.
z CVD exemption on Aerial Passenger Ropeway
Projects was withdrawn. Consequently, such
projects will attract applicable CVD.
z Basic customs duty exemption for “concrete
batching plants of capacity 50 cum per hour or
Fiscal Developments and Public Finance 43
more” was withdrawn. Such plants will now
attract 7.5 per cent basic duty.
z Inflatable rafts, snow skis, water skis,
surfboards, sailboats and other water sports
equipment were fully exempted from basic
customs duty.
z Basic customs duty on bio-diesel was reduced
from 7.5 per cent to 2.5 per cent.
z Nil rate of basic customs duty on import of raw
sugar, earlier available up to August 1, 2009,
has been extended up to December 31, 2010.
Import of white/refined sugar (up to 10 lakh MT)
at nil rate has been extended up to March 31,
2010.
z Semi- or wholly milled rice was fully exempted
from basic customs duty till September 30, 2010.
Excise
3.14 The resurgence in the manufacturing sector,
which led to the robust growth momentum in the
2003-04 to 2007-08 period, owes also to the
rationalization of excise duties. As a consequence
of changes in ad valorem rates of Central excise
duty for non-petroleum products on February 24,
2009 as part of the third fiscal stimulus package, a
dual rate structure with rates of 4 per cent and 8 per
cent ad valorem was put in place. This rate structure
for non-petroleum products has been retained in
Budget 2009-10. However, the rate of duty on several
items attracting 4 per cent was restored to 8 per
cent. Among the important sectors/items where such
an increase occurred were ceramic tiles
manufactures in a factory not using electricity for
firing the kiln; plywood, flush doors and articles of
wood; writing ink and other ink used in writing
instruments; zip fasteners; and MP3/MP4 or
MPEG4 players. Consequent upon increase in
excise duty rate from 4 per cent to 8 per cent,
abatement rates were revised suitably on items
covered under retail sale price (RSP)-based
assessment.
3.15 On the other hand, the 4 per cent rate was
retained on mass consumption and essential items
such as drugs and pharmaceutical products;
medical equipment; certain varieties of paper,
paperboard and articles made therefrom; food items
such as sugar confectionary, biscuits of retail price
exceeding Rs100/kg, cakes and pastries and
sherbets; pressure cookers; power-driven pumps
44 Economic Survey 2009-10
designed for handling water; water filtration/
purification equipment; specified textile machinery;
paraxylene; footwear of retail price exceeding Rs 250
per pair but not exceeding Rs 750 per pair; compact
fluorescent lamps (CFL) and vacuum and gas-filled
bulbs of retail price not exceeding Rs 20 per bulb.
3.16 The specific changes made included:
z Restoration of the scheme of optional excise
duty of 4 per cent for pure cotton.
z Rate of duty on manmade fibre and yarn
enhanced from 4 per cent to 8 per cent on
mandatory basis. Beyond the fibre/yarn stage
the optional levy of 8 per cent ad valorem
restored (instead of pre-budget rate of 4 per cent).
Similarly, textile items manufactured from natural
fibre other than cotton such as silk, wool and
flax to bear an optional levy of 8 per cent ad
valorem instead of 4 per cent beyond the fiber
stage. The enhanced rate of 8 per cent to also
apply to blended fabrics and products.
z Corresponding changes made in the rates of duty
applicable to export- oriented units (EOUs) using
only indigenous raw materials when they make
clearances of textile items in the domestic tariff
area (DTA).
z Enhanced excise duty from 4 per cent to 8 per
cent ad valorem on some important textile
intermediates, namely polyester chips; di-methyl
terephthalate (DMT), purified terephthalic acid
(PTA); and acrylonitrile.
z The ad valorem component of excise duty on
petrol intended for sale with a brand name
converted into a specific rate. Consequently,
such petrol to attract total excise duty of
Rs 14.50 per litre instead of “6 per cent + Rs13
per litre”.
z Similarly, the ad valorem component of excise
duty on diesel, intended for sale with a brand
name converted into a specific rate.
Consequently, such diesel to attract total excise
duty of Rs 4.75 per litre instead of “6 per cent +
Rs 3.25 per litre”.
z Exemption from basic excise duty, additional
excise duty and special additional excise duty
provided to high-speed diesel (HSD) oil blended
with bio-diesels, up to 20 per cent by volume,
provided both HSD and bio-diesel have paid the
appropriate excise duty.
z Excise duty rate on special boiling point spirits
and Naphtha reduced to 14 per cent.
z Excise duty on large cars/utility vehicles, having
engine capacity exceeding 1999 cc, reduced
from “20 per cent + Rs 20,000 per unit” to “20
per cent + Rs15,000 per unit”.
z Excise duty on petrol-driven trucks/lorries
reduced from 20 per cent to 8 per cent. Excise
duty on chassis of such truck/lorries also
reduced from “20 per cent + Rs10,000” per
chassis to “8 per cent + Rs10,000” per chassis.
z No change made either in the exemption limit
or the eligibility limit for small- scale exemption.
z Brand name restriction relaxed in respect of
printed laminated rolls. As a consequence,
manufacturers of printed laminated rolls bearing
the brand name of another person and fulfilling
the conditions of notification entitled to full
exemption from excise duty for their first
clearances of this item (for home consumption)
not exceeding Rs150 lakh during the remaining
part of this financial year, that is 2009-10.
z Full exemption from excise duty has been
provided to goods falling under Chapter 68
manufactured at the site of construction for use
in construction work at such site.
z Full exemption from excise duty provided to tops
manufactured from manmade fibres using the
tow-to-top process under specified conditions.
z Articles of jewellery on which brand name or
trade name is indelibly affixed or embossed
(branded jewellery) fully exempted from excise
duty.
z Full exemption provided to EVA compound
manufactured on job-work basis for further
manufacture of footwear.
z Partial exemption from excise duty provided to
packaged or canned software so that the duty
payable on that portion of the value which
represents the consideration for the transfer of
the right to use such software is exempted.
z Recorded smart cards and tags are exempt from
excise duty. A condition had been added to this
exemption so as to make it available only if the
manufacturer has not availed of central value-
added tax (CENVAT) credit of the duty paid on
inputs for these goods.
 Fiscal Developments and Public Finance 45
Service Tax z In respect of other taxable services, a
new revamped and trust-based refund
3.17 The introduction of service tax in 1994-95
scheme notified with effect from July 7,
ushered in a major structural change in indirect taxes
2009. Under the new scheme, refund to
in the form of wider base and facilitated the process
be granted to exporters within one month
of rationalization of excise duties resulting in lower
without any pre-audit based on
tax burden on productive sectors. Over the years,
certification. If the amount of refund claim
there has been an increase in the number of services
does not exceed 0.25 per cent of the total
and the rate of service tax leviable (Table 3.4). The
f.o.b. value of exports under a claim, self-
Budget for 2009-10 carried this process forward
certification by the exporter to the effect
through the following measures:
that the eligible services have been
(a) Service tax retained at 10 per cent (which was received and used for export by him and
reduced from 12 per cent on February 24, 2009 service tax payable thereon has been
as part of the fiscal stimulus package). reimbursed would be sufficient to get the
(b) The following four new services have been brought refund. In cases where amount of refund
under the service tax net: claim exceeds 0.25 per cent of the f.o.b.
(i) Services provided in relation to transport of value of exports, the refund claim to be
coastal goods and goods through national sanctioned on the basis of certification
waterways and inland water. by the chartered accountant who audits
(ii) Services provided in relation to transport of the annual accounts of the exporter. A
goods by rail (service tax kept in abeyance simplified format has been prescribed to
for some time). file the refund claims. The condition for
filing refund claims once in a quarter
(iii) Cosmetic and plastic surgery services
dispensed with and the time period for
undertaken to preserve or enhance physical
filing the refund claim increased to one
appearance or beauty.
year from the date of export.
(iv) Legal consultancy services provided by a
z ‘Terminal handling charges’ added to the
business entity to another business entity.
list of services eligible for refund.
(c) As relief to exporters :
z Services provided for transport of export
z Two taxable services, namely “transport
goods through national waterways, inland
of goods by road” and “commission paid
water and coastal shipping included in
to foreign agents” exempted from the levy
the list of services eligible for refund of
of service tax, should the exporter be
service tax.
liable to pay service tax on reverse charge
basis. (d) Other relief measures included:
Table 3.4 : Service tax revenue z Exemption from service tax provided to
inter-State or intra-State transportation of
Year No. of Tax rate in Revenue Growth in
services per cent (Rs crore) per cent
passengers in a vehicle bearing “contract
carriage permit”, with specified
2003-04 60 8 7891 91.4
conditions.
2004-05 75 10 14200 80.0
2005-06 84 10 23055 62.4 z Federation of Indian Export Promotion
2006-07 99 12 37598 63.1 Organization (FIEO) and specified export
2007-08 106 12 51301 36.4 promotion councils exempted from the
2008-09 110 10 * 60702 18.3 levy of service tax under the “Club or
2009-10(P) 114 10 36785 -6.5 # association service”. The exemption
Source: Receipts Budget and Principal Chief Controller would be valid till March 31, 2010.
of Accounts.
* Reduced to 10 per cent with effect from February z Exemption from service tax leviable under
24, 2009. “banking and other financial services” or
# Over corresponding period April-December, 2008.
under “foreign exchange broking services”
(P) Revenue collection for 2009-10 (April-December
2009). provided to inter-bank purchase and sale
46 Economic Survey 2009-10
of foreign currency between scheduled
banks.
z Services provided in relation to transport
of goods by rail exempted from service
tax.
z Services provided or to be provided in
relation to management, maintenance or
repair of roads exempted from service
tax.
z Service tax exemption on taxable
services provided in relation to transport
of specified goods through national
waterways, inland water and coastal
shipping.
z Sub-brokers excluded from the definition
of “stockbroker”.
z Service tax exemption provided on
business auxiliary services provided in
the manufacture of pharmaceutical
products, medicines, perfumery,
cosmetics or toilet preparations
containing alcohol, which are charged
excise duty under the Medicinal and
Toilet Preparations (Excise Duties) Act
1955.
z Partial exemption from service tax
granted to job workers providing business
auxiliary service to the brand owners of
alcoholic beverages to the extent of
service tax leviable on inputs (i.e. raw
materials and packing materials) used
in the manufacture of such alcoholic
beverages.
z Service tax exemption provided to canals
built under works contracts, including
EPC projects, provided they are not used
for commercial purposes.
z Specified processes undertaken during
the course of manufacture of parts of
cycles or sewing machines exempted
from service tax under business auxiliary
services.
Direct Taxes
3.18 The Budget for 2009-10 pointed out that the
thrust of tax reforms over the last few years had
been on improving the efficiency and equity of the
tax system by eliminating distortions in the tax
structure, maintaining moderate levels of taxation
and expanding the base. This was carried forward
in 2009-10 through enhancement of the minimum
level of income exempt under personal income tax
by Rs10,000 for general taxpayers and by Rs
15,000 for senior citizens. The surcharge of 10 per
cent on personal income tax was also eliminated.
The fringe benefit tax was abolished to reduce the
compliance burden on employers. The rate of
minimum alternate tax was raised to 15 per cent
to improve inter-se equity in the taxation of
corporate taxpayers.
3.19 Overall, tax proposals on direct taxes were
revenue neutral. In pursuance of a Budget
announcement, the draft Direct Taxes Code and
Discussion Paper was released in August 2009 for
public comments (Box 3.1). An alternate dispute
resolution mechanism was introduced in the
Income-tax Act 1961 to facilitate expeditious
resolution of tax disputes involving international
transactions.
Tax Expenditure
Direct Taxes
3.20 As a part of the FRBMA mandate of norms
for transparency and disclosures, a “Statement of
Revenue Foregone” is tabled along with budget
documents (Appendices in Receipts Budget). As
per the Budget 2009-10, tax foregone on account
of exemptions under corporate income tax for 2007-
08 and 2008-09 was estimated at Rs 62,199 crore
and Rs 68,914 crore respectively. Deduction on
account of accelerated depreciation, deduction of
export profits of units located in Software Technology
parks and of EOUs were some of the major items
under such corporate exemptions. Tax foregone on
account of exemptions under personal income tax
was estimated at Rs 33,278 crore and Rs 34,437
crore respectively in 2007-08 and 2008-09 with
deduction on account of certain investments and
payments under section 80C of the Income-tax Act
being the main exemptions.
Indirect Taxes
3.21 Estimates of total revenue foregone on the
Central excise side for 2008-09 were placed at
Rs1,28,293 crore as against the corresponding figure
of Rs 87,468 for 2007-08. The sharp increase in
revenue forgone is attributable to the reduction in
mean effective rate of excise duty from 16 per cent
to 14 per cent in the Budget for 2008-09; subsequent
 Fiscal Developments and Public Finance 47
Box 3.1 : Direct Taxes Code
The Budget for 2009-10 underscored the importance of continuing the process of structural change in Direct Taxes and
promised a comprehensive code to this effect. A Discussion Paper (DP) along with a draft Direct Taxes Code was put
in the public domain on August 12, 2009. The Code seeks to consolidate and amend the law relating to all direct taxes,
that is income-tax, dividend distribution tax and wealth tax so as to establish an economically efficient, effective and
equitable direct tax system which will facilitate voluntary compliance and help increase the tax-GDP ratio. All the direct
taxes have been brought under a single code and compliance procedures unified, which will eventually pave the way for
a single unified taxpayer reporting system. The need for the Code arose from concerns about the complex structure of
the Income Tax Act, numerous amendments making it incomprehensible to the average tax payer and frequent policy
changes due to the changing economic environment. The DP states that marginal tax rates have been steadily lowered
and the rate structure rationalized to reflect best international practices and any further rationalization of the tax rates
may not be feasible without corresponding increase in the tax base to enhance revenue productivity of the tax system and
improve its horizontal equity.

A threefold strategy for broadening the base has been articulated in the Code. The first element of the strategy is to
minimize exemptions that have eroded the tax base. The removal of these exemptions would result in a higher tax-GDP
ratio; enhance GDP growth; improve equity (both horizontal and vertical); reduce compliance costs; lower administrative
burdens; and discourage corruption. The second element of the strategy seeks to address the problem of ambiguity in the
law which facilitates tax avoidance. The third element of the strategy relates to checking of erosion of the tax base
through tax evasion.

Some key features

z The Discussion paper discusses the principles of residence-based taxation of income and source-based taxation of
income in terms of international best practices that are mixes of the two. Under the Code, residence-based taxation
is applied to residents and source-based to non-residents. A resident of India will be liable to tax in India on his
world-wide income. However, a non-resident will be liable to tax in India only in respect of accruals and receipts in
India (including deemed accruals and receipts).

z The draft Code simplifies the dualistic concepts of “previous year” and “assessment year” used in the Act and
replaces them with the unified concept of “financial year” and decrees that all rights and obligations of the taxpayer
and the tax administration will be made with reference to the “financial year”.

z The DP argues for special treatment of capital gains under an income tax regime for two reasons. Firstly, taxing gains
each year, as they accrue, would strain the finances of an individual who is yet to receive these gains in hand. Second,
the capital gain realized when a capital asset is sold is usually the accumulated appreciation in the value of the asset
over a number of years. The “bunching” of such appreciation in the year in which the asset is sold pushes the seller
into a higher marginal tax bracket, if the value of the asset is sufficiently high. As such, if no special treatment is
accorded to capital gains, a progressive income tax would discriminate against those whose income from capital
assets is in the form of capital gains as compared to those whose income is derived from interest or dividends. The
Code also seeks to eliminate the present distinction between short-term investment asset and long-term investment
asset on the basis of the length of holding period of the asset.

z On tax incentives, the DP argues that they are inefficient, distorting, inequitous, impose greater compliance burden
on the taxpayer and on the administration, result in loss of revenue, create special interest groups, add to the
complexity of the tax laws, and encourage tax avoidance and rent-seeking behaviour. Based on a comprehensive
review, the Code proposes that profit linked tax deductions will be replaced by investment linked deductions in areas
of positive externality.

z The draft Code argues against area-based exemption through allusion to economic distortion, that is allocate/ divert
resources to areas where there is no comparative advantage. Such exemptions also lead to tax evasion and avoidance.
It proposes that area-based exemptions that are available under the Income Tax Act 1961 will be grandfathered.

z The draft Code proposes to rationalise the tax incentives for savings through the introduction of the ‘Exempt-
Exempt-Taxation’ (EET) method of taxation of savings. Under this method, the contributions are exempt from tax
(this represents the first ‘E’ under the EET method), the accumulations/accretions are exempt (free from any tax
incidence) till such time as they remain invested (this represents the second ‘E’) and all withdrawals at any time
would be subject to tax at the applicable personal marginal rate of tax (this represents the ‘T’ under the EET method).
48 Economic Survey 2009-10
reduction in excise duty rates on petrol and HSD in
June 2008; across- the-board reduction in excise
duty rates by 4 percentage points on non-petroleum
products in December 2008; and further reduction in
10 per cent rate of excise duty to 8 per cent in
February 2009. Since the tariff rate continued to
remain unchanged at 16 per cent, the revenue
foregone, that is the difference between tariff rate
and effective rate, grew sharply in 2008-09 as
compared to 2007-08. The estimated tax expenditure
in respect of customs for 2008-09 was placed at Rs
2,25,752 crore as compared to Rs1,53,593 crore
(provisional) in 2007-08. The increase in customs
revenue foregone is due to exemptions given in 2008-
09 to items like edible oils, crude petroleum, ores
and concentrates.
EXPENDITURE TRENDS
3.22 In the post-FRBMA period (2004-05 to 2007-
08), average annual/compound growth in total
expenditure was 11.2 per cent, which compared
favourably with the 12.2 per cent in the previous four
years. Within total expenditure, growth in capital
expenditure was again lower than that in revenue
expenditure. Adjusting for one-off distortions in
capital expenditure like redemption of securities of
the National Small Savings Fund in 2004-05 and the
expenditure on acquisition of State Bank of India
(SBI) shares from the Reserve Bank of India (RBI),
growth in capital expenditure is more stable. While
traditionally assessment of the trends in expenditure,
particularly in the context of the fiscal consolidation
process, had focused on the compression in terms
of proportions of GDP, in view of the policy-driven
expansion process it would be useful to understand
the magnitude and direction of the expansion. In
2008-09 (provisional) and 2009-10 (BE), the increase
Figure 3.4 Trends in Centre's revenue expenditure
350
Rs. thousand crore
300
250
200
150
100
50
0
2004-05
2005-06
2006-07
Year
in total expenditure was of the order of 23.7 per cent
and 43.2 per cent respectively over the levels in 2007-
08. In 2008-09, the main components of expenditure
significantly higher than their 2007-08 levels were
major subsidies, social services, Plan expenditure
and economic services. In 2009-10, the major
components of the expansion were interest
payments, defence, social services and economic
services.
3.23 In a two-way classification of expenditure as
Plan and non-Plan, the front loading of Plan
expenditure is evident from the levels of growth of
34.3 per cent and 18.0 per cent in 2008-09 and 2009-
10 (BE) respectively. Plan expenditure at 5.3 per
cent of the GDP in 2009-10(BE) was the highest in
recent years. Non-Plan expenditure grew by 19.4
per cent and 14.8 per cent respectively in 2008-09
and 2009-10 (BE). In the four-way classification of
expenditure, growth in 2008-09 and 2009-10 (BE)
respectively was 32.2 per cent and 11.2 per cent in
non-Plan revenue expenditure; -3.3 per cent (after
adjustment) and 55.3 per cent in non-Plan capital
expenditure; 35.5 per cent and 18.4 per cent in Plan
revenue expenditure; and 27.8 per cent and 16.1 per
cent in Plan capital expenditure (Figure 3.4 & 3.5).
INTEREST PAYMENTS
3.24 To the extent that rising interest payments
reflect past consumption and do not contribute to
current productive uses and are primarily tax
financed, they are a drag on the present generation.
Inter-generational equity concerns were one of the
key objectives of institutionalizing the fiscal
consolidation process in the form of the FRBMA.
Interest payments appropriated substantial
proportions of revenue receipts and the efforts in the
Interest Payments
Major Subsidies
Defence
Expenditure
Grants to States
and UTs
Others
2007-08
2008-09
2009-10(BE)
(Prov)
 Fiscal Developments and Public Finance 49
Figure 3.5 Composition of revenue expenditure
100

29.9 31.9 33.9 32.5 Others

80 35.4 37.3

60 14.0 Grants to States

Per cent

16.8 16.5 18.2 15.7 and UTs

16.0
11.4
11.0 10.0 9.1 9.2
40 9.7
11.6 10.1 Defence
10.4 11.4 15.6 11.8 expenditure
20
33.0 30.2 29.2 28.8 24.1 25.1 Major subsidies
0

2004-05 2005-06 2006-07 2007-08 2008-09 (Prov) 2009-10 (BE) Interest payments
Year

FRBMA period were to reduce the level of deficits Table 3.5 : Interest on outstanding internal
and incremental assumption of debt to contain the liabilities of Central Government
interest burden. Interest payments as a proportion
Out- Interest Average
of revenue receipts declined from a level of 52.1 per standing on cost of
cent in 1998-99 to a level of 31.6 per cent in 2007- internal internal borrowings
08. They were at the 35 per cent level in 2008-09 liabilities liabilities (per cent
(provisional) and were budgeted at 36.7 per cent in per annum)
2009-10 (BE). The rise in the levels of gross market (Rs. crore)
borrowings in 2008-09 and 2009-10 (BE) has resulted 2004-05 16,03,785 1,24,126 8.5
in a reversal of the trend towards fall in average cost 2005-06 17,52,404 1,29,474 8.1
of borrowings (Table 3.5 and Figure 3.6). 2006-07 19,67,870 1,46,405 8.4
2007-08 22,47,104 1,67,102 8.5
2008-09(RE) 25,37,848 1,88,535 8.4
SUBSIDIES 2009-10(BE) 28,94,434 2,21,198 8.7
3.25 The global commodity price shock Source : Union Budget documents.
(particularly in crude petroleum) that preceded the Notes:1. Average cost of borrowings is the per
global financial crisis in 2008-09 led to a burgeoning centage of interest payment in year “t” to
outstanding liabilities in year “t-1”.
of the subsidy bill and a sharp rise in the below-the- 2. Outstanding internal liabilities exclude
line issuance of bonds to oil and fertilizer companies. National Small Saving Fund loans to States,
A major part of the supplementary demand for grants with no interest liability on the part of the
Centre.
that were approved by Parliament in 2008-09 was

Figure 3.6 Interest on internal liabilities and average interest cost of borrowing
250 12
Interest on
10 Internal
200 Liabilities
Per cent per annum
Rs. thousand crore

(Rs.)
8
150
Average
6 Cost of
100 Borrowing
4 (%)

50
2

0 0
1990-91

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10(BE)
(Prov)

Year
50 Economic Survey 2009-10
devoted to payments to oil and fertilizer companies
who had to be compensated for the less than full
pass through in the administered prices of oil and
fertilizers. As a proportion of GDP, major budgetary
subsidies rose from 1.6 per cent in 2003-04 to 2.2
per cent in 2008-09 (provisional) and were budgeted
at 1.7 per cent in 2009-10 (BE) (Figure 3.7). Besides,
the above below-the-line issuance of oil and fertilizer
bonds was of the order of 1.7 per cent of GDP in
2008-09. The Budget for 2009-10, recognizing the
importance of institutional reforms, announced the
intention to move towards a nutrient-based subsidy
regime in respect of fertilizers and ultimately towards
direct cash transfers and the setting up of an expert
to advise on a viable and sustainable system of
pricing for petroleum products. Work on
operationalization of the former is being attempted
by the Department of Fertilizers and the Report of
the latter containing the recommendations on
petroleum subsidies has been submitted on February
3, 2010.
SUPPLEMENTARY DEMAND FOR
GRANTS
3.26 The first batch of Supplementary Demands
for Grants approved by Parliament in December 2009
included 61 Grants and two Appropriations. Total
gross additional expenditure approved by Parliament
is Rs 30,942.6 crore. This involves a net cash outgo
aggregate of Rs 25,725.2 crore and technical
supplementary involving gross additional expenditure,
matched by savings of the ministries/departments
or by enhanced receipts/recoveries aggregates of
Rs 5,216.7 crore. Besides, token provision of Rs 73
lakh is being sought, one lakh for each item of
expenditure, for enabling reappropriation of savings
Figure 3.7 Subsidies as per cent of GDP
140
Rs. thousand crore
120
100
80
60
40
20
0 0
2004-05
2005-06
2006-07
2007-08
Year
in cases involving New Service or New Instrument of
Service. The main items entailing cash outgo included
fertilizer subsidies (Rs 3,000 crore); food subsidy
(Rs 3,459 crore); and pensions (inculding defence
pension) (Rs 6,743 crore).
CENTRAL PLAN OUTLAY
3.27 Central Plan outlay of Rs 3,88,078 crore was
envisaged in 2008-09 (RE) comprising gross
budgetary support of Rs 2,04,128 crore (52.6 per
cent) and internal and extra budgetary resources
(IEBR) of Central public-sector enterprises (CPSEs)
of Rs1,83,950 crore. The Budget for 2009-10 raised
the Central Plan outlay by 15.4 per cent over 2008-
09 (RE) to reach Rs 4,47,921 crore. The outlay was
composed of budgetary support of Rs 2,39,840 crore
and IEBR of CPSEs of Rs 2,08,081 crore. The broad
sector-wise allocations for important sectors included
energy (25.8 per cent); social services (23.2 per
cent); transport (21.1 per cent); communication (3.7
per cent); rural development (11.6 per cent); industry
and minerals (8.0 per cent); agriculture and allied
activities (2.4 per cent); and irrigation and flood control
(0.1 per cent). Central assistance to State and UT
Plans in 2009-10 (BE) is placed at Rs 85,309 crore,
a growth of 8.2 per cent over 2008-09 (RE).
GOVERNMENT DEBT
3.28 Typically, the fiscal responsibility rules world
over are anchored in balanced budget and debt
targets with clear differences in framework across
advanced economies and developing countries. In
India, under the FRBMA, the rule focused on
incremental assumption of liabilities. By and large
this rule was adhered to in the post-FRBMA period;
2.5
Subsidies
Per cent of GDP
2.0
1.5 Subsidies
as % of
1.0 GDP
0.5
2008-09
2009-10(BE)
(Prov)

since 2008-09, there has been a rise in the
assumption of net incremental liabilities as a result
of the expansionary fiscal policy stance. As a result,
with the revised GDP series (2004-05) released by
the CSO, the ratio of outstanding liabilities to the
GDP after falling from a level of 61.6 per cent in 2004-
05 to 56.3 per cent in 2008-09(RE), has risen
marginally to 56.7 per cent in 2009-10(BE)(Table 3.6).
Internal debt, mainly market borrowings, continued
to be the main component of outstanding liabilities
(Figure 3.8).
ECONOMIC AND FUNCTIONAL
CLASSIFICATION
3.29 While the national accounts data give broad
magnitudes of the aggregate Government
consumption expenditure and capital formation, the
economic and functional classification (EFC) of the
Central Government budget provides details specific
to the Centre. The classification of financial
transactions in the annual budget is designed to
facilitate discussion and voting on demand for grants
and is to be seen in the context of accountability to
Parliament through institutional arrangements. The
EFC reclassifies the expenditures and receipts of
the Central Government by economic and functional
categories making them amenable to larger
macroeconomic analysis, particularly the influence
of the budget on the various sectors of the economy.
Of the total expenditure of the Centre, consumption
expenditure remained in the range of 3.5 per cent to
2.7 per cent of GDP in the period 1997-98 to 2007-
08. Gross capital formation, after rising to a level of
2.9 per cent of the GDP in 2007-08 declined to 2.5
per cent of GDP in 2008-09 and was budgeted at
the same lavel i.e. 2.5 per cent of GDP in 2009-10.
Figure 3.8 Debt GDP ratios
70
60
Per cent of GDP
50
40
30
20
10
0
2004-05
2005-06
2006-07
Year
Fiscal Developments and Public Finance 51
The Budget for 2009-10 placed the ratio of
consumption expenditure to total expenditure at 22
per cent and the ratio of gross capital formation to
total expenditure at 15.2 per cent. However, as about
34.4 per cent of the total expenditure is classified
as unallocable, the real economy- wide impact needs
to be reckoned for this purpose.
3.30 The share of salaries and wages within
consumption expenditure was envisaged at 46.7 per
cent in 2009-10 (BE), which was lower than the 47.7
per cent in 2008-09 (RE). The share of grants to
total expenditure was 35.8 per cent in 2009-10 (BE)
as against 35.3 per cent in 2008-08 (RE). A significant
effect of the global recession and economic/fiscal
stimulus announced by the Government is evident
in the increase in dissavings of the Central
Government from Rs (-)13,674 crore in 2007-08 to
Rs 1,64,293 crore in 2008-09 (RE). Dissavings were
budgeted at Rs 2,07,747 crore in 2009-10. As a
proportion of GDP, dissavings of the Central
Government were placed at 2.9 per cent in 2008-09
(RE) and at 3.4 per cent in 2009-10 (BE) (Table 3.7).
FISCAL OUTCOME
3.31 The twin global shocks and the resultant
slowdown in the economy led to a policy response
of fiscal expansion in the latter half of 2008-09, which
continued through the current year. While,
traditionally fiscal outcome is assessed in terms of
Budget Estimates and year-on-year variations in key
fiscal indicators in relation to the trend with particular
focus on deficit levels, given the expansionary stance,
it would be appropriate to focus on fiscal
marksmanship in the current conjuncture.
Total
outstanding
liabilities
Internal
liabilities
Market
Borrowings
External
debt
2007-08
2008-09
2009-10(BE)
(Prov)
(outstand-
ing)
52 Economic Survey 2009-10

Table 3.6 : Outstanding liabilities of the Central Government

(end-March)
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
(RE) (BE)
(Rs. crore)
1. Internal Liabilities # 19,33,544 21,65,902 24,35,880 27,25,394 30,14,441 33,57,772
(a) Internal Debt 12,75,971 13,89,758 15,44,975 18,08,359 20,14,451 23,56,940
(i) Market Borrowings 7,58,995 8,62,370 9,72,801 10,92,468 13,58,940 17,66,897
(ii) Others 5,16,976 5,27,388 5,72,174 7,15,891 6,55,511 5,90,043
(b) Other Internal Liabilities 6,57,573 7,76,144 8,90,905 9,17,035 9,99,990 10,00,832
2. External Debt (Outstanding)* 60,878 94,243 1,02,716 1,12,031 1,21,634 1,37,680
3. Total Outstanding Liabilities (1+2) 19,94,422 22,60,145 25,38,596 28,37,425 31,36,075 34,95,452
4. Amount due from Pakistan on Account 300 300 300 300 300 300
of Share of Pre-partition Debt
5. Net Liabilities (3-4) 19,94,122 22,59,845 25,38,296 28,37,125 31,35,775 34,95,152
(As per cent of GDP)
1. Internal Liabilities 59.7 58.4 56.9 55.1 54.1 54.5
(a) Internal Debt 39.4 37.5 36.1 36.5 36.1 38.2
(i) Market Borrowings 23.4 23.3 22.7 22.1 24.4 28.7
(ii) Others 16.0 14.2 13.4 14.5 11.8 9.6
(b) Other Internal Liabilities 20.3 20.9 20.8 18.5 17.9 16.2
2. External Debt (Outstanding)* 1.9 2.5 2.4 2.3 2.2 2.2
3. Total Outstanding Liabilities 61.6 61.0 59.3 57.3 56.3 56.7
Memorandum Items
(a) External Debt (Rs crore)@ 1,91,182 1,94,078 2,01,204 2,10,083 2,64,076 2,80,122
(as Per Cent of GDP) 5.9 5.2 4.7 4.2 4.7 4.5
(b) Total outstanding Liabilities
(adjusted) (Rs crore) 21,24,726 23,59,980 26,37,084 29,35,477 32,78,517 36,37,894
(as Per Cent of GDP) 65.6 63.7 61.6 59.3 58.8 59.0
(c) Internal Liabilities (Non-RBI)## 17,71,117 19,69,106 22,17,671 24,71,396 27,07,443 30,60,774
(as Per Cent of GDP) 54.7 53.1 51.8 49.9 48.6 49.7
(d) Outstanding Liabilities
(Non-RBI) ## (Rs crore) 19,62,299 21,63,184 24,18,875 26,81,479 29,71,519 33,40,896
Outstanding Liabilities (Non-RBI)
(as Per Cent of GDP) 60.6 58.4 56.5 54.2 53.3 54.2
(e) Contingent Liabilities of
Central Government (Rs crore) 1,07,957 1,10,626 1,09,826 1,04,872 n.a. n.a.
Contingent Liabilities of
Central Government
(as Per Cent of GDP) 3.3 3.0 2.6 2.1 n.a. n.a.
(f) Total Assets (Rs crore) 10,83,422 11,94,446 13,39,119 15,71,668 15,80,300 16,71,532
Total Assets
(as Per Cent of GDP) 33.4 32.2 31.3 31.8 28.3 27.1
Source: 1. Union Budget documents. 2. Controller of Aid Accounts and Audit. 3. Reserve Bank of India.
n.a. : not available.
* External debt figures represent borrowings by Central Government from external sources and are based
upon historical rates of exchange.
@ Converted at year-end exchange rates. For 2004-05, the rates prevailing at the end of March 2005 and so on.

# Internal debt includes net borrowing of Rs 64,211crore for 2004-05, Rs 29,062 crore for 2005-06, Rs 62,974
crore for 2006-07 Rs 1,70554 crore for 2007-08, Rs 88,773 crore for 2008-09(RE) and Rs 40,737 crore for 2009-
10(BE) under the Market Stabilisation Scheme.
## This includes marketable dated securities held by the RBI.
Note : The ratios to GDP at current market prices are based on the CSO’s National Accounts 2004-05 series.
 Fiscal Developments and Public Finance 53
Table 3.7 : Total expenditure and capital formation of the Central Government
(As per economic and functional classification of the Central Government budget)
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
(RE) (BE)
(Rs. crore)
I. Total Expenditure 4,63,831 5,01,083 5,70,185 6,88,908 8,87,032 10,00,019
II. Gross Capital Formation out of Budgetary
Resources of the Central Government 92,855 84,757 87,885 1,43,892 1,40,085 1,52,119
(i) Gross Capital Formation
by the Central Government 27,396 34,450 36,487 43,652 55,973 63,364
(ii) Financial Assistance for Capital Formation
in the Rest of the Economy 65,459 50,307 51,398 1,00,240 84,112 88,755
III. Gross Savings of the Central Government -60,378 -61,431 -33,918 13,674 -1,64,293 -2,07,747
IV. Gap(II-III) 1,53,233 1,46,188 1,21,803 1,30,218 3,04,378 3,59,866
Financed by
a. Draft on other Sectors of
the Domestic Economy 1,35,918 1,09,799 1,10,801 1,18,180 2,82,424 3,41,683
(i) Domestic Capital Receipts 2,08,259 1,30,687 1,06,284 1,45,351 2,52,440 3,41,683
(ii) Budgetary Deficit / Draw Down of -72,341 -20,888 4,517 -27,171 29,984 0
Cash Balance
b. Draft on Foreign Savings 17,315 36,389 11,002 12,038 21,954 18,183
(As per cent of GDP)
I. Total Expenditure 14.3 13.5 13.3 13.9 15.9 16.2
II. Gross Capital Formation out of Budgetary
Resources of Central Government 2.9 2.3 2.1 2.9 2.5 2.5
(i) Gross Capital Formation
by the Central Government 0.8 0.9 0.9 0.9 1.0 1.0
(ii) Financial Assistance for Capital Formation
in the Rest of the Economy 2.0 1.4 1.2 2.0 1.5 1.4
III. Gross Savings of the Central Government -1.9 -1.7 -0.8 0.3 -2.9 -3.4
IV. Gap(II-III) 4.7 3.9 2.8 2.6 5.5 5.8
Financed by
a. Draft on Other Sectors of Domestic Economy 4.2 3.0 2.6 2.4 5.1 5.5
(i) Domestic Capital Receipts 6.4 3.5 2.5 2.9 4.5 5.5
(ii) Budgetary Deficit / Draw Down of -2.2 -0.6 0.1 -0.5 0.5 0.0
Cash Balance
b. Draft on Foreign Savings 0.5 1.0 0.3 0.2 0.4 0.3
(increase over previous year)
II. Gross Capital Formation out of Budgetary
Resources of the Central Government 12.5 -8.7 3.7 63.7 -2.6 8.6
Memorandum Items (Rs crore)
1 Consumption Expenditure 1,05,692 1,16,305 1,21,609 1,31,396 1,72,637 2,19,553
2 Current Transfers 2,59,529 2,97,267 3,56,560 4,08,676 5,55,958 5,98,836
(As per cent of GDP)
1 Consumption Expenditure 3.3 3.1 2.8 2.7 3.1 3.6
2 Current Transfers 8.0 8.0 8.3 8.3 10.0 9.7
Source : Ministry of Finance, An Economic and Functional classification of the Central Government Budget-various issues.
Notes: (i) Gross capital formation in this table includes loans given for capital formation on a gross basis. Consequently
domestic capital receipts include loan repayments to the Central Government.
(ii) Consumption expenditure is the expenditure on wages and salaries and commodities and services for current
use.
(iii) Interest payments, subsidies, pension, etc. are treated as current transfers.
(iv) Gross capital formation and total expenditure are exclusive of loans to States/UTs against States’/UTs’ share in
the small savings collection.
(v) The figures of total expenditure of the Central Government as per economic and functional classification do not
tally with figures given in the Budget documents. In the economic and functional classification, interest transferred
to Departmental Commercial Undertakings, loans written off, etc. are excluded from the current account. In the
capital account, expenditure financed out of Railways, Posts &Telecommunications’ own funds, etc, is included.
(vi) The ratios to GDP at current market prices are based on the CSO’s National Accounts 2004-05 series.
54 Economic Survey 2009-10

3.32 On the revenue side, the Budget for 2009-10
estimated growth in gross tax revenue at 5.1 per
cent composed of a 9.4 per cent growth in direct
taxes and an envisaged growth of almost the same
level in indirect taxes. As per the data on Union
Government accounts released by the Controller
General of Accounts (CGA) for the year (April-
December 2009), gross tax revenue has declined
by 2.5 per cent, composed of a 13.2 per cent growth
in direct taxes and 20.4 per cent decline in indirect
taxes. The declining trend in revenue collection from
indirect taxes, which started in 2008-09, continues
in the current fiscal on account of the duty reductions
carried out between December 2008 and February
2009; that is the across-the-board excise duty
reduction by 4 percentage points on December 7,
2008 on non-petroleum products; further reduction
of the 10 per cent rate to 8 per cent on February 24,
2009; and reduction of service tax rate from 12 per
cent to 10 per cent, are now showing their full impact
on revenue collection during 2009-10. However, on a
month-on-month basis, the decline in gross tax
revenues is getting moderated. Though, year-on-year
non-tax revenue grew by 23.7 per cent in (April-
December) 2009-10, it constituted only 58.2 per cent
of the BE (Table 3.8). There is likely to be a shortfall

Table 3.8 : Central Government finances

Budget April-December Col.4 as Per cent
Estimate per cent of change
2009-10 2008-09 2009-10 2009-10 over
(BE) 2008-09
1 2 3 4 5 6
(Rs crore)
1. Revenue Receipts 6,14,497 3,75,937 3,89,271 63.3 3.5
Gross Tax Revenue 6,41,079 4,26,795 4,16,094 64.9 -2.5
Tax (Net to Centre) 4,74,218 3,09,927 3,07,591 64.9 -0.8
Non-Tax 1,40,279 66,010 81,680 58.2 23.7
2. Capital Receipts 4,06,341 2,21,279 3,18,269 78.3 43.8
of which:
Recovery of Loans 4,225 2,974 3,983 94.3 33.9
Other Receipts 1,120 43 4,306 384.5 9,914.0
Borrowings and other Liabilities 4,00,996 2,18,262 3,09,980 77.3 42.0
3. Total Receipts (1+2) 10,20,838 5,97,216 7,07,540 69.3 18.5
4. Non-Plan Expenditure (a)+(b) 6,95,689 4,26,419 4,97,381 71.5 16.6
(a) Revenue Account 6,18,834 4,03,758 4,60,970 74.5 14.2
of which:
Interest Payments 2,25,511 1,23,735 1,30,005 57.6 5.1
Major Subsidies 1,05,579 1,03,239 96,740 91.6 -6.3
Pensions 34,980 21,487 37,465 107.1 74.4
(b) Capital Account 76,855 22,661 36,411 47.4 60.7
5. Plan Expenditure (i)+(ii) 3,25,149 1,70,797 2,10,159 64.6 23.0
(i) Revenue Account 2,78,398 1,46,009 1,79,555 64.5 23.0
(ii) Capital Account 46,751 24,788 30,604 65.5 23.5
6. Total Expenditure (4)+(5)=(a)+(b) 10,20,838 5,97,216 7,07,540 69.3 18.5
(a) Revenue Expenditure 8,97,232 5,49,767 6,40,525 71.4 16.5
(b) Capital Expenditure 1,23,606 47,449 67,015 54.2 41.2
7. Revenue Deficit 2,82,735 1,73,830 2,51,254 88.9 44.5
8. Fiscal Deficit 4,00,996 2,18,262 3,09,980 77.3 42.0
9. Primary Deficit 1,75,485 94,527 1,79,975 102.6 90.4
Source: CGA, Ministry of Finance.

in the non-tax revenues on account of delay in
realization of spectrum auction proceeds. While
direct taxes could partially compensate for the
decline in excise, overall revenue marksmanship may
take a knock.
3.33 On the expenditure side, the CGA data reveal
that total expenditure in April-December grew by 18.5
per cent (as against the 15.8 per cent growth
envisaged by the BE) and as a proportion of the BE
for the year was placed at 69.3 per cent. Plan
expenditure grew by 23.0 per cent and was at 64.6
per cent of the BE in April-December 2009. Non-
Plan expenditure grew by 16.6 per cent (as against
the growth of 14.8 per cent envisaged by the BE)
and as a proportion of BE for the year was placed at
71.5 per cent. Growth in two components, namely
pensions and subsidies, has been faster than
envisaged by the BE. Fiscal and revenue deficits
were placed at 77.3 per cent and 88.9 per cent of
the BE respectively reflecting the developments in
revenue and expenditure in tandem (Table 3.9).
Fiscal Developments and Public Finance 55
above, the Commission has also been mandated
to review the state of finances of the Union and
States, keeping in view, in particular, the operation
of the States’ Debt Consolidation and Relief Facility
2005-2010 introduced by the Central Government
on the basis of the recommendations of the Twelfth
Finance Commission, and suggest measures for
maintaining a stable and sustainable fiscal
environment consistent with equitable growth.
Subsequently, the Commission was given additional
terms of reference including the mandate to review
the roadmap for fiscal adjustments and suggest a
suitably revised one with a view to maintaining the
gains of fiscal consolidation through 2010 to 2015
particularly considering the need to bring the
liabilities of the Central Government on account of
oil, food and fertilizer bonds into the fiscal
accounting, and the impact of various other
obligations of the Central Government on the deficit
targets. The TFC has since submitted its Report.
COLLECTION RATES

THE REPORT OF THE THIRTEENTH Trends in revenue collection in 2009-10

FINANCE COMMISSION (TFC)
3.34 The TFC was constituted in terms of the
Presidential Order November 13, 2007 to make
recommendations relating to tax devolution between
the Centre and States; grants-in-aid to States; and
measures needed to augment the Consolidated
Fund of a State to supplement the resources of the
Panchayats and Municipalities. In addition to the
3.35 Assessment of the levels of protection in
emerging economies with large differential in schedule
and effective rates of tariffs through headline
measures could be misleading and in such cases
alternative measures like collection rates could be
useful. Collection rates, which also include additional
duties and special additional duties, have declined
over the years and rule below-peak non-agricultural

Table 3.9 : Trends in cumulative finances of Central Government for 2009-10

(Rs. crore)
2009-10 April April- April- April- April- April- April- April- April-
BE May June July August Sept. Oct. Nov. Dec.

1. Revenue Receipts 6,14,497 11,846 32,178 71,995 1,05,378 1,57,198 2,44,471 2,84,479 3,07,125 3,89,271
Per Cent of BE 1.9 5.2 11.7 17.1 25.6 39.8 46.3 50.0 63.3
2. Capital receipts 4,06,341 54,371 90,989 1,24,976 1,59,866 1,86,125 2,04,377 2,52,382 3,14,547 3,18,269
3. Total Receipts 10,20,838 66,217 1,23,167 1,96,971 2,65,244 3,43,323 4,48,848 5,36,861 6,21,672 7,07,540
Per Cent of BE 6.5 12.1 19.3 26.0 33.6 44.0 52.6 60.9 69.3
4. Non Plan Expenditure 6,95,689 46,632 86,242 1,42,185 1,94,868 2,45,275 3,22,070 3,88,837 4,47,995 4,97,381
Per Cent of BE 6.7 12.4 20.4 28.0 35.3 46.3 55.9 64.4 71.5
5. Plan Expenditure 3,25,149 19,585 36,925 54,786 70,376 98,048 1,26,778 1,48,024 1,73,677 2,10,159
Per Cent of BE 6.0 11.4 16.8 21.6 30.2 39.0 45.5 53.4 64.6
6. Total Expenditure 10,20,838 66,217 1,23,167 1,96,971 2,65,244 3,43,323 4,48,848 5,36,861 6,21,672 7,07,540
Per Cent of BE 6.5 12.1 19.3 26.0 33.6 44.0 52.6 60.9 69.3
7. Revenue Expenditure 8,97,232 62,205 1,13,141 1,79,585 2,40,156 3,12,283 4,09,454 4,91,273 5,65,027 6,40,525
Per Cent of BE 6.9 12.6 20.0 26.8 34.8 45.6 54.8 63.0 71.4
8. Revenue Deficit 2,82,735 50,359 80,963 1,07,590 1,34,778 1,55,085 1,64,983 2,06,794 2,57,902 2,51,254
Per Cent of BE 17.8 28.6 38.1 47.7 54.9 58.4 73.1 91.2 88.9
9. Fiscal Deficit 4,00,996 54,158 90,758 1,24,302 1,58,554 1,82 ,290 1,97,775 2,45,075 3,06,221 3,09,980
Per Cent of BE 13.5 22.6 31.0 39.5 45.5 49.3 61.1 76.4 77.3
Source: CGA, Ministry of Finance.
56 Economic Survey 2009-10

Table 3.10 : Collection rates for selected import groups*

(per cent)
Sl. Commodity Group 2004-05 2005-06 2006-07 2007-08 2008-09
No. (Prov.)
1 Food Products 22 32 23 19 4
2 POL 10 6 5 6 3
3 Chemicals 22 20 22 22 16
4 Man-made fibres 39 34 28 30 17
5 Paper & newsprint 7 9 10 10 8
6 Natural fibres 11 13 12 13 6
7 Metals 26 25 24 24 17
8 Capital goods 16 13 14 16 13
9 Others 6 5 6 6 4
10 Non POL 12 12 12 13 9
11 Total 11 10 10 10 7
Source : Department of Revenue, Ministry of Finance.
Notes: * Collection rate is defined as the ratio of revenue collection (basic customs duty + countervailing duty) to value of
imports (in per cent) unadjusted for exemptions, expressed in percentage.
Sl. No. 1 includes cereals, pulses, tea, milk and cream, fruits, vegetables, animal fats and sugar.
Sl. No. 3 includes chemical elements, compounds, pharmaceuticals, dyeing and colouring materials, plastic and rubber.
Sl. No. 5 includes pulp and waste paper, newsprint, paperboards and manufactures and printed books.
Sl. No. 6 includes raw wool and silk.
Sl. No. 7 includes iron and steel and non-ferrous metals.
Sl. No. 8 includes non-electronic machinery and project imports, electrical machinery.

basic customs duties (Table 3.10 and Figure 3.9). incremental loading of 39.4 million tonnes over
Exemptions, both general and specific, are a major the 2007-08 level. The freight movement of the
reason for the difference between headline tariffs and Railways was impacted by the slowdown in the
collection rates. Besides, reduction in excise duty economy in the second half of fiscal 2008-09 and
rates has also affected customs duty collection on the year-end achievement was short of the revised
account of reduced revenue from additional customs target by around 17 million tonnes. However,
duty, commonly known as CVD on imports. freight revenues for the fiscal were placed at Rs
53,433 crore reflecting a growth of 12.6 per cent
PERFORMANCE OF THE DEPARTMENTAL over the 2007-08 level. The overall traffic revenues
ENTERPRISES OF THE CENTRAL for 2008-09 were placed at Rs 79,837 crore, which
GOVERNMENT implied a growth of 11.4 per cent over 2007-08.
Taking into account a clearance of Rs 25 crore
Railways from traffic outstanding, the gross traffic receipts
3.36 With a freight loading of 833.3 million of the Railways for 2008-09 were placed at Rs
tonnes in 2008-09, Indian Railways achieved an 79,862 crore.
Figure 3.9 Collection rates for selected import groups
70
60 Total
50
Food
Per cent

40 products
30
POL
20
10 Capital
goods
0
1990-01

1995-96

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09 (Prov)

Year

3.37 Ordinary working expenses at Rs 54,349
crore in 2008-09 grew by 32.5 per cent. This higher
growth rate in ordinary working expenses is primarily
attributable to increase in staff cost on account of
implementation of the Sixth Central Pay
Commission award including payment of 40 per
cent arrears. The total working expenses including
appropriations to Depreciation Reserve Fund and
Pension Fund at Rs 71,839 crore reflect an
increase of 31.9 per cent over the previous year.
Taking into account the net variations of the
miscellaneous receipts and miscellaneous
expenditure, Railways’ net revenues in 2008-09
work out to Rs 9,175 crore.
3.38 Railways fully discharged the dividend liability
for 2008-09, which amounted to Rs 4,718 crore. After
payment of total dividend from the net revenues
earned, Railways in 2008-09 generated a net surplus
of Rs 4,457 crore. Lower growth of traffic revenues
on account of the slowdown in the economy coupled
with a sharp rise in staff cost due to implementation
of the Sixth Central Pay Commission award
adversely affected the financial health of the Railways
in 2008-09. Thus the operating ratio deteriorated to
90.5 per cent from 75.9 per cent in the previous year.
The net revenues as a proportion of capital-at-charge
and investment from capital fund for the fiscal worked
out to 8.8 per cent.
3.39 The Plan outlay for 2008-09 stood at Rs
36,856 crore including internally generated resources
of Rs 18,942 crore, that is 51 per cent of the total
outlay and market borrowings of Rs 7,804 crore by
the Indian Railway Finance Corporation which also
included borrowings of Rail Vikas Nigam Limited
amounting to Rs 293 crore. Apart from strengthening
of the golden quadrilateral under the National Rail
Vikas Yojana, certain important projects and work
on dedicated freight corridors are in progress.
Railways has also started work on setting up of some
mega workshops to meet its rolling stock
requirements. Railways is also modernizing and
upgrading its systems to augment rail services.
Department of posts
3.40 Gross receipts of the Department of Posts in
2008-09 were Rs 5,862 crore. Net working expenses
during the year were Rs 9,455 crore, resulting in a
deficit of Rs 3,593 crore. In BE 2009-10, gross receipts
are budgeted to go up to Rs 6,136 crore and net
working expenses estimated at Rs 11,768 crore. The
deficit is thus projected to be Rs 5,632 crore.
Fiscal Developments and Public Finance 57
3.41 India Posts is the largest postal network in
the world, with one post office serving 7,174 people
and covering an area of approximately 21.2 sq. km.
It provides access to postal services at affordable
prices to all citizens in the country through its vast
network, which has grown from 23,344 post offices
at the time of Independence to 1,55,035 post offices
as on March 31, 2008. Of the total, 1,39,173 post
offices are in rural areas and 15,862 in urban areas.
Rapid economic development led to increasing
demand for postal services. To cater to this, India
Posts plans to open 400 new post offices in rural
areas and relocate 300 post offices to areas with
greater demand for postal services in 2010-11. India
Posts has introduced franchisee outlets to cater to
this demand where it is not possible to open
departmental post offices. So far, 850 franchised
outlets have been opened and 3,200 more are
planned in 2010-11. The Department of Posts has
launched ‘Project Arrow’, a pilot project to lay the
foundation for a comprehensive, long-term
transformation of India Posts. The project aims at
providing fast, reliable and efficient postal services
to the customers, transforming India Posts into a
vibrant and responsive organization with a clear focus
on social obligations as well. Out of a total of 25,531
departmental post offices, 12,604 post offices have
been computerized. Of these, 1,304 have so far been
networked through leased lines with the National Data
Centre. The Department of Posts has been given
the responsibility to disburse wages to NREGS
beneficiaries through Post Office Savings Bank
accounts. Nearly 4 crore NREGS accounts have
been opened up to November 2009, and the amount
disbursed in this financial year alone to more than
Rs 5,600 crores. The Department of Posts has been
assisting other public authorities under the Central
Government in implementing the Right to Information
(RTI) Act by providing services of its designated
Central Assistant Public Information Officers.
Broadcasting
3.42 Prasar Bharati, a public service broadcaster
gives due priority to matters of national importance
as determined by the Government of the day. Total
expenditure of Prasar Bharati in 2008-09 was Rs
2,518.9 crore excluding charges on account of space
segment, spectrum charges and interest and
depreciation costs. Total receipts were Rs 1,261.3
crore (gross) and Rs 1,096.8 crore (net) in 2008-09.
Prasar Bharati has taken a number of steps to
increase revenue generation through aggressive
58 Economic Survey 2009-10
marketing and content improvement. Nine marketing
divisions functioning at Mumbai, Delhi, Kolkata,
Chennai, Kochi, Guwahati, Hyderabad, Bangalore
and Thiruvananthapuram cater to the advertising
needs of All India Radio and Doordarshan through a
single-window facility. Introducing digital technology
including Digital Terrestrial Transmission (DTT) and
television on mobile, expansion of Direct to Home
(DTH) service of DD-Direct+ to 97 free-to-air channels
would further improve Doordarshan services.
Digitalization of transmitters, studios and connectivity
would cover 70 per cent of the total population of
India under All India Radio Network. Prasar Bharati
is the host broadcaster during the forthcoming
Commonwealth Games to be held in New Delhi in
2010. As such, Prasar Bharati will be providing
coverage to various sports events as per international
standards for relay by the member countries of the
Commonwealth. Commonwealth Games 2010 will
give Prasar Bharati an opportunity to introduce
modern high definition television (HDTV) technology
to cover sports events. However, a resource gap
continues to exist and a budget of Rs 2,079.1 crore
(including the Commonwealth Games) has been
allocated in 2009-10 (BE) to cover the resource gap
of Prasar Bharti.
FINANCES OF STATE GOVERNMENTS
3.43 Following the adoption of fiscal responsibility
legislations (FRLs), the combined finances of the
States exhibited a faster than anticipated turnaround
in 2005-06 with the level of fiscal deficit at 2.4 per
cent of the GDP. There were, however, large variations
amongst States with Assam having a fiscal surplus
of 0.6 per cent of the gross State domestic product
(GSDP) and Mizoram having a high fiscal deficit of
14.7 per cent of the GSDP in 2005-06. States
combined posted a revenue surplus in 2006-07. The
record of fiscal consolidation of the States combined
was indeed remarkable and was facilitated by the
growth in their own revenues following the successful
adoption of State-level value-added tax (VAT), the
buoyancy in Central taxes, the higher levels of
transfers and the scheme of Debt Consolidation and
Waiver linked to fiscal consolidation.
3.44 In 2008-09, there was a growth of 15.3 per
cent in States’ own tax revenues and 26.6 per cent
in non-tax receipts (Table 3.11). However, with higher
levels of disbursements, which grew by 26 per cent,
fiscal deficit went up to a level of 2.6 per cent of the
GDP but was still well below the 3.0 per cent level
mandated by the FRLs (Figure 3.10). With the
relaxation in State-level fiscal targets to obviate the
adverse impact of the global crisis, revenue deficit of
0.6 per cent of the GDP and fiscal deficit of 3.2 per
cent of the GDP has been budgeted in 2009-10.
STATE-LEVEL REFORMS
3.45 The Debt Consolidation and Relief Facility
(DCRF) has two components: (i) consolidation of
Central loans (from the Ministry of Finance)
contracted till March 31,2004 and outstanding as
on March 31,2005 and (ii) provision of interest relief
and grant of debt waiver to States based on their
fiscal performance. Consolidation of Central loans
has given interest relief to States. Debt waiver is
granted to States based on their fiscal performance,
for which an assessment is made annually. Benefits
under the DCRF helped States by easing debt and
interest pressures and also incentivized States to
follow the path of fiscal correction. The Government
of India relaxed the fiscal deficit target for States for
2009-10 from 3 per cent to 4 per cent of States’
respective GSDP, to enable States to borrow up to 4
per cent of their GSDP as projected under the DCRF
guidelines, to undertake capital expenditure.
3.46 So far, Central loans to 26 out of 28 States
have been consolidated to the extent of
Rs 1,13,601.1 crore. Debt consolidation provided
interest relief to these 26 States to the extent of Rs
4,392 crore, Rs 3,995 crore, Rs 3,903 crore,
Rs 3,452.6 crore and Rs 2,945.7 crore in 2005-06,
2006-07, 2007-08, 2008-09 and 2009-10 respectively
as against the Twelfth Finance Commission’s (TFC)
estimates of Rs 4,562 crore, Rs 4,256.8 crore,
Rs 3,937.8 crore, Rs 3,492.7 crore and Rs 3,000.16
crore respectievly. The difference is due to the fact
that consolidations have been carried out for these
States over five years as and when FRBMAs were
enacted in line with the recommendations laid down
by the TFC in this regard.
3.47 The second component of the DCRF is debt
waiver. Consolidated debt of 15 States in 2005-06
amounting to Rs 3,984.4 crore was waived; for 2006-
07 debt of 23 States amounting to Rs 5,007.5 crore
was waived; and for 2007-08, debt of 23 States
amounting to Rs 5514.0 crore was waived; for 2008-
09 debt of 20 States to the extent of Rs 5153.8 crore
was waived; and for 2009-10 debt of eight States
amounting to Rs 2379.7 crore was waived. Thus,
 Fiscal Developments and Public Finance 59
Table 3.11 : Receipts and disbursements of State Governments*
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
(RE) (BE)
(Rs crore)
I. Total Receipts(A+B) 5,63,660 5,95,629 6,73,604 7,47,365 9,05,382 10,02,710
A. Revenue Receipts (1+2) 3,63,512 4,31,022 5,30,555 6,10,262 7,22,055 7,85,046
1. Tax Receipts 2,60,577 3,06,332 3,72,841 4,34,232 4,99,132 5,47,368
of which:
State’s Own Tax Revenues 1,82,027 2,12,307 2,52,548 2,84,169 3,27,711 3,63,511
2. Non-tax Receipts 1,02,935 1,24,690 1,57,714 1,76,030 2,22,923 2,37,678
of which:
Interest Receipts 8,648 9,380 11,825 12,643 16,551 12,989
B. Capital Receipts 2,00,148 1,64,607 1,43,049 1,37,103 1,83,327 2,17,664
of which:
Recovery of Loans & Advances 8,039 8,904 7,579 7,798 11,666 4,906
II. Total Disbursements(a+b+c) 5,53,427 5,61,682 6,57,281 7,31,680 9,21,673 10,34,426
a) Revenue 4,02,670 4,38,034 5,05,699 5,66,856 7,14,718 8,22,104
b) Capital 1,34,235 1,09,224 1,37,793 1,51,006 1,90,316 1,98,599
c) Loans and Advances 16,522 14,424 13,789 13,818 16,639 13,723
III. Revenue Deficit 39,158 7,012 -24,856 -43,406 -7,337 37,058
IV. Gross Fiscal Deficit 1,07,774 90,084 77,508 68,572 1,43,924 1,97,186
(As per cent of GDP)
I. Total Receipts(A+B) 17.4 16.1 15.7 15.1 16.2 16.3
A. Revenue Receipts (1+2) 11.2 11.6 12.4 12.3 13.0 12.7
1. Tax Receipts 8.0 8.3 8.7 8.8 9.0 8.9
of which:
States’ Own Tax Revenues 5.6 5.7 5.9 5.7 5.9 5.9
2. Non-tax Receipts 3.2 3.4 3.7 3.6 4.0 3.9
of which:
Interest Receipts 0.3 0.3 0.3 0.3 0.3 0.2
B. Capital Receipts 6.2 4.4 3.3 2.8 3.3 3.5
of which:
Recovery of Loans & Advances 0.2 0.2 0.2 0.2 0.2 0.1
II. Total Disbursements(a+b+c) 17.1 15.2 15.3 14.8 16.5 16.8
a) Revenue 12.4 11.8 11.8 11.5 12.8 13.3
b) Capital 4.1 2.9 3.2 3.1 3.4 3.2
c) Loans and Advances 0.5 0.4 0.3 0.3 0.3 0.2
III. Revenue Deficit 1.2 0.2 -0.6 -0.9 -0.1 0.6
IV. Gross Fiscal Deficit 3.3 2.4 1.8 1.4 2.6 3.2
Source: Reserve Bank of India.
* Data from 2007-08 pertains to 27 State Governments, of which two are Vote on Accounts.
Notes: 1. The ratios to GDP at current market prices are based on the CSO’s National Accounts 2004-05 series.
2. Capital receipts include public accounts on a net basis.
3. Capital disbursements are exclusive of public accounts.
4. Negative (-) sign indicates surplus in deficit indicators.

Figure 3.10 Revenue and fiscal deficit of states

4
Per cent of GDP

3 Gross fiscal
deficit
2
1
Revenue
0 deficit
-1
-2
2004-05

2005-06

2006-07

2007-08

2008-09 (Prov)

2009-10 (BE)

Year
60 Economic Survey 2009-10
from 2005 to 2009, States have been granted debt
waivers for an aggregate amount of Rs 22,039.4 crore
and interest relief of Rs 18,688.5 crore.
VAT
3.48 VAT has been successfully introduced by all
the States. The introduction of VAT by States resulted
in good growth in State’s own tax revenue in the last
few years. During 2008-09, growth in tax revenue in
33 VAT States/UTs was 14.4 percent in the revenue
from VAT items. Under the specific scheme evolved
for the purposes to facilitate introduction of VAT, the
Central Government compensated the revenue
losses at the rate of 100 percent of revenue loss
during 2005-06, 75 percent during 2006-07 and 50
percent during 2007-08. An amount of Rs 2,558 crore
has already been released to States till December
31, 2009 in the financial year 2009-10, so far. A total
amount of Rs.17,364 crore has been released to the
states so far under this scheme.
Central sales tax reforms
3.49 Central Government in consultation with the
Empowered Committee of State Finance Ministers
(Empowered Committee of State Finance Ministers)
chalked out the roadmap for phasing out Central
Sales Tax (CST) to coincide with the introduction of
the proposed GST, which included the critical
component of compensating the States for 5the
resultant revenue losses. The scheme finalized in
consultation with the Empowered Committee of Stats
provides for new revenue generating measures for
States as the primary source of compensation. It
also provides for meeting 100 percent of the residuary
losses to a State, if any, thereafter, through the
budgetary resources of the Centre. An amount of
Rs.5,979 crore has been released to the States till
December 31, 2009 in financial year 2009-10. A
total amount of Rs.10,098 crore has been released
to the States so far on account of CST compensation
claims of States for financial years 2007-08 and 2008-
09.
GST
3.50 In the Budget for 2007-08, an announcement
was made to the effect that GST would be introduced
from April 1, 2010, and that the Empowered
Committee of State Finance Ministers would work
with the Central Government to prepare a road map
for introduction of GST. The Empowered Committee
of State Finance Ministers prepared a report on a
model and road map for GST. The comments of
Government of India on the proposed design of GST
have been sent to the Empowered Committee of
State Finance Ministers in January 2010. A joint group
of officers has been constituted to prepare draft
Constitutional bill, CGST legislation, model SGST
legislation and rules required to introduce GST
(Box 3. 2).
Box 3.2 : First Discussion Paper on GST in
India
Design
Some of the key features of the proposed model as
proposed by the Discussion Paper are as follows:
z The GST is to have two components-Central GST and
State GST—with separate rates, reflecting revenue
considerations and acceptability. This dual GST
model would be implemented through multiple
statutes (one for the CGST and an SGST statute for
every State).
z The Central GST and the State GST would apply to
all transactions of goods and services (with some
specified exceptions).
z The Central GST and State GST are to be paid to the
accounts of the Centre and the States separately.
z Cross-utilization of input tax credit (ITC) between
the Central GST and the State GST not to be allowed
except in the case of inter-State supply of goods and
services under the Inter-State Goods and Service Tax
(IGST) model.
z Uniform State GST threshold of gross annual turnover
of Rs10 lakh both for goods and services for all the
States and Union Territories to be be adopted with
adequate compensation for States (particularly north-
eastern region States and special category States)
where lower threshold had prevailed in the VAT
regime.
z Each taxpayer to be allotted a PAN-linked taxpayer
identification number with a total of 13/15 digits.
The proposed GST, as per the Discussion Paper,
subsumes the following taxes/duties of the Centre: central
excise; additional excise duties; service tax; additional
and special additional customs duties; surcharges and
cesses. The following State taxes and levies would also
be subsumed under the GST: VAT / sales tax;
entertainment tax (unless it is levied by local bodies);
luxury tax; taxes on lottery, betting and gambling; State
cesses and surcharges in so far as they relate to supply of
goods and services; entry tax not in lieu of octroi.
GST Rate Structure
A two-rate structure –a lower rate for necessary items
and goods of basic importance and a standard rate for
goods in general—proposed with a special rate for
precious metals and a list of exempted items. Exports
would be zero-rated. The GST will be levied on imports
with necessary Constitutional Amendments.

CONSOLIDATED GENERAL
GOVERNMENT
3.51 The full picture of public finances and their
impact on the macroeconomy is best analysed
through the levels of deficits in the consolidated
General Government. As a proportion of the GDP,
revenue receipts of the consolidated General
Government rose from a level of 19.0 per cent in
Fiscal Developments and Public Finance 61
2004-05 to reach a level of 21.2 per cent in 2007-
08. They were budgeted at 20.5 per cent in 2009-
10(BE). With total disbursements remaining at
more or less the same levels in four years ending
2007-08, the combined revenue and fiscal deficit
came down (Table 3.12). In fact the combined levels
of deficit were much lower than the levels (sum of
Centre and States) mandated by the FRBMA and
State-level FRLs. Reflecting the overall expansion

Table 3.12 : Receipts and disbursements of consolidated General Government

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
(RE) (BE)
(Rs crore)
I. Total Receipts(A+B) 8,88,345 10,14,689 11,25,499 13,11,589 16,42,815 18,39,239
A. Revenue Receipts (1+2) 6,15,644 7,07,054 8,77,075 10,48,406 11,66,470 12,65,947
1. Tax Receipts 4,92,481 5,76,596 7,24,023 8,73,779 9,65,102 10,21,585
2. Non-tax Receipts 1,23,163 1,30,458 1,53,052 1,74,627 2,01,368 2,44,362
of which:
Interest Receipts 19,223 18,735 21,744 22,590 23,738 20,614
B. Capital Receipts 2,72,701 3,07,635 2,48,424 2,63,183 4,76,345 5,73,292
of which:
a) Disinvestment Proceeds 4,424 1,590 2,440 45,750 7,881 3,336
b) Recovery of Loans & Advances 14,968 11,651 -773 4,710 13,238 6,582
II. Total Disbursements(a+b+c) 8,69,757 9,59,855 11,09,174 12,95,903 16,59,109 18,70,955
a) Revenue 7,30,405 8,06,366 9,32,441 10,57,569 14,00,408 15,85,740
b) Capital 1,13,304 1,32,585 1,57,316 2,19,853 2,34,906 2,64,796
c) Loans and Advances 26,048 20,904 19,417 18,481 23,795 20,419
III. Revenue Deficit 1,14,761 99,312 55,366 9,163 2,33,938 3,19,793
IV. Gross Fiscal Deficit 2,34,721 2,39,560 2,30,432 1,97,037 4,71,520 5,95,090
(As per cent of GDP)
I. Total Receipts(A+B) 27.4 27.4 26.3 26.5 29.5 29.8
A. Revenue Receipts (1+2) 19.0 19.1 20.5 21.2 20.9 20.5
1. Tax Receipts 15.2 15.6 16.9 17.7 17.3 16.6
2. Non-tax Receipts 3.8 3.5 3.6 3.5 3.6 4.0
of which:
Interest Receipts 0.6 0.5 0.5 0.5 0.4 0.3
B. Capital Receipts 8.4 8.3 5.8 5.3 8.5 9.3
of which:
a) Disinvestment Proceeds 0.1 0.0 0.1 0.9 0.1 0.1
b) Recovery of Loans & Advances 0.5 0.3 0.0 0.1 0.2 0.1
II. Total Disbursements(a+b+c) 26.9 25.9 25.9 26.2 29.8 30.4
a) Revenue 22.5 21.8 21.8 21.4 25.1 25.7
b) Capital 3.5 3.6 3.7 4.4 4.2 4.3
c) Loans and Advances 0.8 0.6 0.5 0.4 0.4 0.3
III. Revenue Deficit 3.5 2.7 1.3 0.2 4.2 5.2
IV. Gross Fiscal Deficit 7.2 6.5 5.4 4.0 8.5 9.7

Source : Reserve Bank of India.

Note : The ratios to GDP at current market prices are based on CSO’s National Accounts 2004-05 series.
62 Economic Survey 2009-10

Figure 3.11 Combined (centre and states) revenue and fiscal deficit
12
Per cent of GDP

10 Gross Fiscal
Deficit
8
6
Revenue
4 Deficit
2
0
2004-05

2005-06

2006-07

2007-08

2008-09

2009-10(BE)
(Prov)
Year

to stimulate demand, fiscal and revenue deficit for
2009-10 (BE) is placed at 9.7 and 5.2 per cent of
the GDP (Figure 3.11).
OUTLOOK
3.52 Based on the trends available for April-
December 2009, there is likely to be a shortfall in
revenue receipts on account of the large decline in
indirect taxes like customs and excise and the
likely lower-than-budgeted non-tax revenues. With
some expenditure restraint, as a proportion of the
GDP, it might still be possible to contain the deficit
at budgeted levels. While the current year’s
performance is relevant mainly in the context of
fiscal marksmanship given the expansionary
stance, it is the medium-term prospect that is really
important. The largely structural nature of fiscal
deficits in India, the levels of recovery in the
economy and the sustainability of the recovery
without fiscal stimulus call for resumption of the
process of fiscal consolidation in a gradual manner.
The Report of the Thirteenth Finance commission
has provided an assessment of the state of public
finances and the broad direction of fiscal
consolidation by the Centre and States. Going
forward, the nature of the fiscal consolidation –
whether it should rely on revenue growth, which is
in turn linked to the growth recovery, or on greater
expenditure cuts— are important in the traditional
incremental adjustment process; but lasting fiscal
consolidation could accrue with reforms in the
design and delivery of Plan schemes, outcome
focus of expenditure and institutional reforms.
Prices and Monetary
Management
4
CHAPTER

The movements in the rate of inflation reflect changes in demand and supply
conditions in the economy. Inflation management therefore, involves controlling
the demand situation as well as reining in inflationary expectations through various
monetary measures. On the supply side it would encompass various administrative
and fiscal measures. The first half of the financial year 2008-09 was marked by
high wholesale price index (WPI)-based inflation, primarily due to the rise in global
commodity and fuel prices. The subsequent global economic meltdown starting
September 2008 reversed the trend and WPI inflation slipped into negative territory
during June to August 2009. This was due to the decline in commodity prices globally
and the base effect. As regards food inflation, the upswing noticed in the first quarter
of 2008-09, continued during 2009-10 due to unfavourable south-west monsoon,
the worst since 1972. Though the current spectre of double-digit inflation in food
articles is ascribable to supply-side constraints, it is necessary to ensure that the
monetary policy stance does not lead to pressure on prices. The RBI has, therefore,
initiated calibrated changes in rates to mop up the prevalent excess liquidity in the
system through the second and third quarter reviews wherein increases in statutory
liquidity ratio (SLR) and cash reserve ratio (CRR) respectively were announced.
Suitable fiscal and administrative measures are also being taken by the Government
to contain the food price inflation and preventing it from spilling over to generalised
inflation.

PRICES corresponding period of the last year. WPI inflation,

4.2 Monthly changes in headline inflation, year-
on-year, measured in terms of the wholesale price
index (WPI) exhibited significant volatility during
financial year 2008-09 and varied from 1.20 per cent
in March 2009 to 12.82 per cent in August 2008.
The volatility continues during the current financial
year (2009-10). There is, however, fundamental
difference in the reasons for volatility observed last
year and those seen this year. The volatility observed
in the first half of 2008-09 was due to increasing
international fuel and commodity prices which
pushed WPI inflation to a high of 12.8 per cent. The
subsequent decline in WPI inflation in the second
half of 2008-09 was due to falling international fuel
and commodity prices. International fuel and
commodity prices stabilized in the first half of 2009-
10 but at a relatively lower level than in the
however, continued to fall during the first half of 2009-
10 due to the high base achieved last year during
this period, and moved to negative zone from July
to August 2009. From September, 2009 onwards
WPI inflation has been rising at a very fast clip
largely because of increase in the prices of food
items, both primary and manufactured, and non-
food agricultural items. Apprehensions of shortages
in agricultural production due to a deficient south-
west monsoon this year are mainly responsible for
increasing inflation. Average food inflation which
was 7.56 per cent during fiscal 2008-09 increased
to 13.54 per cent in the period April to December
2009. Overall food inflation in December 2009 was
19.77 per cent. However, it appears to have reached
its peak in December 2009 and is expected to
moderate herefrom and also stabilize overall WPI
on account of the likely impact of several measures
64 Economic Survey 2009-10

taken by the Government to contain food price
inflation.
Average annual trends in WPI inflation
4.3 The years of relatively high average annual
inflation, above 5.5 per cent, in this decade have
been 2000-01, 2004-05 and 2008-09. All these were
years of high fuel prices. The year 2004-05, however,
also witnessed high inflation in manufactured
products because of high growth in the gross
domestic product (GDP) in this sector leading to
high demand and high prices of raw materials such
as basic metal alloys and metal products, non-
metallic mineral products and machinery and
machine tools. The year 2008-09 was different from
the earlier two years as high inflation was witnessed
in all the three sectors primarily because of high
international fuel and commodity prices including of
food items, reflective of gradual linking of the Indian
economy with the world (Table 4.1). The year 2009-
10 is totally out of sync with the trends seen in
earlier years with overall average inflation (April to
December) being low at 1.63 per cent and average
inflation in the primary and fuel groups being 8.78
per cent and - 6.35 per cent respectively.
Recent monthly trends in WPI inflation
4.4 Based on rising international fuel and
commodity prices and high domestic demand,
inflation in the fuel and manufactured groups started
accelerating from November 2007. The year 2008-
09 started with 8.0 per cent WPI inflation, reached
a peak of 12.8 per cent in August 2008 and declined
thereafter due to falling international commodity
prices. The year 2009-10 started with a low headline
WPI inflation of 1.3 per cent in April 2009, which
moved into the negative zone during June to August
2009 and was reported to be 7.31 per cent in
December 2009 (Table 4.2). The increase in overall
inflation since September 2009 is primarily due to
rise in prices of primary articles, particularly food
items, due to a deficient monsoon and expectations
of shortage. Lately, a rising trend in food prices has
also been observed in the global market, particularly
in prices of sugar, palm oil, soyabean and tea.
Disaggregated analysis of WPI average
inflation
4.5 Each major group in the WPI commodity
basket is further disaggregated on the basis of use.
Analysis at this level has assumed importance in

Table 4.1 : Annual average inflation rate based WPI (per cent)
Year Primary Fuel, power, Manufactured All
articles light & lubri. products commodities
Weights (%) 22.02 14.23 63.75 100.00
2000-01 2.8 28.5 3.3 7.2
2001-02 3.6 8.9 1.8 3.6
2002-03 3.3 5.5 2.6 3.4
2003-04 4.3 6.4 5.7 5.5
2004-05 3.7 10.1 6.3 6.5
2005-06 2.9 9.5 3.1 4.4
2006-07 7.9 5.6 4.4 5.4
2007-08 7.6 0.9 5.0 4.7
2008-09 10.1 7.5 8.1 8.4
2008-09(Apr.-Dec.) 10.93 11.32 9.47 10.20
2009-10(Apr.-Dec.)P 8.78 -6.35 1.77 1.63
Source : Department of Industrial Policy & Promotion.
P : Provisional.

Table 4.2 : WPI inflation during 2008-09 and 2009-10 (per cent)
Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.
2008-09 8.0 8.9 11.8 12.4 12.8 12.3 11.1 8.5 6.2 4.9 3.5 1.2
2009-10 1.3 1.4 -1.0 -0.5 -0.2 0.5 1.5 4.8 7.3
Source : Department of Industrial Policy & Promotion.
Note: WPI is provisional for November and December 2009.

view of the fact that the current phase of relatively
high inflation is concentrated in food items which is
a subset of the primary group. Table 4.3 provides
trends in disaggregated annual inflation at sub-sector
level based on use. The high food inflation during
the current financial year, both in the primary and
manufactured groups, is marked. Another apparent
fact that emerges is the relatively high inflation
observed during the last five years in the minerals
group. This indicates a demand-supply mismatch
in the mining sector fuelled by rise in international
prices of minerals and high growth rates achieved.
The moderation in prices in this sector during the
current financial year is because of the slowdown in
domestic and international demand.
Food Inflation
4.6 For purposes of computing the food index,
the components of food articles in the primary
articles group and manufactured food products in
the manufactured products group are clubbed. The
overall weight of the composite food index in the
WPI is 25.43 per cent, which comprises primary
Prices and Monetary Management 65
food articles with a weight of 15.40 per cent and
manufactured food products with a weight of 10.03
per cent (after adjusting for oil cakes, weight= 1.42
per cent, and cattle feed, weight= 0.01per cent). A
quarter-wise analysis of food inflation in the current
WPI series (Base Year 1993-94=100), during the
last 15 years, reveals that before the current spell
of high food inflation, there were two earlier episodes
in the fourth quarter (Q4) of 1996-97 (13.6 per cent)
and third quarter Q3 of 1998-99 (17.1 per cent). The
high inflation in 1996-97 was due to increase in prices
of rice, wheat, gram and fruits & vegetables. High
fuel prices in the international market also
contributed to the higher food prices by increasing
transportation costs. The spike in food prices in
1998-99 was in the aftermath of implementation of
the Fourth Pay Commission recommendations
leading to a demand-supply gap. During this year,
High inflation was reported in the case of onions
and potatoes among vegetables, pulses, rice and
wheat. Among manufactured products high prices
were reported in the case of edible oils but sugar
prices were stable. The current spell of high food

Table 4.3 : Annual average inflation by major heads in WPI (per cent)
Weight 2004- 2005- 2006- 2007- 2008- 2008- 2009-
Commodities (%) 05 06 07 08 09 09(Apr.- 10 (Apr.-
Dec.) Dec.)P
All Commodities 100.00 6.48 4.43 5.42 4.66 8.39 10.20 1.63
I Primary Articles 22.03 3.69 2.87 7.85 7.61 10.06 10.93 8.78
A. Food Articles 15.40 2.70 4.83 7.78 5.46 8.02 7.57 13.31
B. Non-Food Articles 6.14 0.70 -4.48 5.14 12.64 11.17 14.24 0.43
C Minerals 0.48 110.31 26.54 28.13 13.20 34.90 45.53 -5.51
II Fuel, Power, Light & Lubricants 14.23 10.14 9.49 5.61 0.93 7.46 11.32 -6.35
A. Coal Mining 1.75 15.34 3.72 0.00 2.68 6.60 9.08 -0.91
B. Minerals Oils 6.99 15.17 13.93 7.87 0.95 11.08 17.17 -10.12
C. Electricity 5.48 1.73 4.07 3.15 0.48 1.06 1.40 -0.08
III Manufactured Products 63.75 6.26 3.07 4.43 4.97 8.09 9.47 1.77
A. Food Products 11.54 4.98 1.09 3.22 4.27 10.04 10.59 15.49
B. Beverages, Tobacco & its Products 1.34 5.26 4.85 7.36 10.27 9.50 9.53 5.25
C. Textiles 9.80 3.04 -4.50 2.16 -0.98 5.95 4.96 4.18
D. Wood & Wood Products 0.17 0.06 8.41 6.01 4.65 8.34 8.30 1.62
E. Paper & Paper Products 2.04 0.75 2.23 6.83 1.84 4.38 4.23 1.04
F. Leather & Leather Products 1.02 5.99 7.13 -4.38 4.14 1.08 0.83 -0.99
G. Rubber & Plastic Products 2.39 -0.37 3.42 6.61 7.15 4.66 5.47 1.79
H. Chemicals & their Products 11.93 2.54 3.58 3.03 5.57 7.23 8.85 3.20
I. Non-Metallic Mineral Products 2.52 6.34 7.80 12.82 8.86 3.74 4.32 3.27
J. Basic Metal Alloys & Products 8.34 21.16 7.43 6.82 6.86 14.44 19.65 -12.67
K. Machinery & Machine Tools 8.36 5.65 5.14 5.56 7.07 4.74 5.44 -1.34
L. Transport Equipment & Parts 4.29 4.68 3.63 1.56 2.71 5.22 6.09 0.05
Source: Department of Industrial Policy & Promotion.
P: Provisional.
66 Economic Survey 2009-10

Figure 4.1 Trends in quarterly WPI inflation (per cent)

18
16 WPI -
all commo-
14 dities
Inflation (Per cent)

12
10 WPI -
total food
8 items
6
4
2
0
-2
1995-96

1996-97

1997-98

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10
Year

inflation is across board for all food items except declining after reaching its peak in July 2009.
edible oils (Figure 4.1). Specifically, very high inflation (Figure 4.2)
can be observed in the case of sugar, pulses,
vegetable & fruits and cereals. Food inflation in CPIs and WPI
4.8 Food inflation based on WPI and CPIs has
Annual inflation as per different price been rising since April 2009 (Table 4.5) and does
indices not reflect any significant divergence (Figure 4.3).
4.7 Inflation measured in terms of the consumer
price indices (CPIs), has remained higher than WPI Main drivers of inflation
inflation in the last 14 months (November 2008- 4.9 Besides the commodity-wise figures, the
December 2009) (Table 4.4). The divergence weight contributions of different commodities to total
between the WPI and CPI (IW) still continues but is inflation also give an indication of the drivers of

Table 4.4 : Annual inflation as per different price indices (per cent)
Month WPI CPI-IW CPI-UNME CPI-AL CPI-RL
2008- 2009- 2008- 2009- 2008- 2009- 2008- 2009- 2008- 2009-
09 10 09 10 09 10 09 10 09 10
April 8.0 1.3 7.8 8.7 7.0 8.8 8.9 9.1 8.6 9.1
May 8.9 1.4 7.8 8.6 6.8 9.7 9.1 10.2 8.8 10.2
June 11.8 -1.0 7.7 9.3 7.3 9.6 8.8 11.5 8.7 11.3
July 12.4 -0.5 8.3 11.9 7.4 13.0 9.4 12.9 9.4 12.7
August 12.8 -0.2 9.0 11.7 8.5 12.9 10.3 12.9 10.3 12.7
September 12.3 0.5 9.8 11.6 9.5 12.4 11.0 13.2 11.0 13.0
October 11.1 1.5 10.4 11.5 10.4 12.0 11.1 13.7 11.1 13.5
November 8.5 4.8 P 10.4 13.5 10.8 13.9 11.1 15.7 11.1 15.7
December 6.1 7.3 P 9.7 15.0 9.8 - 11.1 17.2 11.1 17.0
January 5.0 10.4 10.4 11.6 11.4
February 3.5 9.6 9.9 10.8 10.8
March 1.2 8.0 9.3 9.5 9.7
Average 8.4 9.1 8.9 10.2 10.2
Source : Department of Industrial Policy and Promotion, Labour Bureau and Central Statistical Organization (CSO).
P : Provisional.
IW: Industrial Workers, UNME: Urban Non-Manual Employees, AL: Agricultural Labourer, RL: Rural Labour
 Prices and Monetary Management 67
Figure 4.2 Trends in inflation based on WPI and CPIs
18
16 WPI
14
Inflation (Per cent)

CPI-IW
12
10 CPI-RL
8
6
4
2
0
-2
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
2008-09 2009-10
Year

Table 4.5 : Food inflation based on WPI, CPI-IW and CPI-AL/RL (per cent)
Weight Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
(%) 2009 2009 2009 2009 2009 2009 2009 2009 2009
Food (CPI_IW) 46.20 10.42 11.72 12.24 14.67 13.73 13.55 13.84 17.61 21.29
Food (CPI_AL) 69.15 9.09 11.16 12.44 13.96 14.13 14.63 15.33 18.14 20.22
Food (CPI_RL) 66.77 9.09 11.16 12.44 14.22 14.13 14.63 15.33 18.14 20.43
Food (WPI) 25.43 9.04 9.56 10.80 12.67 13.32 14.67 14.24 17.78P 19.77P
Source : Department of Industrial Policy and Promotion, Labour Bureau
P
: Provisional

Figure 4.3 Trends in food inflation in WPI, CPI-IW and CPI-RL

24
22 WPI
(Total food)
20
Inflation (Per cent)

18 CPI-IW
16 (Food)

14 CPI-RL
12 (Food)
10
8
6
4
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2008-09 2009-10
Year

inflation. In December 2009, thirty essential inflation. Table 4.6 identifies items which have
commodities with a weight of 17.63 per cent and contributed significantly towards overall inflation in
annual inflation of 21.89 per cent contributed 51.88 December 2009. These are rice, wheat, pulses,
per cent to overall inflation. Food combined vegetables and fruits, milk, fish and meat and tea
(comprising primary and manufactured food) with a in primary articles; non-administered mineral oils in
weight of 25.43 per cent and annual inflation of 19.77 the fuel group; and sugar/gur and oil cakes in
per cent contributed 66.56 per cent towards overall manufactured products.
68 Economic Survey 2009-10

Table 4.6 : Weighted contribution and inflation in WPI (per cent)

Weight Weighted contribution Inflation
P P
(%) Oct-09 Nov-09 Dec-09 Oct-09 Nov-09P Dec-09P
All Commodities 100.00 100.00 100.00 100.00 1.46 4.78 7.31
Primary Articles 22.02 137.15 58.39 48.23 8.67 11.84 14.88
Food combind 25.43 232.53 90.68 66.56 14.24 17.78 19.77
Food Articles 15.40 140.38 56.52 42.54 12.99 16.71 19.17
Food MP 10.03 92.14 34.16 24.02 16.68 19.88 20.93
Essential Commodities 17.63 209.39 75.00 51.88 18.53 21.15 21.89
Rice 2.45 21.48 6.19 3.99 14.29 12.95 12.33
Wheat 1.38 8.78 3.74 2.39 9.31 12.66 12.04
Pulses 0.60 11.44 5.04 3.95 25.08 35.22 41.58
Vegetables 1.46 7.67 5.98 7.28 7.06 16.92 39.22
Potatoes 0.26 17.60 5.60 3.70 98.60 101.58 123.85
Onions 0.09 2.03 0.70 0.42 33.10 32.41 27.41
Fruits 1.46 7.21 3.96 2.43 5.90 10.64 9.83
Milk 4.37 28.70 10.33 8.06 10.03 11.49 13.36
Eggs,Meat & Fish 2.21 36.96 14.55 9.03 23.37 29.75 27.16
Tea 0.16 0.29 0.43 0.37 2.96 15.30 21.45
Fuel and Power 14.23 -100.02 -3.94 12.03 -6.66 -0.89 4.29
Rest mineral oils 1.55 -66.59 6.46 13.77 -21.96 9.53 38.18
Manufactured Products 63.75 60.11 46.10 39.46 1.60 3.99 5.17
Food Products 11.54 117.69 51.30 36.33 17.33 24.70 26.40
Sugar 3.62 76.82 27.95 18.72 46.26 53.76 53.98
Gur 0.06 1.40 0.37 0.28 40.02 32.60 37.23
Oil Cakes 1.42 25.52 17.14 12.31 21.14 50.39 56.87
Source : Department of Industrial Policy & Promotion.
P
: Provisions

Sugar India, international sugar prices are also hardening

4.10 Sugar production in India is cyclical in nature.
Two to three years of high production are followed
by two to three years of low production. The estimated
area under sugarcane and sugarcane production fell
significantly from the 2007-08 sugar crop year to
2009-10 sugar crop year (first advance estimates).
Sugar production fell from 263 lakh tonnes in the
2007-08 sugar season to 146 lakh tonnes in the
2008-09 sugar season (provisional). Further, in years
of shortage of sugarcane, the amount of cane
available for crushing by sugar mills (termed drawl
rate) is much lower with higher levels of diversion
for other uses like production of gur and khandsari
sugar. The sugar industry is envisaging production
of 160 lakh tonnes in the 2009-10 sugar season.
The estimated demand for the 2009-10 sugar season
is 230 lakh tonnes. Domestic production may meet
only about two-thirds this demand. This is putting
tremendous pressure on sugar prices. Further,
based on expectations of large sugar imports by
in recent months. This is also influencing sugar
prices in India. Table 4.7 provides monthly changes
in the sugar price index which shows monthly as
well as annual fluctuations in sugar prices.
Pulses
4.11 India has been a net importer of pulses.
Domestic production of pulses has been around
14-14.8 million tonnes during the last three years
while the demand is estimated at around 17-18
million tonnes. The gap between demand and supply
is met by import of a variety of pulses from different
countries depending upon their availability. In view
of limited sources for different varieties of pulses,
domestic prices fluctuate according to availability
and prices in the international market. Kharif pulse
production reached a peak in 2007-08 at 6.4 million
tonnes and declined to 4.78 million tonnes in 2008-
09 (fourth advance estimates). In 2009-10 it is
estimated to further fall to 4.42 million tonnes (first
advance estimates). Apprehensions of shortages
 Prices and Monetary Management 69
Table 4.7 : Sugar (weight: 3.62 per cent ): month-on-month percentage change in the WPI
Month 1996-97 1997-98 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Apr. 0.54 1.26 0.70 0.22 -0.25 0.00 -0.74 1.84 5.99
May 1.35 2.33 0.17 4.56 -0.75 0.81 -2.97 -0.33 2.46
Jun. 1.77 0.76 0.69 0.93 -0.69 -0.06 -1.88 -0.67 3.06
Jul. -1.39 0.53 3.88 -0.14 1.96 -0.92 -0.14 1.15 0.35
Aug. 1.41 0.07 4.81 2.27 1.24 -0.58 -0.50 5.67 7.31
Sep. -0.61 0.82 0.24 2.77 -0.67 -0.94 0.71 1.45 7.23
Oct. -1.57 0.15 0.79 -0.54 0.43 -1.42 0.21 0.00 0.82
Nov. 3.11 0.22 0.16 0.07 1.17 -1.08 -0.42 0.19 5.32P
Dec. 3.10 0.07 -1.41 1.49 -1.21 -2.00 -0.21 0.06 0.20P
Jan. -0.08 -0.44 -1.35 8.54 2.09 -3.90 1.85 3.98
Feb. 1.42 -0.07 8.13 -1.35 4.27 -1.87 0.84 7.05
Mar. 5.03 -0.22 -0.60 0.37 -0.87 -1.97 1.73 0.61
Total (Apr.-Mar.) 14.08 5.47 16.22 19.19 6.71 -13.93 -1.51 21.00
Apr.-Dec. 7.71 6.21 10.04 11.63 1.22 -6.19 -5.93 9.36 32.73P
Source : Department of Industrial Policy and Promotion
P
: Provisions

may be the reason for high inflation in pulses. The Wheat

progress in sowing of rabi pulses during the current
crop year has so far been quite encouraging. A
significant increase of about 7.806 lakh ha in the
area under pulses (on February 4, 2010 compared
to February 4, 2009) is expected to help in
dampening prices.
Rice
4.12 According to first advance estimates released
by the Ministry of Agriculture, rice production in the
2009-10 kharif marketing season (KMS) is 71.65
million tonnes. The production target in the rabi
season is 14.5 million tonnes. Thus the total
production of rice in 2009-10 is estimated at 86.15
million tonnes. Rice production in 2008-09 was
99.15 million tonnes (fourth advance estimates).
Lower production by about 12.93 million tonnes may
be the reason for the current phase of inflation in
rice. However, market arrivals of paddy in Punjab
and Haryana this year are higher than the market
arrivals during the corresponding period last year.
Rice procurement in the present marketing season
as on February 3, 2010 has touched 20.14 million
tonnes. This is only 3 per cent lower than last year’s
procurement as of date despite severe drought in
the kharif season this year. Punjab has contributed
9.27 million tonnes followed by Chhattisgarh 2.51
million tonnes, Andhra Pradesh 2.12 million tonnes,
Uttar Pradesh 2.11 million tonnes, Haryana 1.81
million tonnes and Orissa 1.05 million tonnes. These
developments are expected to contain inflation in
rice in the coming months.
4.13 In rabi marketing season (RMS) 2009-10 a
total of 25.38 million tonnes of wheat has been
procured as against 22.69 million tonnes in RMS
2008-09. The year is expected to end with sufficient
stocks--more than the buffer norms. Further, the
progress of wheat sowing in the rabi season during
the current crop year (2009-10) has so far been quite
encouraging. The area under wheat is estimated to
increase by 1.71 lakh ha from 275.87 lakh ha on
February 4, 2009 to 277.58 lakh ha on February
4,2010. Expectation of a better wheat harvest is
likely to moderate wheat prices.
Vegetables
4.14 Average WPI inflation in vegetables
(weight:1.46 per cent in the WPI) from April to
December 2009 was more than 52 per cent, which
is significantly higher than the 9 per cent recorded
during the same period last year. Month-on- month
changes in the WPI index for vegetables displayed
a relatively high increase in the months of April, June,
July and November 2009. Potatoes, onions, tapioca,
tomatoes, peas green and brinjal were the highest
contributors to the inflation in vegetables. The
increase in vegetable prices could be attributed to
the failure of monsoon followed by floods in some of
the southern states. With the arrival of the winter
crop, vegetable prices have started to moderate
and are expected to further fall. Table 4.8 gives
month-on- month changes in the WPI index for
vegetables.
70 Economic Survey 2009-10

Table 4.8 : Vegetables (weight: 1.46 per cent ): Month-on-month percentage change in the WPI
Month 1996-97 1998-99 2001-02 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Apr. 35.44 22.90 25.38 33.28 29.48 20.87 20.56 11.13 36.56
May 6.50 7.58 12.22 7.72 3.64 3.14 3.59 -0.93 3.01
Jun. 8.84 19.95 12.85 9.36 3.95 22.49 6.25 7.61 10.72
Jul. 0.53 6.01 14.25 -1.74 16.64 0.18 15.66 8.02 13.29
Aug. 12.34 -4.17 3.53 11.57 -5.39 -3.67 -1.65 -5.39 -10.67
Sep. -5.90 4.22 -14.89 -9.59 0.00 4.15 -3.61 2.56 -3.56
Oct. 0.87 25.22 7.19 14.56 7.13 4.12 -10.69 3.45 -4.48
Nov. 1.60 3.68 6.65 -8.38 4.42 -4.84 -5.71 3.99 13.57P
Dec. 0.12 -23.96 -10.33 -26.42 -17.46 -11.55 -8.90 -21.13 -6.09P
Jan. -16.65 -42.81 -22.39 -8.84 -10.06 -4.34 -5.99 0.75
Feb. 0.22 -24.85 -10.36 -4.77 -17.46 -8.08 -2.78 -10.21
Mar. -9.71 5.17 6.95 7.96 -0.63 5.76 11.78 -0.62
Total (Apr.-Mar.) 34.20 -1.06 31.04 24.69 14.27 28.24 18.52 -0.76
Apr.-Dec. 60.34 61.42 56.84 30.35 42.42 34.89 15.51 9.32 52.35P
Source : Department of Industrial Policy and Promotion.
P
: Provisions

Milk WPI inflation in this group was negative in October

4.15 There is no apparent shortage of milk in the 2009 and has moved to the positive zone from
market. However, one of the reasons for increase in November 2009 and is currently at 38.2 per cent.
inflation in milk and milk products could be inflation Its weighted contribution to overall inflation is much
in coarse cereals and oil cakes, which is used as higher than its weight in the commodity basket and
feed for animals. therefore makes it a commodity to watch. Average
international crude oil prices increased from 44.11$/
Tea
bbl in January-March 2009 to 75.5$/bbl in October-
4.16 There is shortfall in production of tea in India December 2009. This contributed to increase in
and other tea-producing countries. WPI-based inflation in non- administered petro products.
domestic inflation in tea is 21 per cent in December
2009. The price of tea in the international market in World food inflation
December 2009 has risen by about 55 per cent over
the price in the same month last year. 4.18 A comparison of the food index published by
the World Bank and WPI-based domestic food
Non-administered petro products inflation reveals that since April 2008 world food
4.17 The inflation in non-administered petro prices reflected much higher volatility compared to
products is linked to international crude oil prices. the WPI food index (Figure 4.4). Further,

Figure 4.4 International and domestic food inflation

80
Inflation (Per cent)

60 World
food
40
20 WPI
0 (domestic
food)
-20
-40
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2008-09 2009-10
Year
 Prices and Monetary Management 71
Table 4.9 : WPI based domestic year-on-year inflation (per cent)
Period Energy Non- Agri- Beve- Food Fats Grains Other Raw Tim- Other Fertil Metals
energy culture rages and food mate- ber raw -izers and
ommo- oils rials mate- Mine-
dities rials rals
Jan. 2009 -1.70 6.81 9.79 8.91 9.37 0.60 11.25 32.73 9.98 10.05 0.19 8.38 9.54
Feb. 2009 -3.40 5.41 7.32 10.08 9.32 -3.01 13.14 25.52 1.76 7.69 -2.69 8.54 1.88
Mar. 2009 -6.00 3.17 5.14 9.34 8.07 -6.96 11.61 20.37 0.56 7.74 -12.90 5.43 -7.47
Apr. 2009 -5.69 3.21 6.71 5.88 10.14 -4.05 11.92 15.66 2.55 10.05 -16.35 4.03 -12.11
May 2009 -6.14 3.43 6.91 5.60 10.62 -2.14 14.14 36.27 1.86 3.57 -15.77 -0.60 -12.19
Jun. 2009 -12.53 2.32 7.74 5.99 11.13 -7.85 14.39 26.50 -2.20 0.25 -18.08 -1.46 -13.95
Jul. 2009 -10.37 2.29 9.03 5.45 12.36 -9.38 13.90 18.88 -5.18 0.25 -18.69 -3.19 -15.03
Aug. 2009 -9.26 2.44 9.08 5.14 12.98 -7.29 14.19 13.90 -4.22 0.25 -17.04 -3.03 -13.46
Sep. 2009 -8.18 2.91 9.08 4.75 13.75 -5.59 16.10 7.19 -3.57 0.25 -16.76 -2.68 -12.74
Oct. 2009 -6.66 3.75 9.35 4.75 14.67 -3.93 14.75 4.83 -0.66 0.25 -14.47 -2.28 -11.68
Nov. 2009P -0.89 6.30 12.61 4.47 19.75 -1.38 16.46 12.50 1.17 0.25 -6.18 -2.03 -8.28
Dec. 2009P 4.29 8.09 16.01 5.29 21.94 0.18 16.86 16.30 5.62 0.25 -2.31 -3.52 -6.93
Source : Department of Industrial Policy and Promotion.
P
: Provisions
Note : Catagorisation of WPI items/groups as compared to items stock groups in the world Bank Inksheet.
used in Table 4.10 (Figures in brackets are items/groups in WPI basket): Energy (Fuel group); Non Energy
Commodities (All commodities excluding energy); Agriculture (Food Articles and Non-Food Articles);
Beverages (Beverages, Tobacco & Tobacco Products); Food (Food Articles and Food Products); Fats and
Oils (Edible Oils, Butter and Ghee); Grains (Cereals and Pulses); Other Food (Other Food Articles); Raw
Materials (Non-Food Articles and Minerals); Timber (Wood & Wood Products); Other Raw Materials
(Naphtha and Basic Metals Alloys & Metals Products); Fertilizers (Fertilizers); Metals and Minerals (Basic
Metals, Alloys & Metals Products and Minerals)

a higher volatility was seen in the international to the domestic market in India (Tables 4.9
market in almost all commodity groups compared and 4.10).

Table 4.10 : Inflation in world commodity price indices (per cent)

Period Energy Non- Agri- Beve- Food Fats Grains Other Raw Tim- Other Fertil Metals
energy culture rages and food mate- ber raw -izers and
ommo- oils rials mate- Mine-
dities rials rals

Jan. 2009 -45.48 -23.64 -16.56 3.41 -19.07 -33.25 -7.57 -0.79 -19.25 4.08 -33.60 14.39 -37.75
Feb. 2009 -51.58 -30.29 -23.60 -7.26 -26.35 -38.60 -20.59 -5.15 -23.94 -1.71 -37.50 -4.71 -42.46
Mar. 2009 -52.00 -34.12 -28.39 -13.24 -31.61 -43.36 -26.51 -11.64 -26.16 -6.28 -38.52 -26.80 -42.95
Apr. 2009 -52.87 -32.04 -25.79 -5.53 -29.51 -33.62 -36.31 -8.67 -24.11 -11.08 -32.60 -45.23 -38.33
May 2009 -52.31 -29.14 -22.00 -4.97 -24.33 -26.81 -31.51 -7.19 -23.27 -5.99 -33.79 -53.57 -34.49
Jun. 2009 -48.37 -31.14 -24.55 -7.92 -26.27 -30.98 -30.42 -8.66 -27.96 -9.27 -38.49 -55.93 -36.04
Jul. 2009 -52.48 -32.31 -26.17 -8.10 -28.90 -34.68 -33.02 -10.17 -27.35 -14.23 -34.92 -61.46 -34.86
Aug. 2009 -39.69 -22.70 -15.67 -0.06 -17.84 -17.95 -31.87 2.03 -17.86 -9.50 -22.76 -68.29 -21.27
Sep. 2009 -35.07 -19.00 -11.59 7.77 -14.17 -15.06 -31.78 12.90 -14.74 -9.44 -17.97 -68.09 -16.97
Oct-. 2009 -6.15 0.74 9.13 32.28 5.40 10.90 -14.37 22.27 6.80 -7.18 18.25 -59.72 4.10
Nov. 2009 26.21 14.78 20.09 41.26 17.13 25.37 -0.02 25.65 16.77 -7.83 39.49 -52.05 23.12
Dec. 2009 55.23 27.65 28.22 37.30 23.49 34.59 5.02 29.63 36.25 -9.21 87.74 -41.70 42.79
Source : World bank pink sheet.
72 Economic Survey 2009-10

Inflation: Private Final Consumption
Expenditure (PFCE) Deflator versus WPI
and CPI-IW
4.19 The PFCE measures the average change over
time in the price paid for all consumer purchases.
For this reason, the PFCE deflator measures
changes in the cost of living, and because it
measures the price paid for all consumer purchases,
versus just a basket of goods, it is considered a
more accurate measure of inflation than the CPI.
Table 4.11 provides annual inflation trends in PFCE
deflator, based on new series of data released by
the CSO with 2004-05=100, and its comparison with
WPI and CPI-IW inflation. PFCE-based inflation is
at a lower level than CPI-IW inflation during all the
four years (2005-06 to 2008-09) (Figure 4.5).
Housing Price Index
4.20 The importance of the construction and real
estate sector in creation of both physical and
financial assets has been growing. The share of the
construction sector in the GDP at constant prices
(2004-05) has increased from 7.7 per cent in 2004-
05 to 8.0 per cent in 2008-09 (quick estimates).
Similarly, the share of real estate, ownership of
dwelling and business services (in the financial
sector) in overall GDP has increased from 8.9 per
cent in 2004-05 to 9.2 per cent in 2008-09 (quick
estimates). Both these sectors have grown at an
average of 9.7 per cent (construction) and 9.6 per
cent (real estate, ownership of dwelling and business
services) during 2004-05 to 2008-09.
4.21 The launch of the National Housing Bank
(NHB) RESIDEX in India in 2007 was a maiden effort
to capture the trend of price movements in residential
property on a comprehensive scale. Initially 2001
was taken as the base year for the NHB RESIDEX
and price movements during the period 2001-05 were
captured for five cities (Bangalore, Bhopal, Delhi,
Kolkata and Mumbai). Subsequently, based on data
from the housing finance companies (HFCs) and
National Council of Applied Economic Research
(NCAER) the NHB RESIDEX was updated for two
years, 2006 and 2007.
4.22 The NHB RESIDEX has now been expanded
to fifteen cities, namely Bangalore, Bhopal, Delhi,
Kolkata, Mumbai, Ahmedabad, Faridabad, Chennai,
Kochi, Hyderabad, Jaipur, Patna, Lucknow, Pune
and Surat and updated up to December 2008 with
2007 as the new base year. From 2008 the NHB

Table 4.11 : Annual trends in PFCE deflator, WPI, and CPI-IW inflation
(per cent).
Year PFCE deflator(Base: 2004-05) WPI inflation(Base: 1993-94) CPI-IW inflation(Base: 2001)
2005-06 3.2 4.4 4.4
2006-07 6.0 5.4 6.7
2007-08 3.6 4.7 6.2
2008-09 (QE) 7.0 8.4 9.1
2009-10 (AE) 6.4 1.6* 11.4*
Source: Department of Industrial Policy & Promotion, CSO and Labour Bureau.
QE—quick estimates; AE—advance estimates; * Average April- December

Figure 4.5 Inflation trends in PFCE-deflator, WPI and CPI-IW

12
Inflation (Per cent)

10 PFCE-
deflator
8 (Base
6 2004-05)
4 WPI-
2 inflation
(Base
0 1993-94)
2005-06

2006-07

2007-08

2008-09

2009-10

CPI-IW
inflation
(Base
Year 2001)
Note: 1.WPI and CPI-IW for 2009-10 are avarage of Apr-Dec 2009. 2.PFCE for 2008-09 is quick estimate (QE) and for 2009-10 is advanced estimate (AE)
 Prices and Monetary Management 73
Table 4.12 : City-wise RESIDEX (Base 2007)
Cities 2007 2008 Jan.- June 2008 July- Dec. 2009 Jan.-June
Delhi 100 124 130 121
Bengaluru 100 73 76 58
Mumbai 100 112 117 124
Kolkata 100 114 140 159
Bhopal 100 139 151 139
Hyderabad 100 96 92 65
Faridabad 100 100 121 136
Patna 100 103 100 107
Ahmedabad 100 106 100 127
Chennai 100 104 95 120
Jaipur 100 119 115 71
Lucknow 100 103 102 104
Pune 100 101 97 103
Surat 100 101 98 111
Kochi 100 106 95 90
Source : National Housing Bank.

RESIDEX is being updated on half-yearly basis. The of 1 city over the base year (2007). In the second
last update is for the period January–June 2009. In half of 2008 (July to December), nine cities reported
order to make it a truly national index the intention a decline in prices and there was an increase in the
is to extend the NHB RESIDEX to 63 cities which case of six cities over the previous half year figures.
are covered under the Jawaharlal Nehru National The first half of 2009 (January to June), however,
Urban Renewal Mission (JNNURM). shows some revival in housing prices over the
4.23 The movement in prices of residential houses previous half-year period (July-December 2008) with
has shown a mixed trend in the 15 cities covered a higher price index reported in the case of nine
under the NHB RESIDEX (base 2007) (Table 4.12 cities, namely Ahmedabad (27 per cent), Chennai
and Figure 4.6 ). During the first half of 2008 (January (26 per cent), Kolkata (14 per cent), Surat (13 per
to June), out of 15 cities, residential housing prices cent), Faridabad (12 per cent), Patna (7 per cent),
in 12 showed an increasing trend, 2 cities reported Mumbai (6 per cent), Pune (6 per cent) and Lucknow
a declining trend and there was no change in case (2 per cent). During the same period, the remaining

Figure 4.6 Movement in City-wise Residex (Base 2007)

170
160 Base:
2007
150
140
2008
Index numbers

130
Jan-Jun
120
110
2008
100 Jul-Dec
90
80
2009
70 Jan-Jun
60
50
Delhi

Bengaluru

Mumbai

Kolkata

Bhopal

Hyderabad

Faridabad

Patna

Ahmedabad

Chennai

Jaipur

Lucknow

Pune

Surat

Kochi
74 Economic Survey 2009-10

six cities, namely, Jaipur (-38 per cent), Hyderabad
(-30 per cent), Bengaluru (-24 per cent), Bhopal
(-8 per cent), Delhi (-7 per cent) and Kochi (-5 per
cent) showed correction in prices. Three cities,
namely Hyderabad, Jaipur and Kochi have shown
correction in prices both in the second half of 2008
and first half of 2009.
Anti-inflationary measures
4.24 The Government has taken a number of short-
and medium-term measures to improve domestic
availability of essential commodities and moderate
inflation. Procurement of rice as on February 3, 2010
(KMS 2009-10) is 20.14 million tonnes as against
33.60 million tonnes procured during the entire KMS
2008-09. Procurement of wheat as on November
1,(RMS 2009-10) is 25.3 million tonnes against 22.7
million tonnes last year. The total stock of rice and
wheat held by the FCI in January 2010 is 47.4 million
tonnes comprising 24.3 million tonnes of rice and
23.1 million tonnes of wheat. Even after keeping the
minimum buffer stock (8.2 million tonnes of wheat
and 11.8 million tonnes of rice in January), there are
enough foodgrains to intervene in the market to keep
prices at a reasonable level. A strategic reserve of 5
million tonnes of wheat and rice has also been
created. This is in addition to the buffer stock held
by the FCI every year. However, the Central issue
price (CIP) for rice at Rs 5.65 per kg for below poverty
line (BPL) and Rs 3 per kg for Antyodaya Anna
Yojana (AAY) and wheat at Rs 4. 15 per kg for BPL
and Rs 2 per kg for AAY since July 2002 has also
been maintained to protect the interests of BPL
families and AAY beneficiaries. Box 4.1 lists some
of the anti-inflationary measures taken by the
Government.

Box 4.1 : Measures to contain inflation, particularly food inflation

(a) Monetary Measures taken by the RBI in the current fiscal year
(i) The monetary policy stance for 2009-10, inter alia, has been to maintain a monetary and interest rate regime
consistent with price stability and financial stability, and supportive of the growth process.
(ii) The RBI in its Second Quarter Review of monetary policy on October 27, 2009 made a minor modification in the
statutory liquidity ratio (SLR) and restored it to 25 per cent of net demand and time liabilities (NDTL) with effect
from the fortnight beginning November 7, 2009.
(iii) In the Third Quarter Review of the RBI’s monetary policy on January 29, 2010, the CRR of scheduled banks was
raised by 75 basis points from 5.0 per cent to 5.75 per cent of their NDTL in two stages; the first stage of increase
of 50 basis points will be effective the fortnight beginning February 13, 2010, followed by the next stage of increase
of 25 basis points effective the fortnight beginning February 27, 2010 .
(b) Fiscal Measures
(i) Reducing import duties to zero-–for rice, wheat, pulses, edible oils (crude) and sugar; and for maize (under TRQ
of 5 lakh tonnes per annum, beyond which 15per cent duty will apply);
(ii) Reducing import duties on refined and hydrogenated oils and vegetable oils to 7.5 per cent;
(iii) Allowing import by sugar mills of raw sugar at zero duty under open general licence (OGL) up to August 1, 2009
(notified on April 17, 2009). This has since been extended to December 31,2010.
(iv) Allowing import of white/ refined sugar by STC/MMTC/PEC and NAFED up to 1 million tonnes by august 1,
2009 under OGL at zero duty (notified on April 17, 2009). This has since been extended up to March 31, 2010.
Furthermore, the duty-free import of white/refined sugar under OGL has been opened to other Central/ State
Government agencies and to private trade in addition to existing designated agencies.
(v) Removing levy obligation in respect of all imported raw sugar and white/ refined sugar.
(c) Administrative Measures
(i) 2 million tonnes of wheat and1 million tonnes of rice have been allocated to States for distribution to retail
consumers over and above normal public distribution system (PDS) allocation for the period October 2009 to
March 2010.
(ii) One million tonnes of wheat has been allocated for release by the FCI in the open market through OMSS for the
period October 2009 to March 2010.
(iii) The National Agricultural co-operative Marketing Federation (NAFED) has been allocated 37,400 metric tonnes
of wheat and 15,500 metric tonnes of rice for distribution through its outlets at the same rate at which allocations
are made to State governments under OMSS (D).
(Contd....
 Prices and Monetary Management 75
Box 4.1: Contd. ...)
(iv) The National Cooperative Consumers Federation (NCCF) has been allocated 32,684 metric tonnes of wheat and
11,000 metric tonnes of rice for distribution through its outlets at the same rate at which allocations are made to
State Governments under OMSS (D).
(v) Export of non-basmati rice, edible oils and pulses (except kabuli chana)has been banned.
(vi) Effected no changes in Tariff Rate Values of edible oils;
(vii) Imposed stock limit orders in the case of paddy, rice, pulses, sugar, edible oils and edible oilseeds upto 30.9.2010;
In order to discourage non-household sector consumers from stockpiling sugar and to ensure adequate availability
of sugar in the open market for actual consumers, the Central Government has issued a notification dated
22.08.2009 imposing stockholding limit on bulk consumers.
(viii) Using Minimum Export Price (MEP) to regulate exports of onion (averaging at $500 per tonne for January 2010)
and basmati rice ($900 PMT);
(ix) Futures trading in rice, urad and tur suspended by the Forward Market Commission in the year 2007-08 and
continues during 2009-10. Futures trading in sugar was suspended w.e.f. 27.5.2009 upto 31st December, 2009.
This has been extended up to 30th September, 2010.
(x) Distribution of imported edible oils to States/UTs at a subsidy of Rs.15/kg.
(xi) To augment availability of pulses, permitted the Public Sector Undertakings (namely, STC, MMTC, and PEC)
and NAFED to import and sell pulses under a scheme and the losses, if any, up to 15 per cent are reimbursed by
the Government.
(xii) Distribution of imported pulses through PDS at a subsidy of Rs.10 per kg to State Governments.
(xiii) Permitted sugar factories to sell processed raw sugar in the domestic market and fulfill export obligation on tonne
to tonne basis.
(xiv) Proportion of sugar production requisitioned as levy sugar has been increased from 10 to 20 per cent for
2009-10 sugar season to ensure adequate levy sugar supplies under PDS.
(xv) During 2009-10 sugar season, 19.34 lakh tonnes of raw sugar and 3.89 lakh tonnes of white/ refined sugar have
arrived in the country/ would be arriving shortly.
(xvii) Minimum Support Prices (MSPs) have been systematically increased, leading to increased acreage, production,
productivity and central procurement. For the marketing season of 2008-09, the MSP of wheat was increased to
Rs. 1,080. For different grades of paddy, for kharif marketing season 2009-10, the MSP has been increased to
Rs.950-980 per quintal and a bonus of Rs 50 per quintal for all varieties.

MONETARY DEVELOPMENTS DURING few sector-specific measures provided earlier by way

2009-10
4.25 The liquidity constraint that had emerged
consequent to the global financial crisis, led the
RBI to maintain an accommodative monetary policy
stance since September 2008 which continued
during 2009-10. The slew of measures introduced
after September 2008 to enhance the liquidity in
the system included a series of downward revisions
in policy rates covering repo rate, reverse repo rate,
CRR and SLR, besides providing specified windows
for accommodating distressed sectors. These
measures had a salutary effect on the overall liquidity
situation. Though the policy during 2009-10
continued to broadly underscore the accommodative
stance, the monetary authority reviewed the
emerging economic situation from time to time.
Keeping in view the comfortable liquidity position,
the SLR was restored to its earlier level of 25 per
cent of NDTL with effect from November 7, 2009. A
of accommodative windows, and whose utilization
was lower than expected, were also withdrawn in
the Second Quarter Review of Monetary Policy 2009-
10 (October 27, 2009). In addition, in the Third
Quarter Review (January 29, 2010) the RBI
announced that the CRR was being raised from 5.0
per cent of NDTL to a level of 5.50 per cent effective
the fortnight beginning February 13,2010 and to 5.75
per cent effective the fortnight beginning February
27,2010.
Trends in Monetary Aggregates
4.26 During 2009-10, the growth rates in reserve
money (M0) and narrow money (M1) have been higher
as compared to the preceding year while broad
money (M3) growth has been lower (Table 4.13). The
moderation in growth of broad money is largely on
account of the deceleration in growth of bank credit
to the commercial sector.
76 Economic Survey 2009-10

Table 4.13 : Movement of select monetary parameters

(per cent)
Items Growth rates (%) Growth rates as on January15, 2010
2007-08 2008-09 Financial-year basis Year-on-year basis
2009-10 2008-09 2009-10 2008-09
M0 30.9 6.4 3.8 -3.7 14.8 6.6
M1 19.4 8.4 7.8 -1.1 18.2 8.6
M3 21.4 18.6 10.8 12.8 16.5 19.1

Source: RBI.

Reserve Money (M0 )
4.27 Reserve money grew by 6.4 per cent in 2008-
09 as compared to 30.9 per cent during 2007-08.
During 2009-10, on financial-year basis, M 0
increased by 3.8 per cent (up to January 15, 2010),
as against a decline of 3.7 per cent during the
corresponding period of the preceding year
(Table 4.14).
4.28 Net foreign assets (NFA) of the RBI and net
domestic assets (NDA) are the two main drivers of
reserve money. On financial-year basis, the NFA
declined by 0.4 per cent during end March-January
15, 2010, as against a decline of 0.9 per cent during
the corresponding period of the previous year. On a
year-on-year basis, as on January 15, 2010, the
NFA expanded by 4.1 per cent as against a 9.7 per
cent increase in the previous year (Figure 4.7).
4.29 Net RBI credit to the Central Government
increased by Rs 29,638 crore during the financial
year (up to January 15, 2010). This was mainly on
account of unwinding of Market Stabilisation
Scheme (MSS) balances and open market
operations of the Reserve Bank, offset by increase
in the cash balances of the Central Government
and reverse repo operations. On year-on-year basis,
increase in the net RBI credit to the Central
Government, as on January 15, 2010, was
Rs1,19,895 crore as against an increase of
Rs1,27,184 crore during the corresponding period
a year ago.
Narrow Money (M1 )
4.30 M1 growth decelerated in the second half of
2008-09 and staged a recovery in 2009-10. It
increased by 8.4 per cent in 2008-09 as compared

Table 4.14 : Sources of change in reserve money

(per cent)
Growth rate
Financial-year basis Year -on-Year
Jan.16 Jan.15, Jan.16 Jan.15,
2009 2010 2009 2010
over over over over
2008-09 March 31, March 31, Jan.18, Jan.16
2008 2009 2008 2009
1 2 3 4 5 6
Reserve Money (M0) 6.4 -3.7 3.8 6.6 14.8
A. Components
a) Currency in Circulation 17.0 12.2 12.5 17.0 17.3
b) Bankers’ Deposits with the RBI -11.3 -31.4 -16.0 -15.6 8.6
c) “Other” Deposits with the RBI -38.5 -42.2 -30.7 10.0 -26.2
B. Select Sources of Reserve Money
1. Net Foreign Exchange Assets ofthe RBI 3.6 -0.9 -0.4 9.7 4.1
2. Government’s Currency Liabilities to the Public 9.0 6.7 6.7 8.7 9.0
3. Net Non-monetary Liabilities of the RBI 84.5 54.9 -8.0 135.8 9.6
Source: RBI.
 Prices and Monetary Management 77
Figure 4.7 Reserve money and RBI net foreign exchange assets - annual growth rate
70
60 RM
50
NFA
40
Per cent

30
20
10
0
-10
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
2008-09 2009-10
Year

to an expansion of 19.4 per cent during 2007-08. year. On year-on-year basis, as on January 15,
During 2009-10, M1 increased by 7.8 per cent on 2010, the growth of currency with the public was
a financial-year basis (up to January 15, 2010) as marginally higher at 17.3 per cent as compared
against a decline of 1.1 per cent during the with 17.2 per cent on the corresponding date a
corresponding period of the previous year. On year- year ago. During the same period, growth in
on-year basis, as on January 15, 2010, M1 growth demand deposits accelerated to 19.8 per cent as
accelerated to 18.2 per cent as compared to 8.6 compared with a decline of 0.8 per cent a year
per cent a year ago (Figure 4.8). earlier.
4.31 The components of narrow money are
Broad money (M3)
currency with the public and deposit money of the
public. As on January 15, 2010, currency with the 4.32 Broad money (M3) increased by 18.6 per cent
public expanded by 12.3 per cent over end-March during 2008-09. During the current financial year
2009, as against an increase of 12.2 per cent during (2009-10), up to January 15, 2010, the growth in M3
the corresponding period of the preceding year. The was 10.8 per cent as compared to 12.8 per cent
main element of the other components, namely during the corresponding period of the previous year.
demand deposits with banks, witnessed a modest On year-on-year basis, M3 grew by 16.5 per cent
increase of 3.1 per cent during the period up to as on January 15, 2010, as compared to 19.1 per
January 15, 2010 as against a decline of 13.6 per cent on the corresponding date of the previous year.
cent during the corresponding period of the previous (Figure 4.9)

Figure 4.8 Narrow Money (M1) – annual growth rate (per cent)
24
22 2009-10
20
18 2008-09
16
Per cent

14 2007-08
12
10
8
6
4
13 Apr
27 Apr
11 May
25 May
08 Jun
22 Jun
06 Jul
20 Jul
03 Aug
17 Aug
31 Aug
14 Sep
28 Sep
12 Oct
26 Oct
09 Nov
23 Nov
07 Dec
21 Dec
04 Jan
18 Jan
01 Feb
15 Feb
28 Feb
14 Mar
28 Mar
78 Economic Survey 2009-10

Figure 4.9 Broad Money (M3) – annual growth rate (per cent)
26
2009-10
24
2008-09
22
Per cent

2007-08
20

18

16
13 Apr
27 Apr
11 May
25 May
08 Jun
22 Jun
06 Jul
20 Jul
03 Aug
17 Aug
31 Aug
14 Sep
28 Sep
12 Oct
26 Oct
09 Nov
23 Nov
07 Dec
21 Dec
04 Jan
18 Jan
01 Feb
15 Feb
28 Feb
14 Mar
28 Mar
4.33 The main components and sources of broad 4.34 The growth in M3 was primarily reflected in
money are indicated in Table 4.15. the expansion in aggregate deposits during this

Table 4.15 : Sources of change in money stock (M3)

Growth rate
March March March January January
31, 2008 to 31, 2008 to 31, 2009 to 18, 2008 to 16, 2009 to
March January January January January
31, 2009 16, 2009 15, 2010 16, 2009 15, 2010

1 2 3 4 5 6

Per cent
Broad Money (M3) 18.6 12.8 10.8 19.1 16.5
I. Components of M3 (1+2+3+4)
1. Currency with the Public 17.2 12.2 12.3 17.2 17.3
2. Demand deposits with Banks 0.5 -13.6 3.1 -0.8 19.8
3. Time Deposits with Banks 22.7 18.3 11.9 23.1 16.0
4. “Other” deposits with theRBI -38.4 -42.2 -30.7 10.0 -26.2
II. Sources of Change in Money Stock (M3)
1. Net Bank Credit to Government 42.0 28.7 19.6 38.2 31.9
of which:
Other Banks’ Credit to Government 20.0 17.1 18.1 19.3 21.1
2. Bank Credit to Commercial Sector 16.8 11.0 7.9 20.5 13.6
of which:
Other Banks’ Credit to Commercial Sector 16.4 11.0 8.2 20.4 13.5
3. Net Foreign Exchange Assets of the Banking Sector 4.4 -2.1 -2.1 10.5 4.4
4. Government’s Currency Liabilities to the Public 9.0 6.7 6.7 8.7 9.0
5. Banking sector’s Net Non-
monetary Liabilities Other than Time Deposits 16.2 0.5 -6.2 35.8 8.4
Memo Items
1. Money Multiplier (M3/M0) 4.15
2. Velocity of Money 1.12
3. Net Domestic Assets 12.8 19.8 15.9 22.8 21.3
4. Net Domestic Credit 17.3 15.6 11.4 25.1 18.8

Source : RBI.
 Prices and Monetary Management 79
Figure 4.10 Bank credit to commercial sector – annual growth rate (per cent)
30
2009-10
25
2008-09
20
Per cent

2007-08
15

10

5
13 Apr
27 Apr
11 May
25 May
08 Jun
22 Jun
06 Jul
20 Jul
03 Aug
17 Aug
31 Aug
14 Sep
28 Sep
12 Oct
26 Oct
09 Nov
23 Nov
07 Dec
21 Dec
04 Jan
18 Jan
01 Feb
15 Feb
28 Feb
14 Mar
31 Mar
period. Within aggregate deposits, time deposits September 2009. This owes to the fact that being
registered a growth (year-on-year) of 16.0 per cent front loaded, the major part of the government
as on January 15, 2010, as compared to 23.1 per borrowing was completed in the first half of the year.
cent on the corresponding date of the previous year.
4.36 Among the sources of M3, bank credit to the
In 2009-10, there has been gradual deceleration in
commercial sector, which had been decelerating
the growth of time deposits, with softening of interest since October 2008, has shown a revival since
rates, in contrast to the shift from demand to time November 2009 (Figure 4.10).
deposits during the second half of 2008-09. On the
other hand, demand deposits expanded by 19.8 per Money multiplier
cent (year-on-year) as on January 15, 2010, as
4.37 During 2008-09, the rate of expansion of M0
compared to a decline of 0.8 per cent a year ago.
was lower than that of M3. Accordingly, the ratio of
4.35 During 2009-10, the banking system’s credit M3 to M0 (money multiplier) showed an increase. In
to the Government was the major driver of growth in end-March 2009, this ratio was higher at 4.8 as
broad money, a trend which has persisted since compared to 4.3 in end-March 2008. During the
the third quarter of 2008-09. The increase in current financial year, the increasing trend in the
Government’s borrowing programme to finance the money multiplier continued, with reserve money
expansionary fiscal response to the economic registering a lower growth than broad money supply.
slowdown was the underlying reason. However, M3 As on January 15, 2010, the money multiplier was
growth has shown signs of deceleration after 5.4 (Figure 4.11).

Figure 4.11 Movements in money multiplier

6.0
2009-10
5.6
2008-09
5.2
Per cent

2007-08
4.8

4.4

4.0
13 Apr
27 Apr
11 May
25 May
08 Jun
22 Jun
06 Jul
20 Jul
03 Aug
17 Aug
31 Aug
14 Sep
28 Sep
12 Oct
26 Oct
09 Nov
23 Nov
07 Dec
21 Dec
04 Jan
18 Jan
01 Feb
15 Feb
28 Feb
14 Mar
31 Mar
80 Economic Survey 2009-10

Movement in other monetary indicators
4.38 During 2009-10, bank credit recorded an
increase of 8.4 per cent (end-March – January 15,
2010). As against this, bank deposits recorded an
increase of 10.7 per cent during the same period.
The lower expansion in credit relative to the
expansion in deposits during 2009-10 has resulted
in a decline in the credit-deposit ratio. It fell from
72.4 in end-March 2009 to 70.92 on January 15,
2010. The investment-deposit ratio increased from
30.4 per cent in end-March 2009 to 32.53 on January
15, 2010 as scheduled commercial banks (SCBs)
preferred to invest a larger share of their deposits in
SLR securites. Commercial banks’ holdings of SLR
securities were 29.9 per cent of NDTL as on January
15, 2010 as against 28.1 per cent in end-March
2009 and 28.8 per cent a year earlier. This was
consistently higher than the stipulated level of 24
per cent of NDTL with effect from November 7, 2008
and 25 per cent with effect from November 7, 2009 .
4.39 Monetary deepening, as measured by the
ratio of average M3 to GDPMP (GDPat market prices),
increased from 65.5 per cent in 2004-05 to 77.8 per
cent in 2008-09. This could be attributed to the
spread of banking services in the country and
development of the financial sector. The monetization
of the economy as measured by the ratio of average
M1 to GDP has shown a marginally increasing trend
during this period. In 2004-05, this ratio was 18.5
per cent, which has increased to 20.4 per cent in
2008-09 (Table 4.16 and Figure 4.12).
Liquidity Management
4.40 The monetary easing in the aftermath of the
global financial crisis constituted the main theme of
liquidity management during financial year 2009-10
with periodic fluctuations in cash balances of the
Central Government providing temporary variations.
The Reserve Bank continued its active policy of
assuring liquidity during 2009-10 through Open
Market Operations (OMO), Liquidity Adjustment
Facility (LAF) and also unwinding (including de-
sequestering) of balances under the Market
Stabilization Scheme (MSS) to maintain appropriate
liquidity in the system.
4.41 As a result, liquidity conditions remained
comfortable during 2009-10. In its Annual Policy
Statement 2009-10, the RBI had reduced the LAF
repo and reverse repo rates by 25 basis points

Table 4.16 : Select monetary aggregates (ratios to GDP)

As per cent of GDPMP
Currency Demand deposits Time deposits Aggregate M1 M3
with public with banks with banks deposits
1990-91 8.7 6.4 28.5 34.9 15.3 43.8
1991-92 8.8 6.9 28.8 35.7 15.9 44.7
1992-93 8.6 6.9 29.8 36.6 16.0 45.7
1993-94 8.8 6.6 30.3 36.9 15.7 46.1
1994-95 9.1 7.2 30.4 37.6 16.7 47.1
1995-96 9.4 6.7 29.8 36.5 16.6 46.4
1996-97 9.2 6.5 30.5 37.0 16.1 46.6
1997-98 9.3 6.7 33.0 39.7 16.3 49.2
1998-99 9.1 6.7 35.5 42.2 16.0 51.5
1999-2000 9.5 6.8 37.7 44.5 16.4 54.1
2000-01 9.6 7.2 41.3 48.5 17.0 58.2
2001-02 10 7.4 44.9 52.2 17.5 62.3
2002-03 10.5 7.5 49.0 56.5 18.2 67.1
2003-04 10.7 7.8 48.9 56.7 18.7 67.6
2004-05* 10.4 8.0 47.0 55.0 18.5 65.5
2005-06* 10.3 8.8 46.8 55.6 19.3 66.1
2006-07* 10.5 9.4 48.8 58.2 20.0 68.9
2007-08* 10.5 9.5 52.7 62.2 20.1 72.8
2008-09* 11.0 9.3 57.4 66.7 20.4 77.8
Source : RBI.
* Computed on revised GDP data released by the CSO (2004-05 onwards) on January 29, 2010.
 Prices and Monetary Management 81
Figure 4.12
Ratios to GDP (per cent) Select monetary aggregates as per cent of GDP
80
70 Aggregate
Deposits
60
50 M1
40
30 M3
20
10
2004-05

2005-06

2006-07

2007-08

2008-09
Year

effective April 21, 2009 to 4.75 per cent and 3.25 account of advance tax outflows (Table 4.17 and
per cent respectively. In recognition of the easing Figure 4.13)
liquidity conditions, the 14-day term repo facility, a 4.42 During the year 2009-10, liquidity was also
daily facility hitherto, was converted to a weekly facilitated through OMOs purchased aggregating Rs
facility effective April 27, 2009. The average daily 57,000 crore . Additionally, the decline in MSS
net absorption under the LAF continued to remain balances and de-sequestering of around Rs 28,000
over Rs1,20,000 crore during June 2009, crore provided liquidity of around Rs 81,000 crore
notwithstanding advance tax collections around the (Figure 4.14).
middle of the month. This continued through July- 4.43 Consistent with the changed tempo of forex
August 2009 and the LAF absorption under reverse inflows, the ceiling for the MSS which was Rs
repo reached a peak of Rs1,68,215 crore on 2,50,000 crore since November 2007 was scaled
September 4, 2009. Liquidity conditions continued down to Rs 50,000 crore in July 2009. The average
to remain in surplus mode in October and November weekly outstanding on account of the MSS reflected
2009 with average absorption under the LAF being the situation. From a level of Rs 75,146 crore in
around Rs1,00,000 crore. However, net LAF April, 2009 it steadily declined to around Rs 18,773
absorption declined by end December mainly on crore by November 2009 (Table 4.18).

Figure 4.13 LAF reverse - repo and repo volume

100

50 FLAF
Rupees ‘000 crores

0 SLAF

-50

-100

-150

-200
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

2008-09 2009-10
Year
Note : 1. Repo is positive and Reverse repo is negative. 2. All additional LAF are included in first LAF (FLAF) till July 31, 2008. the second LAF (SLAF)
that was discontinued from August 6, 2007 was reintroduced from August 1,2008 on reporting Fridays and from September 17, 2008 on daily basis.
Thereafter, the special fixed rate term repo under the LAF and forex swap facility are included in the second LAF. The second LAF, on daily basis, has
again been discontinued from May 6, 2009 and is being conducted on reporting Fridays with effect from May 8, 2009.
82 Economic Survey 2009-10

Table 4.17 : Liquidity management

(Rupees crore)
Outstanding as on last Friday LAF MSS Centre’s surplus@ Total
of the month
2008
January 985 1,66,739 70,657 2,38,381
February 8,085 1,75,089 68,538 2,51,712
March* -50,350 1,68,392 76,586 1,94,628
April 32,765 1,72,444 36,549 2,41,758
May -9,600 1,75,362 17,102 1,82,864
June -32,090 1,74,433 36,513 1,78,856
July -43,260 1,71,327 15,043 1,43,110
August -7,600 1,73,658 17,393 1,83,451
September -56,480 1,73,804 40,358 1,57,682
October -73,590 1,65,187 14,383 1,05,980
November -9,880 1,32,531 7,981 1,30,632
December 14,630 1,20,050 3,804 1,38,484
2009
January 54,605 1,08,764 -9,166 1,54,203
February 59,820 1,01,991 -9,603 1,52,208
March* 1,485 88,077 16,219 1,05,781
April 1,08,430 70,216 -40,412 1,38,234
May 1,10,685 39,890 -6,114 1.44,461
June 1,31,505 22,890 12,837 1,67,232
July 1,39,690 21,063 26,440 1,87,193
August 1,53,795 18,773 45,127 2,17,695
September 1,06,115 18,773 80,775 2,05,663
October 84,450 18,773 69,391 1,72,614
November 94,070 18,773 58,460 1,71,303
December 19,785 18,773 1,03,438 1,41,996
Source : RBI.
Notes : @: excludes minimum cash balance with Reserve Bank in case of surplus.
* : As on March 31.
1. Negative sign under LAF indicates injection of liquidity and negative sign under centre’s surplus indicates
Ways & Means Advances / Overdrafts.

Figure 4.14 Market stabilisation scheme

300

250 Actuals
Rupees ‘000 crores

Limits
200

150

100

50

0
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan

2007-08 2008-09 2009-10

Year
 Prices and Monetary Management 83
Table 4.18 : Call money market
Call turnover Call rate^ LAF# Reverse repo rate Repo rate MSS*
(Rs crore) (Per cent) (Rs crore) (Per cent) (Per cent) (Rs crore)
2008-09
Apr. 2008 19,516 6.11 26,359 6.00 7.75 1,70,726
May2008 19,481 6.62 11,841 6.00 7.75 1,75,565
Jun.2008 21,707 7.75 -8,622 6.00 8.00/8.50 1,74,433
Jul. 2008 24,736 8.76 -27,961 6.00 8.50 1,72,169
Aug. 2008 23,408 9.1 -22,560 6.00 9.00 1,71,944
Sep. 2008 23,379 10.52 -42,591 6.00 9.00 1,75,666
Oct. 2008 28,995 9.9 -45,612 6.00 8.00 1,69,123
Nov. 2008 21,812 7.57 -8,017 6.00 7.50 1,47,648
Dec. 2008 21,641 5.92 22,294 5.00 6.50 1,24,848
Jan. 20-09 18,496 4.18 45,474 4.00 5.50 1,13,535
Feb. 2009 22,241 4.16 50,649 4.00 5.50 1,02,934
Mar. 2009 23,818 4.17 33,360 3.50 5.00 88,077
2009-10
Apr. 2009 21,820 3.28 1,01,561 3.25 4.75 75,146
May 2009 19,037 3.17 1,25,728 3.25 4.75 45,955
Jun. 2009 17,921 3.21 1,23,400 3.25 4.75 27,140
Jul. 2009 14,394 3.21 1,30,891 3.25 4.75 22,159
Aug. 2009 15,137 3.22 1,28,275 3.25 4.75 19,804
Sep. 2009 16,118 3.31 1,21,083 3.25 4.75 18,773
Oct. 2009 15,776 3.17 1,01,675 3.25 4.75 18,773
Nov. 2009 13,516 3.19 1,01,719 3.25 4.75 18,773
Dec. 2009 13,302 3.24 68,522 3.25 4.75 18,773
Source: RBI.
^ : Average of daily weighted call rate.
* : Average of weekly outstanding MSS.
# : Average daily absorption under LAF.

Money market obligation (CBLO)–-also moderated in tandem with

the behaviour of the call rate and remained below
4.44 The money market remained by and large
the call rate during 2009-10. (Figure 4.15) The
orderly during 2009-10, due to the prevailing surplus
weighted average interest rate in the collateralized
liquidity conditions. Call rate continued to hover
segment of the money market marginally increased
around the reverse repo rate during Q1 of 2009-10
from 2.4 per cent in the first quarter of 2009-10 to
and averaged 3.2 per cent as compared to 4.2 per
2.7 per cent during the second quarter. During the
cent during the last quarter of 2008-09. During the
third quarter of the year, it averaged 2.8 per cent.
second quarter of 2009-10, the call rate averaged
Transaction volumes in the CBLO and market repo
3.25 per cent. Even in the third quarter, the call
segments remained at a relatively high level during
rate continued to hover around the lower bound of
2009-10. Around 75 per cent of the lending in the
the informal LAF corridor (Table 4.18). The average
collateralized segment was contributed by mutual
call rate was placed at 3.20 per cent during this
funds, which reflected their enhanced lending
period.
capacity. The collateralized market remained the
4.45 Interest rates in the collateralized segments predominant segment of the money market and
of the money market--the market repo (outside the accounted for more than 80 per cent of its total
LAF) and the collateralized borrowing and lending volume.
84 Economic Survey 2009-10

Figure 4.15 Movement of money market rates

12
Market
Repo
9 (Non-RBI)
Per cent

6 Call Money

CBLO
3
Reverse
Repo Rate
0
Repo Rate
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
2008 2009
Year

Certificates of Deposit has declined. “Manufacturing companies” accounted

4.46 With the persistence of surplus liquidity
conditions, the fortnightly average issuance of
certificates of deposit (CD) also remained high during
much of 2009-10. The amount of outstanding CDs
issued by SCBs increased from Rs 1,92,867 crore
in end-March 2009 to Rs 2,43,584 crore as on
December 4, 2009. The outstanding amount
constituted 7.84 per cent (as on December 4, 2009)
of aggregate deposits of CD-issuing banks with
significant inter-bank variation. During April–
December 4, 2009, the average issuance was of
the order of Rs 11,000 crore as compared to Rs
6,131 crore during the corresponding period of the
previous year. Most of the CDs issued were of more
than six months duration. The weighted average
discount rate declined from 7.53 per cent in end-
March 2009 to 4.84 per cent as on December 4,
2009.
Commercial Paper
4.47 During 2009-10, the commercial paper (CP)
market also picked up with the easing of liquidity
conditions and the size of fortnightly issuance
increased significantly. The outstanding amount of
CP issued by corporates has shown an increasing
trend from Rs 44,171 crore in end-March 2009 to
Rs1,03,915 crore as in end -November 2009,
marginally coming down to a level of Rs 90,305 crore
in end-December 2009 . The weighted average
discount rate (WADR) of CP declined from 9.79 per
cent as in end-March 2009 to 4.71 per cent as in
end-July 2009 and increased to 5.17 per cent in
end-November 2009. The shares of “manufacturing
companies” and “other financial institutions” in total
outstanding CPs have increased in the recent period
while the share of “leasing and finance companies”
for 45 per cent of the share in end-November 2009.
(Table 4.19).
Treasury Bills (T-bills)
4.48 T-bills issuances during the year 2009-10
were dynamically managed, keeping in view the
emerging requirements of the Government and the
market conditions. The T-bills issued for enhanced
amounts in 2008-09 which became due for
repayment both in the first and second quarters of
2009-10 were fully rolled over. The primary market
yields for TBs of different tenors (91 days, 182
days and 364 days ) remained by and large stable
during 2009-10 as compared to the pattern observed
in 2008-09. (Figures 4.16, 4.17 and 4.18).
4.49 The introduction of a new short-term
instrument, known as cash management bill (CMB),
was announced in August 2009 to meet the
temporary cash-flow mismatches of the Government.
CMBs are non-standard, discounted instruments
issued for maturities of less than 91 days. However,
issuance of CMBs has not so far been resorted to
during the year.
Central Government Borrowing
4.50 The Union Budget (2009-10) placed the net
market borrowings requirement of the Central
Government at Rs 3,97,957 crore as against Rs
2,42,316 crore raised during the previous year.
Including repayments of Rs 93,087 crore, gross
market borrowing was estimated at Rs. 4, 91,044
crore (as compared to Rs 3,18,550 crore raised in
the previous year). The actual issuances during the
first half of the current year amounted to Rs 2,95,000
crore (as against issuances of Rs 1,06,000 crore
during the corresponding period of the previous year);
 Prices and Monetary Management 85
Table 4.19 : Activity in money market segments
(Rupees crore)

Average daily volume Commercial Certificates of

(one leg) paper deposit
Year/ Call Market CBLO Total Money Te r m Out- WADR Out- WADR
month repo market money stand- (per- stand- (per-
rate* ing cent) ing cent)
(per
cent)

Apr. 2008 9,758 14,966 38,828 63,552 5.31 374 37,584 8.85 1,50,865 8.49
May 2008 9,740 14,729 36,326 60,795 6.29 420 42,032 9.02 1,56,780 8.95
Jun. 2008 10,854 11,262 35,774 57,890 7.35 253 46,847 10.03 1,63,143 9.16
Ju l. 2008 12,368 8,591 23,669 44,628 8.09 226 51,569 10.95 1,64,892 10.23
Aug. 2008 11,704 10,454 22,110 44,268 8.65 501 55,036 11.48 1,71,966 10.98
Sep. 2008 11,690 10,654 20,547 42,891 9.26 335 52,038 12.28 1,75,522 11.56
Oct. 2008 14,497 9,591 16,818 40,906 8.66 345 48,442 14.17 1,58,562 10
Nov. 2008 10,906 15,191 24,379 50,476 6.58 319 44,487 12.42 1,51,493 10.36
Dec. 2008 10.820 16,943 32,261 60,024 5.37 415 40,391 10.7 1,51,214 8.85
Jan. 2009 9,248 18,053 31,794 59,095 3.99 454 51,668 9.48 1,64,979 7.33
Feb. 2009 11,121 19,929 38,484 69,534 3.89 669 52,560 8.93 1,75,057 6.73
Mar. 2009 11,909 21,593 48,319 81,821 3.76 451 44,171 9.79 1,92,867 7.53
Apr. 2009 10,910 20,545 43,958 75,413 2.41 332 52,881 6.29 2,10,954 6.48
May 2009 9,518 22,449 48,505 80,472 2.34 338 60,740 5.75 2,18,437 6.2
Jun. 2009 8,960 21,694 53,553 84,207 2.69 335 68,721 5 2,21,491 4.9
Jul. 2009 7,197 20,254 46,501 73,952 2.83 389 79,582 4.71 2,40,395 4.96
Aug. 2009 7,569 23,305 57,099 87,973 2.62 461 83,026 5.05 2,32,522 4.91
Sep. 2009 8,059 27,978 62,388 98,425 2.73 381 79,228 5.04 2,16,691 5.3
Oct. 2009 7,888 23,444 58,313 89,645 2.7 225 98,835 5.06 2,27,227 4.70
Nov. 2009 6,758 22,529 54,875 84,162 2.87 191 1,03,915 5.17 2,45,101 4.86
Dec. 2009 6,651 20,500 55,338 82,489 2.91 289 - - 2,43,584+ 4.84+
Source: RBI.
+ As on December 4, 2009. * Weighted average rate of call, market repo and CBLO.
WADR : Weighted average discount rate.

the issuance calendar for dated securities released 4.51 The gross borrowing requirement in 2009-10
on September 29, 2009 proposed to raise was 54 per cent higher than in 2008-09. In order to
Rs 1,23,000 crore during the second half of the year. carry out the borrowing programme in a non-disruptive

Figure 4.16 Auction cut-offs in 91 day T-bill auctions

10
9 2009-10
Cut off yields (per cent)

8
7 2008-09
6
5
4
3
2
1
0
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar
86 Economic Survey 2009-10

Figure 4.17 Auction cut-offs in 182 day T-bills

10
9 2009-10
Cut off yields (per cent)

8
7 2008-09
6
5
4
3
2
1
0
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar
Figure 4.18 Auction cut-offs in 364 day T-bills
10
9 2009-10
Cut off yields (per cent)

8
7 2008-09
6
5
4
3
2
1
0
Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

manner, a number of steps were taken. First, the
borrowing programme of the Central Government for
2009-10 was frontloaded as credit offtake by the
private sector is usually low in the first half. Further,
MSS securities of the order of Rs 28,000 crore were
de-sequestered. Besides, the Reserve Bank resorted
to active liquidity management by way of unwinding
of MSS securities and purchase of securities
through a pre-announced OMO calendar. The
unwinding of MSS securities through redemption
was of the order of Rs 42,000 crore during the first
half of the year; as against the OMO announcement
of Rs 80,000 crore through the auction route for the
first half of 2009-10, the actual purchases were Rs
57,487 crore, the shortfall from the projected level
being on account of easy liquidity conditions.
4.52 During 2009-10 ( up to January 15, 2010),
gross market borrowing raised through dated
securities by the Central Government (excluding
issuances under the MSS) was Rs 3,93,000 crore
(net Rs 3,51,911 crore) as against Rs1,80,000 crore
(net Rs 1,35,972 crore) raised during the
corresponding period of the previous year. This also
Mar
included floating rate bonds amounting to Rs 2,000
crore with a tenor of 11 years issued on December
18, 2009. Keeping in view market preferences, the
weighted average maturity of dated securities issued
during the year so far ( up to January 15, 2010)
worked out lower at 11.17 years as compared to
14.62 years for issues during the corresponding
period of the previous year. The weighted average
yield of dated securities during 2009-10 (uptil
January 15, 2010) was lower at 7.22 per cent as
compared to 8.15 per cent during the corresponding
period of the previous year (Figure 4.19).
Yields on 10-Year Government Securities
(10-year G-Sec)
4.53 The movement in yields in the 10-year G-Sec
market may be categorized into three broad phases.
During the first phase (April 2009), the yield on
10-year G-Sec declined from 7.01 per cent to 6.23
per cent between end-March and end-April 2009;
this was due to substantial easing of liquidity
conditions, decline in inflation rate, OMO purchase
auctions and reduction in LAF policy interest rates.

Figure 4.19 Weighted average yield of primary issues of dated securities (cumulative)
10
9
Per cent
8
6
Apr
May
Jun
Jul
Aug
Sep
4.54 During the second phase (May 2009-August
2009), the 10-year yields started rising following the
increase in size of primary auctions (from Rs12,000
crore to Rs15,000 crore) as well as anticipation of
overwhelming supplies in view of the large borrowing
programme of the Government. The 10-year yield
rose to 7.17 per cent in end-September 2009 as
compared to 6.23 per cent as in end-April 2009.
4.55 During the third phase (September-
December 2009), the G-sec yields traded in a broad
range with a hardening bias. The yield declined on
the back of the RBI’s decision to hike SLR by 1
percentage point to 25 per cent (as announced in
the Second Quarter Review of Annual Policy
Statement for 2009-10, on October 27, 2009).
However, the G-Sec yield rose subsequently on
account of a host of factors including absence of
announcement of the OMO purchase auction
calendar during the second half of the fiscal year
2009-10, and expectation by market participants
that the policy rates might be raised due to increase
in the inflation level (as reflected by the increase in
the WPI). The 10 year G-Sec yield was at 7.72 per
cent as on January 12, 2010 as compared to 7.17
per cent as in end-September 2009.
State Government Borrowings
4.56 In the light of the policy measures to
minimize the adverse impact of the global financial
crisis, the Union Budget had announced that State
Governments could borrow an additional 0.5 per cent
of their gross State domestic product (GSDP) up to
a ceiling of 4 per cent of GSDP in 2009-10.
Accordingly, the net market borrowings of the States
were placed at Rs.1,40,000 crore for 2009-10 (gross
: Rs 1,56,238 crore), compared to actual net market
borrowings of Rs 1,03,766 crore (gross: Rs 1,18,138
crore) in 2008-09. During the current year 2009-10
(up to January 15, 2010), the amount raised by State
Prices and Monetary Management 87
2009-10
2008-09
Oct
Nov
Dec
Jan
Feb
Mar
Governments aggregated to Rs 1,05,937.71 crore
as compared to Rs 52,842.74 crore raised during
the corresponding period last year. The weighted
average yield of the auctions so far has been 8.03
per cent as compared to 7.74 per cent during the
corresponding period last year.
Monetary Policy Stance During 2009-10
4.57 Conditioned by the need for monetary policy
to respond to the then slackening economic growth,
the RBI’s monetary policy stance during 2009-10
was aimed at providing a policy regime that would
enable credit expansion at viable rates while
preserving credit quality so as to support the return
of the economy to a steady growth path. The Annual
Policy Statement of the RBI for 2009-10 (April 21,
2009) clearly indicated the continuance of the policy
being followed since mid-September 2008 to
minimize the impact of the global financial crisis on
the domestic economy and restore the economy to
a high growth path consistent with price and financial
stability. With the resolve to maintain a soft interest
rate regime, the repo rate was further reduced from
5.00 per cent to 4.75 per cent with effect from April
21, 2009, while the reverse repo rate was reduced
from 3.50 per cent to 3.25 per cent. There were no
major changes in policy rates during 2009-10, except
for restoration of the SLR to the earlier level of 25
per cent of NDTL (from 24 per cent ) in November
2009 and an increase of 75 basis points in CRR
effective February 2010. The changes in policy rate
since 2008-09 are brought out in Table 4.20.
Quarterly Reviews
4.58 The RBI’s First Quarter Review of the
Monetary Policy 2009-10 (July 28, 2009) did not
announce any revisions in policy rates. While
continuing the accommodative monetary stance, it
,however, noted that there could be a reversal of the
expansionary measures to anchor inflation
88 Economic Survey 2009-10

Table 4.20 : Revision in policy rates 4.59 The Second Quarter Review recognized the
dilemma that while growth drivers warranted a
Sl. Date Repo Reverse CRR
no. rate repo delayed exit from the accommodative policy regime,
rate inflation concerns called for an early exit. The RBI
2008 noted that a premature exit from the accommodative
1. April 26, 2008 7.75 6.00 7.75 stance could derail the growth, but a delayed exit
2. May 10, 2008 7.75 6.00 8.00 could also potentially engender inflation
3. May 24, 2008 7.75 6.00 8.25 expectations. Therefore, while keeping the bank,
4. June 12, 2008 8.00 6.00 8.25 repo and reverse repo rates unchanged, it announced
5. June 25, 2008 8.50 6.00 8.25 closure of some special liquidity support measures,
6. July 5, 2008 8.50 6.00 8.50 which were not being fully utilized, besides restoring
7. July 19, 2008 8.50 6.00 8.75 the SLR to the earlier level of 25 per cent of NDTL.
8. August 30, 2008 9.0 6.0 9.0 The following measures were announced in the
9. October 11, 2008 9.0 6.0 6.5 Second Quarter Review of the Monetary Policy
10. October 20, 2008 8.0 6.0 6.5 Statement:
11. October 25, 2008 8.0 6.0 6.0
i. Taking note of the fact that the SCBs’
12. November 3, 2008 7.5 6.0 6.0 investment in SLR securities was higher than
13. November 8, 2008 7.5 6.0 5.5 the stipulated 24 per cent, the RBI
14. December 6, 2008 6.5 5.0 5.5 announced that the SLR which had earlier
2009 been reduced from 25 per cent of NDTL to
15. January 5, 2009 5.5 4.0 5.5 24 per cent in November 2008, was being
16. January 17,2009 5.5 4.0 5.5 restored to 25 per cent with effect from the
17. March 5, 2009 5.0 3.5 5.0 fortnight beginning November 7, 2009.
18. April 21, 2009 4.75 3.25 5.0
2010
ii. Liabilities of scheduled banks arising from
19. February 13 2010 4.75 3.25 5.5*
transactions in CBLO (which were earlier
20. February 27 2010 5.75*
exempted from CRR prescription), would be
brought into the fold for maintenance of CRR
Source : RBI
SLR : The prescribed SLR as a per cent of NDTL
with effect from the fortnight beginning
was lowered from a level of 25 per cent to November 21, 2009.
24 per cent w.e.f. . November 8, 2008. This
has been restored to 25 per cent w.e.f iii. Keeping in view the large increase in credit
November 7, 2009 in the Second Quarter to the commercial real estate sector,
Review of Monetary Policy 2009-10.
provisioning requirements to the sector
* : A two-stage increase in CRR announced in
RBI’s Third Quarter Review of Monetary classified as “standard assets” were
Policy 2009-10 (January 29, 2010) effective increased from 0.40 to 1 per cent.
February 13 and 27, 2010.
iv. The limit for the export credit refinance facility
expectations and subdue inflationary pressures, if [(under section 17(3A) of the RBI Act], which
so warranted. The RBI’s Second Quarter Review of was raised to 50 per cent of eligible
Monetary Policy 2009-10 (October 27, 2009) made outstanding rupee export credit, was returned
an overall assessment of the economy and indicated to the pre-crisis level of 15 per cent.
that the stance of monetary policy for the remaining v. The two non-standard refinance facilities: (i)
period of 2009-10 would be to: (i) maintain a monetary
special refinance facility for SCBs under
and interest rate regime consistent with price
section 17(3B) of the RBI Act (available up
stability and financial stability, and supportive of the
to March 31, 2010), and (ii) special term repo
growth process; (ii) keep a vigil on the trends in
facility for SCBs (for funding to mutual funds,
inflation and be prepared to respond swiftly and
non-banking finance companies , and
effectively through policy adjustments to stabilize
housing finance companies) (available up to
inflation expectations; and (iii) monitor the liquidity
March 31, 2010) have been discontinued.
situation closely and manage it actively to ensure
that credit demands of productive sectors are vi. The forex swap facility to banks for tenor up
adequately met while also securing price and to three months (available up to March 31,
financial stability. 2010) has been discontinued.

Table 4.21 : RBI’S indicative projections of macro parameters for 2009-10
Annual Policy
2009-10
(April 21,2009)
GDP Growth 6.0
WPI Inflation 4.0
Money Supply Growth (M3) 17.0
Aggregate Deposits of SCBs 18.0
Adjusted Non-food Credit 20.0
4.60 The RBI has in its Third Quarter Review of
the Monetary Policy (January 29, 2010) indicated
that its stance is shaped by three important
considerations ;
i. The need to shift policy stance from
“managing the crisis” to “managing the
recovery” which implies reversal from the
crisis-driven expansionary stance, thereby
recognizing the need for carrying forward the
process of exit further .
ii. Though the inflationary pressures in the
domestic economy stem predominantly from
the supply side, consolidating recovery
increases the risks of these pressures spilling
over into a wider inflationary process.
iii. Strong anti-inflationary measures, while
addressing one problem may precipitate
another by undermining the recovery,
particularly by deterring private investment
and consumer spending.
4.61 Based on its assessment, the RBI left the
bank rate, repo and reverse repo rates and SLR
unchanged ; however, it announced that the CRR
was being raised by 75 basis points from 5.0 per
cent to 5.75 per cent in two stages; the first stage
of increase of 50 basis points to be effective the
fortnight beginning February 13, 2010, followed by
the next stage of increase of 25 basis points effective
the fortnight beginning February 27, 2010. The hike
in CRR is estimated to have potential to absorb
around Rs 36,000 crore from the system which is
presently witnessing surplus liquidity.
4.62 The response of the monetary authority to
the changing economic environment was also
reflected in the indicative projections for macro-level
parameters made by the RBI for 2009-10 in the
Prices and Monetary Management 89
Indicative projections for growth rates (per cent)
First Quarter Second Quarter Third Quarter
Review Review Review
(July 28, 2009) (October 27, 2009) (Jan. 29, 2010)
6.0 with an 6.0 with an 7.5
upward bias upward bias
5.0 6.5 with an 8.5
upward bias
18 17 16.5
19.0 18.0 17
20 18 16
Annual Policy Statement for the year and
subsequent quarterly reviews. The revisions
considered by the RBI are summarized in Table 4.21.
CHALLENGES AND OUTLOOK
4.63 Food prices are cyclical in nature. A sharp
increase in food prices during the recent period has
been a cause of concern. A significant part of this
inflation could be explained by supply-side
bottlenecks in some of the essential commodities,
precipitated by the delayed and sub-normal south-
west monsoon as well as drought-like conditions in
some parts of the country. However, inflation in some
of the commodities, like wheat and rice, in which
there is ample stock available, could have been
exacerbated due to inflationary expectations. Making
available adequate and timely quantities of these
items and at different locations to overcome supply-
demand mismatches is the real challenge.
4.64 India cannot be immune to global price
situations especially when a significant proportion
of our requirement of edible oils, pulses and sugar
(in years of shortages) is met through imports. At
the same time, for a large country like India the
scope for imports for many commodities is limited.
Any decision to import food items raises global
prices which impacts domestic prices as well.
Proper and timely assessment of the supply-demand
situation and preventive action become the essence
of supply-side management.
4.65 The concentrated pressure on headline
inflation arising from high food prices entails the risk
of getting transmitted over time to other non-food
items through expectations-driven wage price
revisions, and thereby manifesting into a generalized
inflation.
90 Economic Survey 2009-10
4.66 The international crude oil prices have increased
from $ 44/bbl in January-March, 2009 to $ 77/bbl in
January, 2010. Despite this, the administered prices
of petroleum products in the domestic market have
been maintained at the same level since July 2009.
Sustaining current levels of domestic petroleum prices
in this scenario of rising international prices may not
be viable for long from the fiscal side; at the same
time, increase in prices would have its impact on
inflation levels.
4.67 As of now, the outlook for inflation is conditioned
by supply-side pressures in the near term, possible
return of pricing power with stronger recovery in growth,
further revival in private demand with improving
consumer and business confidence, and possible spurt
in global commodity prices in response to
recovery in advanced economies.
4.68 While the fiscal issues including fiscal
rectitude are important, the transmission of the
monetary policy stance to the monetary and real
sectors is equally critical. It would therefore also
be incumbent on the policy authorities not only
to address the inflationary expectations but also
monitor and ensure that the growth in money
supply and credit to productive sectors is at the
envisaged levels so that the growth prospects in
the near to medium terms are sustained on an
even keel, without ,at the same time, jeopardizing
the price scenario.
Financial Intermediation
and Markets
5
CHAPTER

The financial markets today encompass not only traditional banking institutions, but also
many other financial entities such as insurance companies, pension funds, mutual funds,
venture capital funds and stock and commodity exchanges that perform the function of financial
intermediation. This development has been accompanied by the advent of market-based
instruments of the stock and bond markets, financial products such as asset-backed securities,
financial futures and derivative instruments. While reducing the dependence of investors on
bank credit to fund their investments, these have also contributed to reallocation of risks and
putting of capital to more efficient use. Financial markets also serve the need for greater
financial inclusion. The recent experience from the global financial crisis, has however, shown
that, despite the variety of instruments and the sophistication of the markets, they may not
remain immune to crisis, if the investors/institutions do not pay adequate attention to the
fundamentals or if the pricing of risk and the ratings for these instruments are not transparent,
and if the regulatory oversight is poor. An efficient and healthy financial market, should
therefore avoid the shortcomings as gleaned from the experience of the global financial markets
in the last couple of years. The deepening and broadening of financial markets also underscores
the importance of institutional safeguards for monitoring and analysing the domestic as well
as external developments to ensure that the regulatory system is efficient and effective. This
chapter summarizes the developments in the financial sector in India in the last year, which has
remained relatively immune to the global financial turbulence through a proactive response to
the challenges.

BANK CREDIT non-bank domestic sources of funds and external

5.2 The accommodative monetary policy stance
adopted by the Reserve Bank, post-September
2008, in response to the global financial crisis,
continued during 2009-10. Though the policy focused
on maintaining a market environment conducive to
the flow of credit to the productive sectors of the
economy, growth in bank credit remained low during
2009-10. The prevalent economic conditions as well
as the cost of funds appear to have contributed to
the slowdown in non-food bank credit from the
banking sector. 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.
5.3 While the overall credit demand of the
manufacturing sector from the banking sector slowed
down during the 2009-10, corporates could access
financing (which had almost dried up earlier during
the crisis period) at lower costs. Thus, while bank
credit during 2009-10 continued to decelerate, there
was a turnaround in financing from non-bank
domestic sources. It is likely that revival of growth
in bank credit would manifest in the near-term
economic recovery process.
5.4 As against an increase of 22.3 per cent in
2007-08, bank credit increased by 17.5 per cent
in 2008-09. Non-food credit during the same
periods was 23.0 per cent and 17.8 per cent
respectively. During 2009-10, on financial-year
basis, growth in bank credit extended by scheduled
commercial banks (SCBs) stood at 8.4 per cent
(end March 2009 to January 15, 2010), as
compared to 11.9 per cent during the
corresponding period in 2008-09 (Table 5.1). This
92 Economic Survey 2009-10

Table 5.1 : Flow of bank credit

As of January 15, 2010
Financial year Year on
Outstanding as in end March so far year
Rs. crore (Percentage variation)
2007 2008 2009 16-Jan-09 15-Jan-10 2008- 2009- 2008- 2009-
09 10 09 10

1. Bank Credit 19,31,188 23,61,914 27,75,549 2642077 3008909 11.9 8.4 22.0 13.9
(a) Food Credit 46,520 44,399 46,211 49,695 42,534 11.9 -8.0 26.8 -14.4
(b) Non-food Credit 18,84,668 23,17,515 27,29,338 2592382 2966375 11.9 8.7 21.9 14.4
2. Aggregate Deposits 26,11,932 31,96,940 38,34,110 3630875 4242574 13.6 10.7 20.1 16.8
(a) Demand Deposit 4,29,730 5,24,310 5,23,085 448440 540660 -14.5 3.4 -1.6 20.6
(b) Time Deposit 21,82,202 26,72,630 33,11,025 3182435 3701914 19.1 11.8 23.9 16.3
3. Investments ( SLR) 7,91,517 9,71,715 11,66,410 1139279 1380157 17.2 18.3 19.5 21.1
(a) Government
Securities 7,76,058 9,58,662 11,55,785 1128489 1366055 17.7 18.2 20.0 21.1
(b) Other Approved
Securities 15,459 13,053 10,625 10,790 14,102 -17.3 32.7 -18.3 30.7
Source : RBI.

is also below the Reserve Bank’s indicative
projected trajectory for the full year, of 20.0 per cent
as set out in the First Quarter Review and 18.0 per
cent in the Second Quarter Review for 2009-10. The
year-on-year growth in bank credit as on January
15, 2010 was 13.9 per cent as against 22.0 per
cent on the corresponding date of the previous year.
Growth in non-food credit so far in 2009-10 on
financial-year basis and on year-on-year basis was
lower than the previous year’s levels. Growth in
aggregate deposits in 2009-10 was broadly
compatible with the growth in the previous year. The
lower expansion in credit relative to the significant
expansion in deposits during 2009-10 has resulted
in a decline in the credit-deposit ratio to 70.92 on
January 15, 2010 from 72.4 in end-March 2009.
(Figure 5.1).
5.5 During 2009-10, public-sector banks (PSBs)
were observed to be faring better in terms of growth
in credit extended as compared to the deceleration
in private banks and decline in foreign banks. Higher
market borrowing by the Government, low credit
growth and the ample liquidity in the system led to
banks’ investment in statutory liquidity ratio (SLR)
securities. Commercial banks’ holdings of such
securities close to 30 per cent of their net demand
and time liabilities (NDTL) remained higher than the

Figure 5.1 Credit-deposit ratio

76
75 2009-10
74
73
Per cent

2008-09
72
71 2007-08
70
69
68
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

Fortnights
 Financial Intermediation and Markets 93
Figure 5.2 Investment-deposit ratio
34
33 2009-10
32
Per cent

31 2008-09
30
29 2007-08
28
27
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Fortnights

stipulated SLR level of 24 per cent (25 per cent with
effect from November 7, 2009). Consequently, the
investment-deposit ratio increased from 30.4 per cent
in end-March, 2009 to 32.53 on January 15, 2010 as
SCBs preferred to invest their resources in SLR
securities (Figure 5.2).
Interest rates
i. Domestic Deposit Rates
5.6 Deposit rates of SCBs softened during 2009-
10. Interest rates offered by PSBs on deposits of
maturity of one year to three years declined from
the 8.00-9.25 per cent range in March 2009 to 6.00-
7.25 per cent in December 2009, while those on
deposits of maturity of above three years came down
from the 7.50-9.00 per cent range to the 6.25-7.75
per cent during the same period. The term deposit
rates of private-sector banks and foreign banks on
deposits of maturity of one year up to three years
also declined from the 7.50-10.25 per cent and 2.50-
9.50 per cent range respectively in March 2009 to
the 5.25-7.50 per cent and 2.25-7.75 per cent range
in December 2009 (Table 5.2).

Table 5.2 : Movements in deposit and lending rates

(per cent)
Interest rates Mar.-08 Sep.-08 Dec.-08 Mar.-09 Dec.-09
Term Deposit Rates
PSBs
a) Up to 1 year 2.75-8.50 2.75-10.25 2.75-10.25 2.75-8.25 1.00-6.50
b) 1 year up to 3 years 8.25-9.25 8.75-10.25 8.50-10.75 8.00-9.25 6.00-7.25
c) Over 3 years 8.00-9.00 8.50-9.75 8.50-9.75 7.50-9.00 6.25-7.75
Private-Sector Banks
a) Up to 1 year 2.50-9.25 3.00-9.75 3.00-10.00 3.00-8.75 2.00-7.00
b) 1 year up to 3 years 7.25-9.25 8.30-10.50 9.00-11.00 7.50-10.25 5.25-7.50
c) Over 3 years 7.25-9.75 8.25-10.25 8.50-11.00 7.50-9.75 5.75-8.00
Foreign Banks
a) Up to 1 year 2.25-9.25 3.50-9.75 3.50-9.75 2.50-8.50 1.25-7.00
b) 1 year up to 3 years 3.50-9.75 3.50-10.50 3.50-11.25 2.50-9.50 2.25-7.75
c) Over 3 years 3.60-9.50 3.60-11.00 3.60-11.00 2.50-10.00 2.25-8.50
BPLR
PSBs 12.25-13.50 13.75-14.75 12.50-14.00 11.50-14.00 11.00-13.50
Private-Sector Banks 13.00-16.50 13.75-17.75 13.00-17.25 12.75-16.75 12.50-16.75
Foreign Banks 10.00-15.50 10.00-16.00 10.00-17.00 10.00-17.00 10.50-16.00
Source: RBI.
94 Economic Survey 2009-10
ii. Lending Rates
5.7 The benchmark prime lending rates (BPLRs)
of PSBs moved from the 12.25-13.50 per cent range
in March 2008 to 11.50-14.00 per cent in March
2009 and 11.00-13.50 per cent in December 2009.
The BPLRs of PSBs, private-sector banks and
foreign banks decreased from their September 2008
levels in March 2009 and further declined in
December 2009. However, the movement in the
BPLRs does not fully and accurately reflect the
changes in effective lending rates as nearly two-
thirds of banks’ lending takes place at sub-BPLR
rates; the share of sub-BPLR lending of all SCBs
(excluding export credit and small loans) was nearly
67.0 per cent in March 2009, and increased further
to 70.4 per cent in September 2009. To address
this anomaly, the Reserve Bank announced the
constitution of the Working Group on BPLR in its
Annual Policy Statement of 2009-10 to review the
system and suggest changes to make credit pricing
more transparent. The Group submitted its report
on October 20, 2009. The Working Group has
recommended replacing the existing BPLR system
with a base rate system. With the proposed base
rate system, banks will not need to lend below the
base rate as it would represent the bare minimum
rate below which it would not be viable for them to
lend. The proposed base rate may include all those
cost elements which can be clearly identified and
which are common across borrowers. The actual
lending rates charged to borrowers could work out
to be the base rate plus borrower-specific charges
that would include product-specific operating costs,
credit risk premium and tenor premium.
iii. NRE/FCNR(B) Deposits
5.8 To encourage the inflow of foreign funds,
interest rate ceilings on Foreign Currency Non
Resident Bank accounts {FCNR(B)} and Non
Resident (External) Rupee Account {NR(E)RA}
deposits of all maturities were revised upwards by
50 basis points each on September 16 and October
15, 2008. After a review, the Reserve Bank further
increased the interest rate ceiling on FCNR(B) and
NRE deposits by 75 basis points each on November
15, 2008. At present, the interest rate ceiling on
such deposits stands at Libor/Swap rates plus
100 basis points and Libor/Swap rates plus 175
basis points, respectively.
iv. Rupee Export Credit
5.9 In view of the difficulties being faced by
exporters on account of the weakening of external
demand, the Reserve Bank on November 15, 2008
extended the period of entitlement of the first slab
of pre-shipment rupee export credit, which was
available at a concessional interest rate ceiling of
the BPLR minus 2.5 percentage points from 180
days to 270 days. Furthermore, on November 28,
2008 the period of entitlement of the first slab of
post-shipment rupee export credit was extended
from 90 days to 180 days for availing of a
concessional interest rate ceiling of the BPLR
minus 2.5 percentage points. On December 8, 2008,
the Reserve Bank extended the concessional
interest rate ceiling of the BPLR minus 2.5
percentage points to overdue bills up to 180 days
from the date of advance. The validity of the reduction
in the interest rate ceiling to 250 basis points below
the BPLR on pre-shipment rupee export credit up
to 270 days and post-shipment rupee export credit
up to 180 days has been further extended up to April
30, 2010.
5.10 Factoring in the prevalent economic scenario,
the Government of India extended interest rate
subvention of 2 percentage points with effect from
December 1, 2008 till March 31, 2010 on pre- and
post-shipment rupee export credit, for certain
employment-oriented export sectors. Banks have
been allowed to charge the identified sectors
interest rates not exceeding the BPLR minus 4.5
percentage points on pre-shipment credit up to 270
days and post-shipment credit up to 180 days on
the outstanding amount for the period December 1,
2008 to March 31, 2010. However, the total
subvention will be subject to the condition that the
interest rate, after subvention, will not fall below 7
per cent, which is the rate applicable to the
agriculture sector under priority-sector lending.
Banks are also required to ensure that the benefit
of the 2 per cent interest subvention is passed on
completely to the eligible exporters.
SECTORAL DEPLOYMENT OF CREDIT
5.11 Disaggregated data on sectoral deployment
of gross bank credit from 49 banks accounting for
about 95 per cent of bank credit and non-food credit
available up to November 20, 2009 showed that
among the major sectors, credit (year-on-year) to
agriculture recorded a growth of 21.4 per cent (23.0
per cent in March 2009), while that to industry
 Financial Intermediation and Markets 95
Table 5.3 : Sectoral deployment of gross bank credit
Outstanding as on Absolute % variation
Sl. Item variation
No. Mar. 27, Mar. 27, Nov. 20,
Mar. 27, Nov. 20, 2009 over 2009 over 2009 over
2009 2009 Mar. 28, Mar. 28, Nov. 21,
2008 2008 2008
(amount in Rs. crore)
Gross Bank Credit 26,48,501 27,58,069 4,01,212 17.9 9.9
1 Public Food Procurement Credit 46,211 41,852 1,812 4.1 -15.3
2 Non-Food Gross Bank Credit 26,02,290 27,16,217 3,99,400 18.1 10.4
a) Priority Sectors 9,15,886 9,49,428 1,68,506 22.5 15.4
i. Agriculture 3,38,656 3,43,070 63,314 23.0 21.4
ii. Micro and Small Enterprises (MSEs) 3,09,196 3,35,654 57,119 22.7 19.3
iii. Other Priority Sectors 2,68,034 2,70,704 48,073 21.9 4.7
b) Industry ( Medium & Large) 8,85,393 9,65,057 1,25,330 18.6 12.8
c) Wholesale Trade
(Other than Food Procurement) 67,425 80,922 11,723 21.0 27.4
d) Other Sectors 7,33,586 7,20,810 93,841 12.9 0.3
Of Total Non-Food Gross Bank Credit,
1. Housing 2,76,957 2,91,760 19,165 7.4 7.3
2. Consumer Durables 8,187 8,028 -612 -7.0 -11.8
3. Real Estate Loans 91,575 88,581 28,261 44.6 15.3
4. Tourism and Hotels and Restaurants 13,625 15,667 1,420 11.6 22.7
5. Loans to Individuals against Shares,
Debentures, Bonds,etc. 2,286 2,347 -1,891 -45.3 -36.8
Source : RBI.
Note : Data are provisional and relate to select banks which account for around 95 per cent of the gross bank
credit of all SCBs. Figures are as on the last reporting Friday of the month.

(medium and large) recorded a growth of 12.8 per
cent (as against 18.6 per cent in March 2009). Credit
to wholesale trade recorded a growth of 27.4 per
cent (as against 21.0 per cent in March 2009).
5.12 Credit to the priority sector grew by 15.4 per
cent (year-on-year) in November 2009 as compared
to 22.5 per cent in March 2009. Among the priority
sub-sectors, credit to micro and small enterprises
(MSEs) (including service-sector enterprises)
recorded a growth of 19.3 per cent (year-on-year) in
November 2009 as compared to 22.7 per cent in
March 2009. (Table 5.3).
Priority-sector Lending
5.13 Domestic SCBs, both in the public and private
sectors are required to meet a target of 40 per cent
of their adjusted net bank credit (ANBC) or credit
equivalent amount of off-balance sheet exposures
(OBEs), whichever is higher, for lending to the priority
sectors. Within this, sub-targets of 18 per cent and
10 per cent of ANBC or credit equivalent amount of
OBE, whichever is higher, have been stipulated for
lending to agriculture and the weaker sections
respectively. In respect of foreign banks having offices
in India, the target for lending to the priority sector
has been kept at 32 per cent of ANBC or credit
equivalent amount of OBE, whichever is higher.
Within the overall target of 32 per cent to be achieved
by foreign banks, advances to the MSE and export
sectors should not be less than 10 per cent and 12
per cent of the ANBC or credit equivalent amount of
OBE, whichever is higher, respectively. The
outstanding advances by PSBs, private-sector banks
and foreign banks to the priority sector as on the
last reporting Fridays of March 2007, 2008 and 2009
are given in Table 5.4.
5.14 Though the public, private-sector and foreign
banks, as individual groups, achieved the overall
priority-sector lending targets as on the last reporting
Friday of March 2009, there were shortfalls in all the
categories included in the priority sector.
5.15 Out of 27 public-sector banks, three did not
achieve the overall priority-sector lending target of
40 per cent as on the last reporting Friday of March
96 Economic Survey 2009-10

Table 5.4 : Particulars of advances to the priority sector

A. PUBLIC SECTOR BANKS (Rs crore)
As on the last reporting Friday of
Detail March 2007 March 2008 March 2009 (provisional)
Total priority sector advances 5,21,376 6,10,450 7,20,083
(39.7%) (44.7%) (42.5%)
Total advances to agriculture # 2,02,614 2,49,397 (17.2%)
(15.4%) (18.3%) 2,98,211
Total advances to micro & small 1,02,550 1,51,137 1,91,307
enterprises * (7.8%) (11.1%) (11.3%)
Advances to weaker sections 93,747 1,21,740 1,67,041
(7.1%) (8.9%) (9.8%)
# Indirect agriculture is reckoned only up to 4.5 per cent of the ANBC or credit equivalent of OBEs, whichever
is higher.

B. PRIVATE SECTOR BANKS

As on the last reporting Friday of
Detail March 2007 March 2008 March 2009 (provisional)
Total priority sector advances 1,44,549 1,64,068 1,90,207
(42.9%) (47.8%) (46.8%)
Total advances to agriculture# 52,034 58,567 76,062
(12.7%) (17.0%) (15.9%)
Total advances to micro & small 13,136 46,912 47,916
enterprises * (3.9%) (13.7%) (11.8%)
Advances to weaker sections 5,223 7,152 15,832
(1.6%) (2.0%) (3.9%)
# Indirect agriculture is reckoned only up to 4.5 per cent of the ANBC or credit equivalent of OBEs, whichever
is higher.

C. FOREIGN BANKS
As on the last reporting Friday of
Detail March 2006 March 2007 March 2008 (provisional)
Total priority sector advances 37,831 50,254 55,483
(33.4%) (39.5%) (34.3%)
Total advances to micro & small 11,637 15,489 18,138
enterprises * (10.3%) (12.2%) (11.2%)
Total Export credit (includes SSI export) 20,711 28,954 31,511
(18.3%) (22.7%) (19.4%)
Source : RBI
* Figures for 2007 represent small-scale industries. In terms of revised guidelines on lending to the priority
sector, MSEs are defined on basis of the Micro, Small and Medium Enterprises Development (MSMED) Act
2006.
Figures in parentheses for the year 2007 show percentage of advances to net bank credit while those for
the years 2008 and 2009 show percentage to ANBC.

2009. As regards lending to agriculture by PSBs, target of 40 per cent and only eight achieved the
only 14 banks achieved the target of 18 per cent. In target of 18 per cent for lending to agriculture. While
the case of private-sector banks, out of 22 banks, the target for lending to the weaker sections (10 per
five did not achieve the overall priority- sector lending cent) was achieved by 15 PSBs, only four private-
 Financial Intermediation and Markets 97
sector banks achieved the same as on the last dealing in essential commodities (fair price shops),
reporting Friday of March 2009. Out of 27 foreign consumer cooperative stores; and advances granted
banks, only four did not achieve the overall priority- to private retail traders with credit limits not exceeding
sector lending target of 32 per cent as on the last Rs 20 lakh] would henceforth be part of the small
reporting Friday of March 2009. The number of foreign (service) enterprises.
banks, which did not achieve the targets of 10 per
cent and 12 per cent for lending to the MSE and Rural Infrastructure Development Fund
export sectors respectively, stood at six. (RIDF)
5.16 In order to improve and enhance the flow of 5.19 The Government of India initiated the setting-
credit to the priority sector, a number of policy up of an RIDF to be raised from the commercial banks
initiatives were taken during 2009-10 including the to the extent of their shortfall in agricultural lending.
following: The Fund has since been continued, with its corpus
being announced every year in the budget. Over the
Housing years, coverage under the RIDF has been made
Banks were advised that loans granted to housing broad based in each tranche and ,at present, a wide
finance companies (HFCs) for on-lending to range of 31 activities under various sectors is being
individuals for purchase/construction of a dwelling financed. The annual allocation of funds announced
unit per family be classified as housing loans under in the Union Budget has gradually increased from
the priority sector, provided the housing loans granted Rs 2,000 crore in 1995–96 (RIDF I) to Rs 14,000
by HFCs do not exceed Rs 20 lakh per dwelling crore in 2009-10 (RIDF XV). The aggregate
unit. Eligibility under this measure was restricted to allocations have reached Rs 1,00,000 crore. Further,
5 per cent of the individual bank’s total priority-sector
lending, on an ongoing basis. This special Table 5.5 : Sanctions and disbursements
dispensation is made applicable for loans granted Under the RIDF and Bharat Nirman
by banks to HFCs up to March 31, 2010.
(As on December 31, 2009) (Rs crore)
Small-scale Sector Region Sanctions Disburse- Disburse-
Banks have been advised that loans granted for ments ments
as per cent
certain activities under micro and small (service)
of sanction
enterprises would be included within the priority
sector provided such enterprises satisfy the definition South 27,068.41 17,417.90 64.35
of micro and small (service) enterprises in respect West 14,354.92 10,042.81 69.96
of investment in equipment (original cost excluding North 27,997.49 18,513.68 66.13
land and building, furniture, fittings and other items Central 8,956.38 5,607.56 62.61
not directly related to the service rendered or as may East 16,901.57 8,825.99 52.22
be notified under the MSMED Act 2006) (i.e. not North-eastern
exceeding Rs10 lakh and Rs 2 crore respectively). Region & Sikkim 4,375.76 2,415.68 55.21
Total 99,654.53 62,823.62 63.04
5.17 The activities which would be included within Bharat Nirman 16,500.00 14,080.70 85.34
the priority sector are, consultancy services including
Grand Total 1,16,154.53 76,904.32 66.21
management services, composite broker services
in risk and insurance management, third-party Source : NABARD (National Bank for Agriculture and
Rural Development).
administration (TPA) services for medical insurance
claims of policy holders, seed grading services,
training-cum-incubator centres, educational a separate window has been created under the RIDF
institutions, training institutes, retail trade, practice with a corpus of Rs 4,000 crore, with annual
of law, i.e. legal services, trading in medical replenishment, for partly funding the rural roads and
instruments (brand new), placement and bridges components of the Bharat Nirman
management consultancy services and advertising Programme from 2006–07 to 2008-09. This amount
agency and training centres. was raised to Rs 4,500 crore in 2009-10.

5.18 There will be no separate retail trade category 5.20 As against the total allocation of Rs1,00,000
under the priority sector. Loans granted by banks crore, encompassing RIDF I to XV, sanctions
for retail trade [i.e. advances granted to retail traders aggregating Rs 99,654.53 crore have been accorded
98 Economic Survey 2009-10

crore to the agricultural sector, thereby exceeding

Table 5.6 : Disbursements during 2009-10
the target by around 4 per cent. Commercial banks
(As on December 31, 2009) (Rs crore) and regional rural ranks (RRBs) together extended
Region Disbursement Achieve- credit to 81.02 lakh new farmers during 2008-09. In
Target Achieve- ment(%) addition to this, cooperative banks provided loans to
ment 13.88 lakh new farmers during the period, thus taking
South 4,235 1,367.15 32.28 the total number of farmers financed by the banking
West 2,350 795.27 33.84 system to 94.90 lakh.
North 4,450 261.23 58.81 5.23 The total credit flow to agriculture during 2009-
Central 1,200 392.74 32.73 10 up to October 31, 2009 by commercial banks,
East 3,100 1,384.91 44.67 cooperative banks and RRBs was of the order of Rs
North-eastern 1,65,439.37 crore, amounting to 51 per cent of the
Region & Sikkim 680 214.12 31.49 annual target of Rs 3,25,000 crore (Table 5.7).
RIDF Total 16,015 6,771.42 42.28
New Delhi–NRRDA 4,500 2,081.70 46.26
Kisan Credit Card Scheme (KCC)
Grand Total 20,515 8,853.12 43.15 5.24 The KCC scheme has become a widely
accepted mechanism for delivery of credit to farmers.
Source: NABARD.
The banking system has issued 878.30 lakh KCCs
as of November 30, 2009. The scheme now also
to various State Governments, and disbursements covers borrowers of the long-term cooperative credit
under the Fund amounted to Rs 62,823.62 crore, up structure. The KCC has thus become a single window
to end December 2009. The National Rural Roads for a comprehensive credit product. The year-wise
Development Agency (NRRDA) was sanctioned and agency-wise break up of the cards issued since
during the tranches RIDF XII to RIDF XV and it has inception is given in Table 5.8.
so far availed of a disbursement of Rs 14, 080.70
crore. (Table 5.5).
5.21 During 2009-10 the aggregate disbursement
INITIATIVES FOR THE AGRICULTURAL
to the States amounted to Rs 8,853.12 crore till end
SECTOR
December 2009 and that to the NRRDA was Rs Personal Accident Insurance Scheme
2,081.70 crore (Table 5.6). (PAIS)
5.25 In order to safeguard the interests of KCC
AGRICULTURAL CREDIT holders, NABARD has allowed banks the discretion
to opt for any insurance company of their choice.
Flow of Agricultural Credit The banks have, however, to keep in mind the guiding
5.22 As against the target of Rs 2,80,000 crore principles of PAIS, especially the premium- sharing
(provisional) for agricultural credit in 2008-09, the formula,and coverage while negotiating with insurance
banking system disbursed credit of Rs 2,92,437 companies.

Table 5.7 : Flow of institutional credit to agriculture and allied activities

(Rs crore)
Sl. No. Agency 2004-05 2005-06 2006-07 2007-08 2008-09^ 2009-10*
$
1. Cooperative Banks 31,424 39,786 42,480 48,258 36,762 32,925
% share 25 22 18 19 13 20
2. RRBs 12,404 15,223 20,435 25,312 26,724 20,065
% share 10 8 9 10 9 12
3. Commercial Banks 81,481 1,25,477 1,66,486 1,81,088 2,28,951 1,12,449
% share 65 70 73 71 78 68
Total (1+2+3) 1,25,309 1,80,486 2,29,401 2,54,658 2,92,437 1,65,439
Source : NABARD.
$ : Including Others ^ : Provisional * : Up to October 31, 2009.

Table 5.8 : Agency-wise KCCs issued and amount sanctioned (as of November 30, 2009)
Agency Cards issued (lakh)
2006-07 2007-08 2008-09 2009-10
Cooperative Banks 22.97 20.91 13.44 12.17
RRB 14.06 17.73 14.15 11.02
Commercial Banks 48.08 46.06 58.34 8.45^
Total 85.11 84.70 85.93 31.64
Source : NABARD
# Since inception of the scheme in 1998. ^: Data up to 30 June 2009
@ Break-up i.e term loan is not available
$ Total amount sanctioned includes Rs 2,859 crore for term loan under KCC for 2008-09.
$$ Total amount sanctioned includes Rs 2,304 crore for term loan under KCC for 2008-09.
* Total amount sanctioned includes Rs 10,279 crore for term loan under KCC for 2008-09.
Enlargement of the scope of KCC
5.26 With a view to making it more user-friendly,
NABARD has enlarged the scope of the KCC
scheme to cover term loans for agriculture and allied
activities, including a reasonable component for
consumption needs, besides the existing facility of
providing crop loan limit.
Crop Insurance on KCC
5.27 Crop loans disbursed under the KCC Scheme
for notified crops are covered under the Rashtriya
Krishi Bima Yojana (National Crop Insurance
Scheme), introduced to protect the interests of the
farmer against crop loss caused by natural
calamities, pest attacks, etc.
MICRO FINANCE
Self-Help Groups (SHGs)
5.28 In an effort to mainstream micro credit and
increase its outreach, the RBI had issued
comprehensive guidelines in February 2000
stipulating that micro credit extended by banks to
individual borrowers directly or through any
intermediary would henceforth be reckoned part of
their priority-sector lending. Banks were given the
freedom to formulate their own model[s] or choose
any conduit/intermediary for extending micro credit.
The SHG-Bank Linkage Programme implemented
by commercial banks, RRBs and cooperative banks
has emerged as the major micro- finance programme
in the country.
5.29 Under the SHG-Bank Linkage Programme,
as on March 31, 2009, 61,21,147 SHGs held savings
bank accounts with total savings of Rs 5,545.62 crore
as against 50,09,794 SHGs with savings of
Financial Intermediation and Markets 99
Amount sanctioned (Rs. crore)
Total # 2006-07 2007-08 2008-09 2009-10@ Total #
373.61 13,141 19,991 8,428 5,241 1,38,229$
125.73 7,373 8,783 5,648 5,512 4,93,44$
378.96 26,215 59,530 39,009 6,657^ 1,93,497*
878.30 46,729 88,262 53,085 17,329 3,81,070
Rs 3,785.39 crore as on March 31, 2008. Thus more
than 8.06 crore poor households were associated
with banking agencies under the SHG- Bank Linkage
Programme.
5.30 As on March 31, 2009, commercial banks
had the maximum share of SHG savings with savings
of 35,49,509 SHGs (58 per cent) amounting to Rs
2,772.99 crore (50 per cent); this was followed by
RRBs with savings bank accounts of 16,28,588
SHGs (26.6 per cent) and savings amount of
Rs1,989.75 crore (35.9 per cent) and cooperative
banks with savings bank accounts of 9,43,050 SHGs
(15.4per cent) and savings amount of Rs 782.88 crore
(14.1 per cent).
5.31 The share of the Swarnajayanti Gram
Swarozgar Yojana (SGSY) in SHG savings accounts
was 15,05,581 SHGs, forming 25 per cent of the
total SHGs having savings accounts in banks. During
2008-09, the average savings per SHG with all banks
increased from Rs 7,556 as on March 31, 2008 to
Rs 9,060 as on March 31, 2009, varying between a
high of Rs 12,218 per SHG with RRBs and a low of
Rs 7,812 per SHG with commercial banks. As on
March 31, 2009, the share of women SHGs in total
SHGs with savings bank accounts was 48,63,921,
accounting for 79.46 per cent as compared to the
previous year’s share of 79.56 per cent.
5.32 During 2008-09, banks financed 16,09,586
SHGs, including repeat loans to existing SHGs, as
against 12,27,770 SHGs during 2007-08—a growth
of 31.1 per cent (number of SHGs). As on March
31, 2009, 42,24,338 SHGs had outstanding
(cumulative) bank loans of Rs 22,679.85 crore as
against 36,25,941 SHGs with outstanding bank
loans of Rs16,999.90 crore as on March 31, 2008
(Table 5.9). This included 9,76,887 SHGs (6.5 per
100 Economic Survey 2009-10

Table 5.9 : Progress under SHG-Bank Linkage

Year New SHGs financed by banks Bank loan**
During the year Cumulative during the year Cumulative
No. Growth (%) No. Amount$$ Growth (%) Amount$$
2002-03 2,55,882 29 7,17,360 1,022.34 87 2,048.68
2003-04 3,61,731 41 10,79,091 1,855.53 81 3,904.21
2004-05 5,39,365 49 16,18,456 2,994.25 62 6,898.46
2005-06 6,20,109 15 22,38,565 4,499.09 50 11,397.55
2006-07 11,05,749* — 28,94,505@ 6,570.39 — 12,366.49$
2007-08 12,27,770* 11 36,25,941 8,849.26 35 16,999.90$
2008-09# 16,09,586* 31.1 42,24,338 12,256.51 38.5 22,679.85$
Source : NABARD
* Include existing SHGs also, which were provided repeat bank loan.
** Includes repeat loans to existing SHGs.
# Provisional $ Outstanding. $$ Amount in Rs. Crore.
@ from 2006-07 onwards, data in respect of number of SHGs financed by banks and bank loans are
inclusive of SHGs financed under the Swarnajayanti Gram Swarozgar Yojana (SGSY) and the existing
groups receiving repeat loans. Owing to this change, NABARD discontinued compilation of data on
cumulative basis from 2006-07. As such data from 2006-07 onwards are not comparable with the data
of the previous years.

cent) with outstanding bank loans of Rs 5,861.72
crore (21.7per cent) under the SGSY as against
9,16,978 SHGs with outstanding bank loans of Rs
4,816.87 crore as on March 31, 2008. Commercial
banks had the maximum share of around 70 per
cent of outstanding bank loans to SHGs followed by
RRBs with a share of 23 per cent and cooperative
banks with the balance. As on March 31, 2009, the
average bank loan outstanding per SHG was Rs
53,689 as against Rs 46,884 as on March 31, 2008.
It varied from a high of Rs 57,037 per SHG in the
case of commercial banks to a low of Rs 31,460 per
SHG in the case of cooperative banks.
5.33 Pursuant of the announcement made in the
Reserve Bank’s Annual Policy Statement for the
year 2007-08, all regional offices (ROs) of the
Reserve Bank were advised to undertake an
evaluation of the SHG-Bank Linkage Programme.
This was intended to ascertain the degree of
transparency in maintaining accounts by SHGs and
their adherence to best practices. The evaluation
of SHGs carried out by the ROs revealed that there
was scope for improvement in the area of
maintenance of books of accounts. It also brought
out that rotation of group leaders was generally not
followed by SHGs. However, other best practices
like strict adherence to attendance of group
meetings, recording minutes of the meetings and
prompt repayment of bank loans were being
followed.
5.34 The momentum of growth in the micro-finance
sector has brought into focus the importance of
regulating the sector to function in an efficient and
orderly manner. There would be need for greater
transparency in their functioning and for facilitating
their reach to un-banked population of the country.
FINANCIAL PERFORMANCE OF BANKS
5.35 The balance sheets of SCBs in India available
as of 2008-09 indicate that the SCBs remained
robust. However, the Indian banking sector was not
completely insulated from the effects of the slowdown
in the economy in 2008-09.
5.36 The consolidated balance sheets of SCBs
expanded by 21.2 per cent as in end-March 2009 as
compared to 25.0 per cent in the previous year. While
the balance sheets of PSBs maintained their growth
momentum, private-sector and foreign banks
registered a deceleration in growth. The working
results of SCBs under different categories are
abstracted in Table 5.10.
5.37 During 2008-09, the growth rate of banks’
lending to industries, personal loans and services
witnessed a deceleration, while the growth rate of
banks’ lending to agriculture and allied activities
increased substantially. Overall, the incremental
credit–deposit (C-D) ratio declined sharply reflecting
the slowdown in credit growth.
 Financial Intermediation and Markets 101
Table 5.10 : Working results of scheduled commercial banks
Items Foreign Old pvt. sector New pvt. All SCB
PSBs banks banks sector banks
2007-08 2008-09 2007-08 2008-09 2007-08 2008-09 2007-08 2008-09 2007-08 2008-09

(Rs Crore)
A Income 2,45,872 3,15,608 35,005 45,213 16,798 21,572 71,199 81,443 3,68,874 4,63,836
(i) Interest Income 2,13,075 2,73,428 24,417 30,322 14,614 18,783 56,377 66,283 3,08,483 3,88,816
(ii) Other Income 32,797 42,180 10,588 14,891 2,184 2,789 14,822 15,160 60,391 75,020
B Expenditure 2,19,280 2,81,215 28,392 37,704 14,821 19,163 63,654 72,985 3,26,147 4,11,067
(i) Interest
Expended 1,48,902 1,93,447 10,604 12,817 9,960 12,834 38,535 44,123 2,08,001 2,63,221
(ii) Intermediation Cost
(Operating Expenses) 46,663 55,190 10,353 12,299 3,235 3,939 17,032 17,840 77,283 89,268
(iii) Provisions and
Contingencies 23,715 32,578 7,435 12,588 1,626 2,390 8,087 11,022 40,863 58,578
C Operating Profit
(A - Bi - Biii) 73,255 89,583 16,966 19,808 5,212 6,348 24,577 26,298 1,20,010 1,42,037
D Net Profit (A-B) 26,592 34,393 6,613 7,509 1,977 2,409 7,545 8,458 42,727 52,769
E Net Interest Income
(Spread) (Ai - Bi) 64,173 79,981 13,813 17,505 4,654 5,949 17,842 22,160 1,00,482 1,25,595
F Total Assets 30,21,924 37,66,716 3,64,099 4,47,149 1,94,544 2,32,001 7,45,599 7,95,464 43,26,166 52,41,330
G Net Income
(Aii + E) 96,970 1,22,161 24,401 32,396 6,838 8,738 32,664 37,320 1,60,873 2,00,615
(As per cent of total assets)
A Income 8.14 8.38 9.61 10.11 8.63 9.30 9.55 10.24 8.53 8.85
(i) Interest Income 7.05 7.26 6.71 6.78 7.51 8.10 7.56 8.33 7.13 7.42
(ii) Other Income 1.09 1.12 2.91 3.33 1.12 1.20 1.99 1.91 1.40 1.43
B Expenditure 7.26 7.47 7.80 8.43 7.62 8.26 8.54 9.18 7.54 7.84
(i) Interest Expended 4.93 5.14 2.91 2.87 5.12 5.53 5.17 5.55 4.81 5.02
(ii) Intermediation Cost
(Operating Expenses) 1.54 1.47 2.84 2.75 1.66 1.70 2.28 2.24 1.79 1.70
(iii) Provisions and
Contingencies 0.78 0.86 2.04 2.82 0.84 1.03 1.08 1.39 0.94 1.12
C Operating Profit
(A - Bi - Biii) 2.42 2.38 4.66 4.43 2.68 2.74 3.30 3.31 2.77 2.71
D Net Profit (A-B) 0.88 0.91 1.82 1.68 1.02 1.04 1.01 1.06 0.99 1.01
E Net Interest Income
(Spread) (Ai - Bi) 2.12 2.12 3.79 3.91 2.39 2.56 2.39 2.79 2.32 2.40
Memo Item
1 Operating Expenses as
Per Cent of Net Income 48.12 45.18 42.43 37.96 47.31 45.08 52.14 47.80 48.04 44.50

Source: RBI.

5.38 The consolidated balance sheets of SCBs,
expanded by 21.2 per cent as in end-March 2009,
as compared to 25.0 per cent in end-March 2008.
The growth rate of aggregate deposits of SCBs
decelerated to 22.4 per cent as in end-March 2009
from 23.1 per cent as in end-March 2008. The growth
rate of aggregate loans and advances of SCBs
decelerated to 21.2 per cent as in end-March 2009
from 25.0 per cent in the previous year. Apart from
cyclical factors which led to slowdown after a period
of high credit growth, the deceleration was
accentuated this year because of the overall
slowdown in the economy in the aftermath of the
global financial turmoil. The capital to risk-weighted
assets ratio (CRAR) of SCBs improved to 13.2 per
cent as in end-March 2009 from 13.0 per cent as in
end-March 2008, remaining significantly above the
stipulated minimum of 9.0 per cent.
5.39 Growth in investments by banks decelerated
to 23.1 per cent as of end-March 2009. However,
the share of investments under the SLR category
increased during 2008-09, due to banks’ preference
to park their funds in low-risk and low-return
instruments against the backdrop of prevailing
102 Economic Survey 2009-10
uncertainties. On other hand, growth of banks’
investments in non-SLR securities (i.e. bonds/
debentures/ shares and commercial papers)
decelerated. The total flow of funds from SCBs to
the commercial sector comprising credit and non-
SLR investments increased by 17.5 per cent (Rs
4,21,091 crore) in 2008-09 as compared to 22.6 per
cent (Rs 4,44,807 crore) in 2007-08.
5.40 SCBs did not raise any resources from the
equity market during 2008-09 though they accessed
the debt market for the purpose. The return on assets
(ROA) remained at the previous year’s level of 1.0
per cent, while the return on equity (ROE) increased
to 13.3 per cent during 2008-09 from 12.5 per cent
during 2007-08.
5.41 The Indian banking sector was, however, not
completely insulated from the effects of the slowdown
in the economy as evident from the financial
performance of the SCBs. The growth rates of income
as well as expenditure of the SCBs slowed down,
leading to deceleration in growth of net profits.
Capital Adequacy Ratio
5.42 One of the major indicators suggesting that
the Indian banking system has withstood the pressure
of global financial turmoil is the improvement in the
CRAR. The overall CRAR of all SCBs improved to
13.2 per cent by end-March 2009 from 13.0 per cent
a year earlier, thus remaining significantly above the
stipulated minimum of 9.0 per cent. While the CRAR
of as many as 78 banks was above 10 per cent, that
of only one bank was in the range of 9 to 10 per cent.
5.43 All commercial banks in India excluding RRBs
and local area banks have become Basel II compliant
as of March 31, 2009. To begin with, the
Standardised Approach for Credit Risk, Basic
Indicator Approach for Operational Risk and
Standardised Duration Approach for Market Risk have
been implemented in India. However, the
implementation of advanced approaches under the
Basel II framework would bring about the upgradation
of the risk management framework as well as capital
efficiency in the Indian banking system.
Non-performing Assets (NPAs) of the
Banking Sector
5.44 Indian banks recovered a higher amount from
NPAs during 2008-09 as compared to the previous
year, pointing towards efforts for improvement in the
asset quality of banks. The total amount recovered
and written-off in 2008-09 was Rs 38,828 crore
However, though this was higher than the Rs 28,283
crore written off in 2007-08, it was lower than the
fresh NPAs added (Rs 52,382 crore) during the year.
Though some slippage was to be expected in the
current global context, it has been moderate as
compared to the problems faced by banks all over
the world. Among the various channels of recovery
available to banks for dealing with bad loans, the
SARFAESI Act and the Debt Recovery Tribunals
(DRTs) have been the most effective.
5.45 The gross NPAs to gross advances ratio for
SCBs remained constant at 2.3 per cent during
2008-09 as in 2007-08. However, though the gross
NPA to gross advances ratio of PSBs declined from
2.2 per cent in March 2008 to 2.0 per cent as of
March 2009, that of old private banks increased
from 2.3 to 2.4 per cent and that of foreign banks
from 1.8 to 4.0 per cent in March 2009 over the level
of March 2008. The net NPA ratio (net NPAs as
percentage of net advances) increased marginally
from 1.0 to 1.1 in the case of SCBs in March 2009.
Technological Developments in Banks
5.46 Banks in India are using Information
Technology (IT) not only to improve their own internal
processes but also to increase facilities and services
to their customers. Efficient use of technology has
facilitated accurate and timely management of the
increased volumes of transactions of banks,
consistent with a larger customer base.
5.47 During 2008-09, the transmission of clearing
data—both for cheque and electronic clearing
services—and collation of inputs from currency
chests as part of the Integrated Currency Chest
Operations and Management System (ICCOMS)
was done using secured websites. The prevalent IT
system to process the accounting requirements of
the State and Central Governments was replaced
by the Centralised Public Accounts Department
System (CPADS), which is considered more robust
and user friendly.
5.48 To facilitate a smoother and faster bidding in
the Primary Dated Securities Auctions held by the
Reserve Bank, a new version of the Negotiated
Dealing System Auction module, developed and
hosted by the Clearing Corporation of India, was
developed in 2008-09, leading to its launch with effect
from May 11, 2009.
5.49 One of the major achievements during 2008-
09 was the increase in the number of branches
providing Core Banking Solutions (CBS). The total
 Financial Intermediation and Markets 103
number of branches of PSBs that have implemented
Table 5.11 : Utilization of refinance facilities
CBS increased from 35,464 as on March 31, 2008
(Amount in Rs crore)
to 44,304 as on March 31, 2009.
AIFIs Re- Cumulative Cumulative No.of
5.50 The computerization of the banking sector, finance amount amount bene-
which is regarded as the precursor to other sanction drawn up disbursed ficiaries
-ed June 26, up to June,
technological initiatives, is almost in completion 2009 26, 2009
stage. The proportion of PSB branches that achieved
full computerization increased from 93.7 per cent as SIDBI 7,000 5,684 4,971 33*
of end-March 2008 to 95.0 per cent as of end-March 988 1,043 22**
2009. That continuous progress is being made by 7,747 1,841 5,179
Exim Bank 5,000 3,000 3,478 35
banks is reflected in the increase in the number of
NHB 4,000 3,979 3,979 14#
banks moving into the ‘more than 90 per cent but
less than 100 per cent’ category. During 2008-09, Total 16,000 21,398 15,312 5,283
the total number of automated teller machines (ATMs) Source: RBI
installed by banks grew by 25.4 per cent. * State Finance Corporations (SFCs) and banks.
** Non Banking Finance Companies
# Housing Finance Companies
NON-BANKING FINANCIAL
INSTITUTIONS (NBFIS) facility was to be charged at the repo rate under the
5.51 While banks account for a major share of Liquidity Adjustment Facility (LAF) of the RBI. The
the Indian financial system, NBFIs also play an amount outstanding under the special refinance
important role in providing a wide range of financial facility remained small up to February 2009 for each
services. While banks have an edge in providing institution, but picked up in the subsequent months
payment- and liquidity-related services, NBFIs tend (Table 5.11).
to offer enhanced equity and risk-based products. 5.54 The ‘umbrella limit’ for aggregate borrowings
The major intermediaries that are included in the by financial institutions (FIs) (through five specified
NBFI group are development finance institutions instruments, namely term deposits, term money
(DFIs), insurance companies, non-banking financial borrowings, certificates of deposits [CDs],
companies (NBFCs), primary dealers (PDs) and commercial papers [CPs] and inter-corporate
capital market intermediaries such as mutual funds. deposits [ICDs]) which was stipulated not to exceed
The NBFIs provide medium- to long-term finance to 100 per cent of their net owned funds (NOFs) at any
different sectors of the economy. time, as per their latest audited balance sheets, was
also raised to 200 per cent of NOFs for one year
Financial Institutions (FIs) with effect from December 8, 2008 for EXIM Bank
5.52 Based on the major activity undertaken by and from January 15, 2009 for the NHB, subject to
FIs, they could be classified into three broad review and subject to the asset liability management
categories, namely (i) term-lending institutions whose (ALM) guidelines of the Reserve Bank.
main activity is direct lending by way of term loans 5.55 During 2008-09, though there was increase
and investments (e.g. EXIM Bank); (ii) refinance in financial assistance both sanctioned and disbursed
institutions which mainly extend refinance to banks by FIs, the increase in disbursements (93.3 per cent)
as well as NBFIs (e.g. NABARD, the Small was more pronounced than that in sanctions (70.2
Industries Development Bank of India [SIDBI] and per cent). A major part of the increase in financial
National Housing Bank [NHB]); (iii) investment sanctions and disbursements was accounted for
institutions which deploy their assets largely in mainly by investment institutions (especially the LIC)
marketable securities (e.g. the Life Insurance followed by term-lending institutions (Table 5.12).
Corporation of India [LIC]).
5.56 Resources raised by the FIs during 2008-09
5.53 In the context of the emergent liquidity were considerably higher than those during the
constraints following the onset of the global financial previous year. The increase was largely in the short-
crisis, the RBI in December 2008, provided a window term mode, while the raising of long-term and foreign
for refinance facilities of Rs 7,000 crore, Rs 5,000 currency resources declined as compared to the
crore and Rs 4,000 crore for SIDBI, EXIM Bank and preceding year. Resources raised by FIs from the
the NHB respectively. Accommodation under this money market rose sharply during 2008-09 with the
104 Economic Survey 2009-10

Table 5.12 : Financial assistance sanctioned and disbursed by financial institutions

(Rs crore)
Category Amount Percentage variation
2007-08 2008-09 2008-09
S D S D S D

(i) All-India Term-Lending Institutions* 18,696 17,379 33,660 31,604 80.0 81.9
(ii) Specialised Financial Institutions# 366 189 597 283 63.1 49.7
(iii) Investment Institutions@ 39,670 28,460 65,731 57,086 65.7 100.6
Total assistance by FIs(i+ii+iii) 58,732 46,028 99,988 88,973 70.2 93.3
Source : RBI
S Sanctions * Relating to SIDBI and Industrial Investment Bank of India. D Disbursements
# Relating to IVCF and ICICI Venture. @ Relating to LIC and GIC & erstwhile subsidiaries
All data are provisional.

utilization of the “umbrella limit” reaching 58.0 per
cent in 2008-09 as compared to 22.9 per cent in the
preceding year. External sources contributed 30.7
per cent of sources of funds during 2008-09 as
compared to 51.7 per cent during the preceding year.
5.57 FIs recorded improvement in their asset quality
during 2008-09. In terms of net NPA to net loans
ratio, the asset quality of SIDBI and EXIM Bank
improved during the year. The net NPA ratio of
NABARD increased marginally. None of the FIs had
any assets in the ‘loss’ category as of end-March
2009.
5.58 Net interest and non-interest incomes of FIs
increased by 22.5 per cent and 31.1 per cent
respectively during 2008-09. The operating profit
increased by 33.5 per cent during the year. The net
profit of FIs also increased despite higher provisions
for taxation. The capital adequacy ratio of all the FIs
continued to be significantly higher than the minimum
stipulated norm of 9 per cent.
important non-deposit taking NBFCs (NBFCs-ND)
were permitted, as a temporary measure, to raise
foreign currency short-term borrowings under the
approval route subject to certain conditions.
5.60 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.
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 (Table 5.13).
5.61 The ratio of deposits of reporting NBFCs to
the aggregate deposits of SCBs dropped to 0.53 per
cent in end-March 2009 from a level of 0.73 per cent
in end- March 2008, mainly due to the decline in
deposits of reporting NBFCs.

NON-BANKING FINANCIAL Table 5.13 : Number of NBFCs Registered

COMPANIES (NBFCS) with the RBI
5.59 The NBFCs as a whole account for 9.1 per End June Number of Number of
cent of the assets of the total financial system. In registered NBFCs-D
the wake of the recent global financial crisis and its NBFCs
fallout for FIs, the RBI undertook measures to 2004 13,764 604
preserve financial stability and arrest the moderation 2005 13,261 507
in the growth momentum. As a measure aimed at
2006 13,014 428
expanding rupee liquidity, the Reserve Bank provided
2007 12,968 401
a special repo window under its LAF for NBFCs. In
addition, an existing special purpose vehicle (SPV) 2008 12,809 364
was used as a platform to provide liquidity support 2009 12,740 336
to NBFCs. In December 2008, systemically Source: RBI.

5.62 Total assets of NBFCs declined to Rs 95,727
crore during 2008-09 from Rs 99,014 crore in the
preceding year. Public deposits also recorded a
decline to Rs 21,548 crore in end- March 2009 from
Rs 24,400 crore in end-March 2008. The NOFs of
NBFCs witnessed a growth of 8.8 per cent and stood
at Rs13,458 crore as in end-March 2009. The share
of RNBCs in NBFCs in terms of total assets, public
deposits and NOFs recorded marginal decline during
2008-09 over the preceding year.
5.63 Total assets/liabilities of NBFCs (excluding
RNBCs) expanded at the rate of 1.3 per cent during
2008-09 as compared to 53.6 per cent during 2007-
08. Borrowings, which are the major source of funds
for NBFCs, increased by 9.3 per cent during the
year, while public deposits declined by 4.9 per cent
indicating the continuing shift in the pattern of raising
of resources. On the assets side, hire purchase
assets and loans and advances, which are major
items of assets, witnessed growth of 6.3 per cent
and 12.0 per cent respectively in 2008-09, as
compared to 27.9 per cent and 70.2 per cent
respectively, during the earlier year. Growth of total
investments of NBFCs decelerated mainly due to
deceleration in investment in approved securities.
Other investments increased by 37.4 per cent
during 2008-09 as compared to 30.0 per cent during
2007-08.
5.64 Among NBFC groups, asset finance
companies (AFCs) held the largest share in total
assets/liabilities (70.3 per cent), followed by loan
companies (28.9 per cent), hire purchase companies
(0.6 per cent) and equipment leasing (0.3 per cent).
The increase in assets/liabilities of AFCs was mainly
on account of reclassification of NBFCs, which was
initiated in December 2006.
5.65 Of the total deposits held by all NBFCs, AFCs
held the largest share in total deposits of NBFCs
(70.5 per cent); loan companies and hire purchase
companies accounted for low shares of 19.9 per cent
and 9.6 per cent respectively.
5.66 Continuing the trend of the previous year,
public deposits held by all groups of NBFCs taken
together declined moderately during 2008-09. This
trend is indicative of the shift in preference of NBFCs
from public deposits to bank loans/ debentures. The
decline in public deposits was mainly evident in the
case of loan companies and equipment-leasing
companies due to reclassification of some of these
companies as asset finance companies. Deposits
of asset finance companies increased by 17.5 per
cent during 2008-09.
Financial Intermediation and Markets 105
5.67 The asset size of NBFCs varied significantly
between less than Rs 25 lakh to above Rs 500 crore.
The asset-holding pattern remained skewed in 2008-
09, with 12 NBFCs with asset size of “above Rs 500
crore” holding 95.8 per cent of the total assets of all
NBFCs, while the remaining 263 NBFCs held only
about 4.2 per cent in end-March 2009.
5.68 Financial performance of NBFCs in terms of
income and net profit improved during 2008-09. While
growth in expenditure decelerated over the previous
year, it, however, witnessed higher growth than
income, resulting in a decline in operating profit by
2.2 per cent. Net profit registered a moderate growth
mainly due to lower provisioning for tax. The cost to
income ratio deteriorated from 68.9 per cent in 2007-
08 to 74.1 per cent in 2008-09. Non-interest cost at
97.6 per cent continued to constitute the dominant
share in the total cost of NBFCs during 2008-09.
Concomitantly, the interest cost accounted for a
small share.
5.69 Gross NPAs (as percentage of gross
advances) of asset finance, equipment leasing,
investment and hire purchase companies declined
during 2008-09. Net NPAs (as percentage of net
advances) increased marginally in the case of asset
finance companies and hire purchase companies,
while those of equipment leasing and investment
companies decreased. NPAs of loan companies
remained negative during 2008-09 also. Asset quality
of various types of NBFCs as reflected in various
categories of NPAs (substandard, doubtful and loss)
showed that there was sharp improvement in the
asset quality of equipment leasing companies and
deterioration in the asset quality of hire purchase
companies during 2008-09 over the previous year.
5.70 CRAR norms were made applicable to NBFCs
in 1998, in accordance with which every deposit-
taking NBFC is required to maintain a minimum
capital, consisting of Tier-I and Tier-II of not less than
12 per cent (15 per cent in the case of unrated
deposit-taking loan/investment companies) of its
aggregate risk-weighted assets and of risk-adjusted
value of off-balance sheet items. The number of
NBFCs with less than the minimum regulatory CRAR
of 12 per cent declined to 9 in end-March 2009 from
47 in end- March 2008. In end-March 2009, 198 out
of 207 NBFCs had CRAR of 12 per cent or more as
against 280 out of 327 NBFCs in end-March 2008.
The number of NBFCs with CRAR more than 30 also
declined to 168 in end- March 2009 from 239 in end-
March 2008.
106 Economic Survey 2009-10
5.71 Regulation of non-banking entities is being
progressively strengthened and the process had
started before the onset of the global financial crisis.
Issues relating to the level playing field between bank-
sponsored NBFCs and non-bank associated NBFCs
and other issues of regulatory convergence and
regulatory arbitrage were examined with respect to
systemic implications. NBFCs-ND with asset size
of Rs100 crore and above are defined as systemically
important and an elaborate prudential framework has
been put in place to regulate these entities.
5.72 Initially, with a view to protecting the interests
of depositors, regulatory attention was mostly
focused on NBFCs accepting public deposits
(NBFCs-D). Over the years, however, this regulatory
framework has been widened to include issues of
systemic significance. The sector is being
consolidated and while deposit-taking NBFCs have
decreased both in size as well as in terms of the
quantum of deposits held by them, NBFCs-ND have
increased in terms of number and asset size. NBFCs-
ND with asset size of Rs100 crore and above are
subject to CRAR and exposure norms prescribed
by the RBI.
5.73 A reclassification of NBFCs was effected in
December 2006, whereby companies financing real/
physical assets for productive/ economic activities
are classified as AFCs, while the other two categories
are loan companies (LCs) and investment companies
(ICs).
5.74 In July 2008, the Reserve Bank revised the
approach towards monitoring of frauds in NBFCs
which was earlier issued in March 2008. NBFCs have
been advised to report frauds in their subsidiaries
and affiliates/joint ventures, and directions were also
issued in January 2009, requiring them to adopt an
interest rate model which precludes high interest
rates and at the same time be transparent to the
customers.
5.75 The final guidelines regarding non-deposit
taking systemically important NBFCs (NBFC-ND-
SI) were issued on August 1, 2008. According to
these guidelines, the minimum CRAR for each NBFC-
ND-SI was raised from the existing 10 per cent to 12
per cent to be reached by March 31, 2009 and 15
per cent to be reached by March 31, 2010. In view of
the economic downturn and based on several
requests received, this requirement has been
postponed for one year. The NBFCs-ND-SI were
required to make additional disclosures relating to
CRAR, exposure to the real estate sector and the
maturity pattern of assets and liabilities in their
balance sheet from the year ending March 31, 2009.
5.76 In October 2008, taking into consideration the
need for enhanced funds for increasing business and
meeting regulatory requirements, the Reserve Bank
decided that NBFCs-ND-SI may augment their
capital funds by issue of perpetual debt instruments
(PDIs). Such PDIs are eligible for inclusion as Tier I
capital to the extent of 15 per cent of total Tier I
capital as on March 31 of the preceding year.
5.77 In December 2008, systemically important
NBFCs-ND-SIs were permitted, as a temporary
measure, to raise foreign currency short-term
borrowings under the approval route subject to certain
conditions. In this connection, all the NBFCs-ND-SI
that have availed of short-term foreign currency loans
were advised to furnish a monthly return as per the
prescribed format within ten days from the end of
the month to which it pertains.
5.78 To enable the RBI to verify that “fit and proper”
management of NBFCs is continuously maintained,
it has been decided that any takeover/acquisition of
shares or merger/ amalgamation of an NBFC-D with
another entity or any merger/amalgamation of an
entity with an NBFC-D that would give the acquirer/
another entity control of the NBFC-D, would require
prior permission of the RBI with effect from
September 17, 2009.
5.79 To hedge the underlying exposures of NBFCs,
directions were issued covering the framework for
trading of interest rate futures by NBFCs in
exchanges in India recognized by the Securities
Exchange Board of India (SEBI) subject to RBI/SEBI
guidelines.
5.80 The turbulence in the international financial
markets in 2008 also affected the domestic financial
sector including NBFCs sector, particularly a few
NBFCs-ND-SI. These entities have been financing
long-term assets with short-term commercial paper
and non-convertible debentures which were
subscribed to mainly by mutual funds (MFs). Such
NBFCs-ND-SI faced difficulties as MFs were not in
a position to roll over these instruments during the
crisis period. The measures undertaken by the
Reserve Bank in respect of the NBFC sector
following the financial crisis were as follows:
i) NBFCs-ND-SI were permitted as a temporary
measure to raise short-term foreign currency
borrowings under the approval route subject to
fulfillment of certain conditions. While the
resources raised were to be used only for
refinancing of short-term liabilities and not for
creation of fresh assets, it was also advised
that the maturity of such borrowing should not

exceed three years and the maximum amount
should not exceed 50 per cent of the NOF or
US$10 million (or its equivalent), whichever was
higher.
ii) Banks were permitted, on a temporary basis,
to avail of liquidity support under the LAF
window through a relaxation in the maintenance
of SLR up to 1.5 per cent of their NDTL,
exclusively for meeting the funding
requirements of NBFCs and mutual funds.
iii) The risk weight on banks’ exposure to NBFCs-
ND-SI was reduced to 100 per cent from 125
per cent irrespective of credit rating, while
exposure to AFCs which attracted a risk weight
of 150 per cent was also reduced to 100 per
cent.
iv) NBFCs-ND-SI were permitted to augment their
capital funds by the issue of PDIs. The amount
of PDI raised by NBFCs-ND-SI would not be
treated as ‘public deposit’ within the meaning
of Reserve Bank directives.
v) The proposed increase in the CRAR to be
maintained by NBFCs-ND-SI to 12 per cent
and subsequently to 15 per cent was deferred
by one year, i.e. 12 per cent by March 31,
2010 and 15 per cent by March 31, 2011.
vi) The RBI provided direct lending facility as a
lender of last resort (LOLR) to NBFCs-ND-SI
against their rated CPs through an SPV by
subscribing to its bonds. The facility was
operationalized in January 2009 through an
SPV called ‘IDBI SASF Trust’ to provide liquidity
support against investment grade paper of
NBFCs, subject to their fulfilling certain
conditions. It was designed as an LOLR facility
to allow an orderly downsizing of the balance
sheets of financially sound NBFCs which faced
short-term temporary liquidity requirement. The
facility has been availed of by only one NBFC
so far, which has drawn Rs1,040 crore under
the scheme and there is no outstanding balance
as of date. The Government of India had
extended the facility for any paper issued till
September 30, 2009 and the SPV would cease
to make fresh purchases after December 31,
2009 and would recover all dues by March 31,
2010.
The NBFC sector has been witnessing a
consolidation process in recent years, wherein the
weaker NBFCs are gradually exiting, paving the way
for a stronger NBFC sector.
Financial Intermediation and Markets 107
CAPITAL AND COMMODITY
MARKETS
5.81 The capital and commodity markets exhibited
buoyancy during 2009 as the markets recovered and
gained strength against the backdrop of a distinct
improvement in the risk appetite of investors leading
to a sharp rise in international capital flows to
emerging markets including India. Positive domestic
factors, namely better than expected performance
of corporates and banks and higher GDP growth
during the second quarter (Q2) of 2009-10 also
supported an uptrend in the Indian capital market.
Capital Market
5.82 The Indian equity markets, which had declined
sharply during 2008, reflecting the volatility in
international financial markets and foreign institutional
investment outflows, began the year 2009 on a
subdued note. The market remained range bound
during April-March 2009 but exhibited signs of
recovery from April 2009. With the revival of foreign
institutional investors’ (FIIs) interest in emerging
market economies including India, the equity
markets gained strength during May-July 2009. There
was a fresh spell of bullish sentiment in September
2009, with the Bombay Stock Exchange (BSE)
Sensex recording a high of 17,126.84 during the
month. The Indian equity markets closed lower at
15,896.28 in end-October 2009, before showing an
improvement during November-December 2009. The
movement in equity indices in the Indian capital
market was in line with trends in major international
equity markets, a sign of increasing integration.
Against the backdrop of these trends in Indian equity
markets, the regulatory measures initiated during
the year were clearly in the direction of introducing
greater transparency, protecting investors’ interests
and improving efficiency in the working of Indian
equity markets, while also ensuring the soundness
and stability of the Indian capital market.
Primary Market
5.83 Though resource mobilization from the primary
market through equity investments was sluggish in
2009 both in terms of number of issues and amount
raised through public rights issues and follow-on
public offerings, there was an increase in debt market
activity and private placements. The total number
of initial public offerings (IPOs) declined to 20 in 2009
from 37 in 2008. The total amount mobilized through
equity issues in 2009 was lower at Rs 23,098 crore
as compared to Rs 49,485 crore raised in 2008. The
amount raised through IPOs, however, increased
108 Economic Survey 2009-10

Table 5.14 : Resource mobilization through the primary market

(Rs crore)
Calendar Year
Mode 2006 2007 2008 2009(P)
1. Debt 389 594 0 3,500
2. Equity 32,672 58,722 49,485 23,098
of which, IPOs 24,779 33,912 18,393 19,296
Number of IPOs 75 100 37 20
Mean IPO size 330 339 497 965
3. Private Placement 1,17,407 1,84,855 1,55,743 2,38,226
4. Euro Issues (ADR/GDR) 11,301 33,136 6,271 15,266

Total (1 to 4) 1,61,769 2,77,307 2,11,499 2,80,090

Source : SEBI and RBI (for Euro Issues)
P Provisional

Table 5.15 : Trends in resource mobilization (net) by MFs

(Rs crore)
Sector Calendar Year
2006 2007 2008 2009
1. UTI 6,426 9,245 -2,704 12,056
2. Public Sector 12,229 8,259 14,587 17,624
3. Private Sector 86,295 1,20,766 -12,506 1,14,095
4. Total (1 to 3) 1,04,950 1,38,270 -624 1,43,775
Source : SEBI

slightly in 2009 to Rs 19,296 crore from Rs 18,393
crore in 2008. The mean IPO size increased to Rs
965 crore in 2009 from Rs 497 crore in 2008. There
was no debt issue in 2008. The total amount
mobilized through three debt issues during 2009 was
Rs 3,500 crore. The total amount raised through
private placement of debt in 2009 at Rs 2,38,226
crore was higher by 53.0 per cent than its previous
year’s level of Rs 1,55,743 crore. Total resources
mobilized through the primary market at Rs 2,80,090
crore recorded an increase of 32.4 per cent in 2009
(Table 5.14).
5.84 During 2009, total net resources mobilized
by MFs increased to Rs 1,43,775 crore as compared
to net redemptions amounting to Rs 624 crore in
2008. Private-sector mutual funds, which had
witnessed heavy redemption pressure in 2008,
recorded a turnaround with total net resource
mobilization of Rs 1,14,095 crore in 2009 as against
a net redemption of Rs12,506 crore in 2008. Total
funds mobilized by public-sector mutual funds were
marginally higher at Rs 17,624 crore in 2009 (Rs
14,587 crore in 2008). The Unit Trust of India (UTI),
which had recorded net redemptions of Rs 2,704
crore in 2008, mobilized Rs12,056 crore in 2009
(Table 5.15).
Secondary market
5.85 Indian equity markets witnessed a revival in
the secondary market segment, which had recorded
a sharp decline in the wake of the global financial
crisis during the later half of 2008 (Figure 5.3). The
secondary market staged a handsome recovery in
2009 following stimulus measures implemented by
the Government and resurgence of foreign portfolio
flows displaying renewed interest by foreign investors.
The subdued global commodity prices in the
beginning of 2009 also lifted the sentiments in the
Indian capital market. Furthermore, election results
announced in May 2009 removed uncertainty on
economic policies and as such boosted Indian equity
markets and both benchmark and sectoral indices
rallied. The equity markets gained further till
September 2009 on positive cues from the global
markets, before declining during October 2009.
Market sentiments improved during November-
December 2009, leading to gains in equity prices
and an uptrend in equity market indices.
 Financial Intermediation and Markets 109
Figure 5.3 Movement of indices of NSE and BSE
12000 20000
10000 Nifty
NSE Indices

BSE Indices
15000 Closing
8000
Nifty
6000 10000 Junior
4000
5000 Sensex
2000 Closing
0 0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
2009
Year

5.86 Amongst the National Stock Exchange (NSE)
indices, both Nifty and Nifty Junior recorded positive
annual equity returns (current year-end index divided
by previous year-end index multiplied by 100) of 75.8
per cent and 128.6 per cent in 2009 as against negative
annual equity returns of 51.8 per cent and 63.5 per
cent respectively during the calendar year 2008.
5.87 In terms of month-to-month movement, the
NSE S&P CNX Nifty index showed improvements
during March-May, July-September and November–
December 2009. The S&P CNX Nifty index moved
up from its previous year’s closing level of 2,959 to
5,201 on December 31, 2009, recording an increase
of 75.8 per cent over the year. Nifty junior was on
an uptrend in terms of month-end values from March
to December 2009, except a marginal decline in its
value in end-October 2009. The rise in the Nifty
Junior index, on a point-to-point basis, was 128.6
per cent in end-December 2009. The movement in
the BSE Sensex and BSE 500 indices was more
or less in the same direction as in the case of Nifty
indices during the year 2009.
5.88 During 2009, the Asian stock markets were
on a recovery path. The cumulative change in global
indices in end-December 2009 over the end-
December 2003 level revealed a significant rise in
these indices across countries. The Jakarta
Composite index (Indonesia) registered a rise of
264.1 per cent to 2,510 at end-December 2009,
while the BSE Sensex was up by 199.1 per cent
to 17,465 in end-December 2009. Nikkei 225,
Japan, however remained lower than its end-
December 2003 level. Notwithstanding an
improvement in global stock indices during the year,
they were still lower than the levels reached in 2007
(Table 5.16).
5.89 Market capitalization of shares traded on the
BSE and NSE increased sharply in 2009. Market
capitalization, which had reached record levels in
2007, recovered in the case of Nifty, Nifty junior, the
BSE Sensex and BSE 500 by end-December 2009.
It surpassed the 2007 level in the case of Nifty
junior, while for other indices it remained lower than
2007 levels (Table 5.17).

Table 5.16 : Cumulative change in movement of global indices*

Index Cumulative change over end-2003 level

2004 2005 2006 2007 2008 2009
BSE Sensex, India 13.1 61.0 136.1 247.4 65.2 199.1
Hang Seng Index, Hong Kong 13.2 18.3 58.8 121.2 1.1 74.2
Jakarta Composite Index, Indonesia 44.5 68.1 161.0 296.8 35.5 264.1
Nikkei 225, Japan 7.6 50.9 61.3 43.4 -22.9 -5.3
Kospi Index, South Korea 10.5 69.7 76.8 133.9 25.6 104.4
Kuala Lumpur Comp. Index, Malaysia 14.2 13.4 38.0 82.0 -3.3 58.7
TSEC weighted Index, Taiwan 4.2 11.2 32.8 44.4 -25.2 32.3
SSE Composite Index, China -15.4 -22.4 78.7 251.5 43.7 116.9
Source : Derived from various country sources.
* End year closing.
110 Economic Survey 2009-10

Table 5.17 : Equity returns, volatility, market capitalization & P/E ratio
Index Calendar Year
2006 2007 2008 2009
NNifty :
Returns (per cent) 39.83 54.77 -51.79 75.76
End-year Market Capitalization (Rs cr.) 19,75,603 35,22,527 18,32,610 33,14,447
Daily volatility * 1.64 1.60 2.81 2.14
End-year P/E 21.26 27.62 12.97 23.17
Nifty Junior :
Returns (per cent) 28.24 75.73 -63.52 127.91
End-year Market Capitalization (Rs cr.) 3,33,693 6,43,625 2,95,471 6,55,899
Daily volatility * 1.96 1.71 3.15 2.23
End-year P/E 21.78 26.48 8.99 16.28
BSE Sensex :
Returns (per cent) 46.7 47.2 -52.48 76.35
End-year Market Capitalization (Rs cr.) 17,58,865 28,61,341 14,63,165 26,49,482
Daily Volatility * 1.6 1.5 2.85 2.19
End-year P/E 22.8 27. 7 12.36 22.36
BSE 500 :
Returns (per cent) 38.9 63.0 -58.74 85.34
End-year Market Capitalization (Rs cr.) 33,36,509 64,70,881 29,40,741 56,87,505
Daily Volatility * 1.6 1.5 2.75 2.05
End-year P/E 20.2 29.1 12.4 21.9
Source: BSE and NSE.
* Standard deviation values.
P/E—price to earnings ratio.

5.90 Market volatility, as measured by the standard
deviation of daily volatility of the Indian indices,
declined significantly in 2009. However, the volatility
of weekly returns of Indian indices, namely Sensex
and BSE 500, in 2009 was even higher than that
in 2008, while Nifty indices, namely Nifty and
Nifty junior, recorded lower volatility in 2009
(Table 5.18).
5.91 The P/E ratio of the major stock market
indices, which partly discounts future corporate
earnings reflecting investors’ expectations of corporate
profit, witnessed a sharp increase in 2009. The
valuation of stocks in terms of P/E ratios of the
Table 5.18 : Volatility of weekly returns
on the equity markets (standard deviation)
Class of stocks Period
Jan 2008 Jan 2009
Dec 2008 Dec 2009
Sensex and Nifty increased to 22.36 and 23.17
respectively as on December 31, 2009 as against
12.36 and 12.97 respectively as on December 31,
2008. This trend was also seen in P/E ratios of
stock indices across select emerging market
economies (EMEs) during 2009. Moreover, the
differences in valuation of stocks in terms of P/E ratios
amongst EMEs were not very sharp (Table 5.19).
5.92 The price of a security depends largely on
demand and supply conditions and is influenced by
the impact cost, which represents the cost of
executing a transaction in a given security, for a
Table 5.19 : P/E ratios in select
emerging markets
Index/market Dec. 2008 Nov. 2009
South Korea KOSPI 10.95 21.32
Thailand SET 7.26 25.23

India Indonesia JCI 8.26 26.46

Top 50 (Nifty) 4.30 3.89 Malaysia KLCI 10.09 22.18
Next 50 (Nifty Junior) 4.89 4.39 Taiwan TWSE 9.31 N.A
Sensex 4.57 5.12 India BSE Sensex 12.36 21.53
BSE 500 4.68 5.29 India S&P CNX Nifty 12.97 22.37
Source : NSE and BSE Source : SEBI

Table 5.20 : Equity spot market liquidity :
Impact cost (%)
Calendar year
Portfolio 2006 2007 2008 2009
Nifty
NSE Impact Cost
at Rs 50 lakh 0.08 0.08 0.11 0.06
Nifty Junior
NSE Impact Cost
at Rs 25 lakh 0.16 0.14 0.19 0.09
Source : NSE
predefined order size, at any given point of time.
Market liquidity and impact cost are inversely
related. The impact cost for purchase or sale of Nifty
and Nifty Junior portfolios was lower than in the
previous three years (Table 5.20).
5.93 The turnover in the spot and derivatives
segment on the NSE recorded an increase of 19.6
per cent and 33.6 per cent respectively in 2009. The
BSE spot market turnover in 2009 declined further
by 3.8 per cent over and above a decline of 6.4 per
cent in 2008. The turnover in the derivatives market
on the BSE was only Rs 36 crore in 2009 as
against Rs 75,178 crore in 2008 (Table 5.21).
5.94 The spot market turnover (one way) for the
NSE and BSE at Rs 50,86,096 crore in 2009 was
higher by 12.7 per cent over its previous year’s level
of Rs 45,12,562 crore in 2008. The turnover in the
derivatives segment for the NSE and BSE, taken
together, at Rs 1,55,65.799 crore, also posted a rise
of 32.7 per cent in 2009. The turnover in the NSE
spot and derivative markets, as a proportion of
market capitalization of the Nifty, was 115 per cent
and 470 per cent respectively. The turnover in the
BSE spot market was 22 per cent of market
capitalization of the BSE (500) Index.
Financial Intermediation and Markets 111
5.95 The number of registered FIIs rose to 1,706
at the end of 2009 from 1,594 in 2008. The number
of sub-accounts also increased to 5,331 from 4,872
during the same period. The FII in the spot market
increased to Rs 83,424 crore in 2009 as compared
to withdrawals of Rs 52,987 crore in 2008. Further,
net investment in debt was lower at Rs 4,563 crore
in 2009 as compared to Rs 11,772 crore in 2008.
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 (Table 5.22).
5.96 The cumulative assets under management of
mutual funds increased by 60.9 per cent to Rs
6,65,146 crore as on December 31, 2009 from Rs
4,13,365 crore as on December 31, 2008. The share
of income- /debt-oriented schemes in total assets
under management was higher at 54.2 per cent in
2009 as against 47.7 per cent in 2008. The assets
under management of equity- /growth-oriented
schemes during 2009 accounted for 26.3 per cent
of the total assets under management (23.9 per
cent during 2008). However, the share of assets
under money market schemes in total assets under
management declined to 12.0 per cent during 2009
from 20.0 per cent during 2008 (Table 5.23).
Debt Market
5.97 The Indian debt market has two segments,
namely Government securities and corporate debt.
Government Securities
5.98 The fresh issues of Government of India
(GoI) dated securities in 2009 amounted to Rs
4,89,000 crore as against Rs 2,04,317 crore
[including securities issued under the Market
Stabilisation Scheme (MSS)] in 2008. The
outstanding dated securities of the GoI increased
from Rs 14,16,443 crore in end-December 2008 to
Rs 18,26,774 crore in end-December 2009. Yields

Table 5.21 : Market turnover

(Rs crore)
Market Calendar year
2006 2007 2008 2009
NSE Spot 19,16,227 30,93,982 31,88,509 38,12,031
BSE Spot 9,61,653 14,14,727 13,24,053 12,74,065
NSE Derivatives 70,46,665 1,19,40,877 1,16,54,375 1,55,65,763
BSE Derivatives 18,071 2,19,824 75,178 36
Source: NSE and BSE
112 Economic Survey 2009-10

Table 5.22 : Transactions of FIIs

(Rs crore)
Transactions Calendar year
2007 2008 2009
End-year Number of FIIs (in numbers) 1,219 1,594 1,706
End-year Number of Sub-accounts (in numbers) 3,644 4,872 5,331
1. Equity Market Activity
Spot
Gross Buy 8,14,877 7,21,606 6,24,238
Gross Sell 7,43,391 7,74,593 5,40,814
Net (Gross Buy-Gross Sell) 71,486 -52,987 83,424
2. Debt
Gross Buy 31,418 48,019 1,11,772
Gross Sell 21,990 36,248 1,07,209
Net (Gross Buy-Gross Sell) 9,428 11,772 4,563
3. Total FII Investment (1+2)
Gross Buy 8,46,295 7,69,625 7,36,010
Gross Sell 7,65,380 8,10,841 6,48,023
Net (Gross Buy-Gross Sell) 80,915 -41,216 87,987
Source : SEBI

Table 5.23 : Assets under management securities declined to 7.10 per cent in 2009 from
of mutual funds 8.20 per cent in 2008. The weighted average maturity
of dated securities was shorter at 11.5 years in 2009
(Rs crore)
(13.1 years in 2008).
Schemes At the end of
2006 2007 2008 2009 5.99 The volume of secondary market transactions
Money Market 97,757 1,12,349 82,776 80,102 (outright) in government securities marginally
(30.2) (20.4) (20.0) (12.0) improved during the year, with the turnover ratio
Gilt 2,057 1,975 6,368 3,609 (volume of transactions as a ratio of end-period stock)
(0.6) (0.4) (1.50) (0.5) increasing to 1.7 in the calendar year 2009 from 1.5
Income 86,349 1,97,342 1,97,132 3,60,469
in 2008.
(26.7) (35.9) (47.7) (54.2)
Growth 1,19,539 1,92,129 99,081 1,74,680 5.100 In the secondary market, the yields on dated
(36.9) (34.9) (23.9) (26.3) government securities hardened during the year,
Balanced 9,170 19,938 11,349 17,602
(2.8) (3.6) (2.8) (2.7)
particularly after July 2009, reflecting the impact of
ELSS 8,725 19,063 11,577 23,198 the announcement of a relatively large government
(2.7) (3.5) (2.8) (3.5) borrowing programme for the year 2009-10. Yields
Gold ETF NA 467 734 1,352 gradually moved up during the course of the year.
(0.1) (0.2) (0.2) Yields on dated securities of five and 10-year
Other ETF NA 6,674 1,761 1,031 maturities increased to 7.30 per cent and 7.59 per
(1.2) (0.4) (0.2)
cent respectively in end-December 2009 from 5.41
FoF Investing Overseas 2,588 3,103
(0.6) (0.5) per cent and 5.25 per cent respectively in end-
December 2008.
Total 3,23,598 5,49,936 4,13,365 6,65,146
Source : SEBI Corporate debt
Figures in parenthesis show percentage share.
5.101 In pursuance of the guidelines of the High
Level Expert Committee on Corporate Bonds and
on securities showed relatively lower intra-year Securitisation (December 2005) and the subsequent
variations in 2009 as compared to the previous year. announcement made in the Union Budget 2006-07,
The cut-off yield-to-maturity (YTM) range on fresh SEBI authorized the BSE (January 2007), NSE
issuances during the year narrowed from 6.24-10.03 (March 2007) and Fixed Income Money Market and
per cent in 2008 to 4.86-8.43 per cent in 2009. The Derivatives Association of India (FIMMDA) (August
weighted average yield on primary issuances of dated 2007) to set up and maintain corporate bond reporting
 Financial Intermediation and Markets 113
Figure 5.4 Secondary market yields on 10-year benchmark G-Sec
10.0
Rate (Per cent)

9.0 2009-10
8.0
2008-09
7.0
6.0
5.0
4.0
02 Apr

02 May

02 Jun

02 Jul

02 Aug

02 Sep

02 Oct

02 Nov

02 Dec

02 Jan

02 Feb

02 Mar
Period

Figure 5.5 Yield on 5 year G-sec and corporate debt paper

12.0
11.0 Yield on GOI
Bonds
Rate (Per cent)

10.0 (5-year
9.0 maturity)
8.0
Yield on
7.0 AAA Bonds
6.0 (5-year
maturity)
5.0
4.0
Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
2007 2008 2009
Years

platforms for capturing all information related to per cent. The yield on corporate debt paper softened
trading in corporate bonds as accurately as possible. till mid-May 2009 but remained above the 8.0 per
In the second phase of development, the BSE and cent level thereafter. The spread between yield on
NSE put in place corporate bonds trading platforms five-year GoI bonds and corporate debt paper (AAA
in July 2007 to enable efficient price discovery in the rating) with five-year maturity, which was around 330
market. This was followed by operationalization of basis points in the beginning of 2009, narrowed down
a DvP-I(trade-by-trade)- based clearing and to 150 basis points by end-June and further to around
settlement system for over-the-counter trades in 110 points by end-December 2009.
corporate bonds by the clearing houses of the
exchanges. In view of these market developments, Currency derivatives
the Reserve Bank of India announced in its Second 5.104 Exchange Traded Currency Futures were
Quarter Review of the Annual Policy Statement for introduced in the Indian market following guidelines
2009-10 in October 2009 that the repo in corporate issued by the Standing Technical Committee set up
bonds can now be introduced. In pursuance of the jointly by the RBI and SEBI on August 6, 2008. The
same, the RBI issued ‘Repo in Corporate Debt underlying idea was to facilitate transparency and
Securities (Reserve Bank of India) Directions, 2010’ efficiency in price discovery, eliminate counterparty
on January 8, 2010 which will come into force with credit risk, provide access to all types of market
effect from March 1, 2010. participants, standardize products and provide a
transparent trading platform. Trading in the currency
5.102 Total traded volume in corporate bonds during
futures segment commenced at the NSE in August
April-December 2009 was Rs 2,42,686 crore, that is
2008. Later, the BSE and the Multi Commodity
higher by 173.4 per cent over the Rs 88,750 crore
Exchange of India Ltd. (MCX) were also given
during April-December 2008.
permission to trade in currency derivatives. Trading
5.103 During 2009-10 up to December 2009, the in Currency Futures (INR/US$ contract) started on
yield on corporate debt paper (with AAA rating) for the NSE, the BSE and the Multi Commodity
five-year maturity moved in the range of 7.71-8.94 Exchange- Stock Exchange (MCX-SX) on August
114 Economic Survey 2009-10
Table 5.24 : Currency futures segment at the NSE and the MCX-SX
Month/year
January-
December
2009
No. of Contracts Traded 226,362,368
Trading Value (Rs crore) 1,082,258
Average Daily Trading value (Rs crore) 4,473
Source : SEBI
29, 2008, October 1, 2008 and October 7, 2008
respectively.
5.105 The total number of contracts traded and
traded value at the NSE were 2,263.62 lakh and
Rs 10,82,258 crore in 2009, while the MCX-SX
recorded 2,242.74 lakh contracts with traded value
of Rs 10,71,583 crore during 2009 (Table 5.24). The
month-to-month average daily traded value at both
the exchanges increased—from Rs 1,199 crore in
January 2009 to Rs 9,115 crore in December 2009
at the NSE and from Rs 1,221 crore to Rs 9,452
crore at the MCX-SX for the same period. Trading
volumes at the BSE were not significant during the
year under consideration.
5.106 In order to facilitate direct hedging of risk in
major currency pairs by market participants, the
Reserve Bank of India proposed in October 2009
that the recognized stock exchanges be permitted
to offer currency futures contracts in currency pairs
of euro-INR, Japanese yen-INR and pound sterling-
INR, in addition to US dollar-rupee contracts which
are already permitted. Accordingly, SEBI issued a
circular on January 19, 2010, permitting eligible stock
exchanges to introduce currency futures on euro-
INR, pound sterling-INR and Japanese yen-INR.
Exchange Traded Interest Rate Futures
5.107 Exchange traded interest rate futures (IRFs)
contracts on a 10-year notional coupon bearing
Government of India security started trading at the
NSE on August 31, 2009. Market participants include
banks and primary dealers, mutual funds, insurance
companies, corporate houses, brokers, FIIs and retail
participants. IRFs enable banks and primary dealers
to mitigate risk and improve process efficiency, while
mutual funds, insurance companies and corporates
can use them to manage risk pertaining to volatility
in interest rates. The minimum contract size for an
IRF is Rs 2 lakh. The trading volumes in IRFs have,
NSE MCX-SX
August- January- August-
December December December
2008 2009 2008
11,514,000 224,273,548 8,876,000
56,005 1,071,583 43,572
4,433
however, remained low. LIC and Central Bank of India
have recently come forward to support transactions
in the IRF market by buying securities from various
market participants who wish to liquidate the
securities received as part of their IRF obligations.
The NSE has announced new steps, namely
narrowing the basket of deliverable securities to
exclude the more illiquid ones and delaying the
settlement date to the last business day of the
month, so that participants have more trading days
than previously, aimed at increasing traded volumes
in IRFs.
Policy Developments during 2009-10
5.108 Some of the salient policy initiatives relating
to the capital market taken during the year were:
I. Primary Market
z In its continuing endeavour to make the existing
public issue facility more efficient, SEBI
introduced Applications Supported by Blocked
Amount (ASBA Phase I) as a supplementary
facility which was available to retail individual
investors in public issues only. ASBA Phase I
was subsequently extended to rights issues. It
has been decided to introduce ASBA Phase II,
which will be applicable to all public issues and
rights issues with single payment option which
are opening on or after January 1, 2010.
z The amended SEBI (Disclosure and Investor
Protection) Guidelines 2000 provide that an
unlisted company making an IPO shall list the
securities being issued through the IPO on at
least one stock exchange having nationwide
trading terminals. A concept of Anchor Investor
in public issues through book building has also
been introduced.
z The existing listing requirements for IDRs (Indian
Depository Receipts) issued by issuing
companies from countries whose securities

market regulators are signatories to the
Multilateral Memorandum of Understanding
(MMOU) of the International Organization of
Securities Commissions (IOSCO) were
simplified. Accordingly, a Model Listing
Agreement containing listing requirements for
listing of IDRs of such issuing companies was
specified.
z In order to enhance disclosures regarding
shareholding pattern in a listed Company and
also to bring more transparency and efficiency
in the governance of a listed company, it has
been decided to introduce a uniform procedure
for dealing with unclaimed shares and dividend
declarations by listed companies and reduce
the notice period for all corporate actions like
dividend and bonus for all scrips, whether in
demat or physical, whether in the F&O segment
or not. The notice period for record dates and
board meetings has been reduced to seven and
two working days respectively. The listing
agreement should disclose the shareholding
pattern for each class of shares and voting rights
pattern in the company. Listed companies have
been prohibited from issuing shares with superior
voting or dividend rights vis-à-vis the rights on
equity shares that are already listed.
II. Secondary Market
z It is mandatory for the transferee(s), in case of
securities market transactions and off-market/
private transactions involving transfer of shares
in physical form of listed companies, to furnish
a copy of the PAN card to the Company/RTAs
for registration of such transfer of shares.
z In order to bring in more transparency in the
grievance redressal mechanism available in
stock exchanges, it was decided that they will
henceforth disclose the details of complaints
lodged by clients/investors against trading
members and companies listed in the exchange,
on their website. The aforesaid disclosure shall
also include details pertaining to arbitration and
penal action against the trading members.
z With a view to instilling greater transparency and
discipline in dealings between clients and
stockbrokers, stockbrokers have been advised
to register a client by entering into an agreement
with him. The registration requirements include
both mandatory and non-mandatory documents.
The former include (a) a member-client
Financial Intermediation and Markets 115
agreement (MCA)/tripartite agreement in case
a sub-broker is involved, (b) a know-your-client
(KYC) form and (c) a risk disclosure document
(RDD). A copy of all the documents executed
by the client shall be given to him, free of charge,
within seven days from the date of execution of
the documents by him.
z In case a stock exchange has no trading for a
period of less than six months, it shall ensure
that necessary regulatory requirements have
been complied with before resuming trading and
the matter may be placed before its Board with
reasons, if any.
z Stock exchanges have been permitted to set
their trading hours (in cash and derivatives
segments) subject to the condition that these
are between 9 am and 5 pm and the Exchange
has in place a risk-management system and
infrastructure commensurate with the trading
hours.
z Taking note of the fact that stock exchanges
had reduced/waived transaction charges, they
were advised, while revising such transaction
charges, to ensure that their systems were
capable of handling additional load and it did
not affect the existing risk- management system.
The revised charges should be uniformly applied
to trades of similar nature and implemented in a
fair and transparent manner.
z SEBI-registered stockbrokers (including trading
members) of stock exchanges have been
allowed to provide access to clients through
authorized persons.
z It was decided that in case of a buy transaction
in the cash market, VaR margins, extreme loss
margins and mark-to-market losses together
should not exceed the purchase value of the
transaction. However, in case of a sale
transaction in the cash market, the existing
practice would continue, namely VaR margins
and extreme loss margins together shall not
exceed the sale value of the transaction and
mark-to-market losses would also be levied.
z It was decided to bring in parity between
domestic venture capital funds and foreign
venture capital investors (FVCIs). Applicants
desirous of registering with SEBI as FVCIs are
required to obtain firm commitment from their
investors for contribution of an amount of at least
US$ 1 million at the time of submission of
applications seeking registration.
116 Economic Survey 2009-10
III. Corporate Bonds
z In order to develop the primary market for
corporate bonds in India, it has been decided to
put in place a Simplified Listing Agreement for
Debt Securities. Where the equity of an issuer
is listed, and such an issuer seeks listing of
debt securities (whether by way of public issue
or private placement), minimal incremental
disclosures related to the debt security issuance
would be sufficient, since a large amount of
information is already in the public domain.
z All trades in corporate bonds between specified
entities, namely mutual funds, FIIs/ sub-
accounts, venture capital funds, FVCIs, portfolio
mangers, and RBI-regulated entities as specified
by the RBI should necessarily be cleared and
settled through the National Securities Clearing
Corporation Limited (NSCCL) or the Indian
Clearing Corporation Limited (ICCL). This is
applicable to all corporate bonds traded over the
counter (OTC) or on the debt segment of stock
exchanges on or after December 1, 2009.
However, trades in corporate bonds that are
traded on the capital market segment/equity
segment of stock exchanges and are required
to be settled through clearing corporations/
clearing houses of stock exchanges are exempt
from these guidelines.
z The Simplified Listing Agreement for Debt
Securities put in place by SEBI has been
amended, requiring issuers to maintain 100 per
cent asset cover sufficient to discharge the
principal amount at all times for the debt
securities issued; submit half-yearly certificates
regarding maintenance of 100 per cent asset
cover (banks, NBFCs and issuers of Government-
guaranteed bonds are exempt from this
stipulation); furnish a half-yearly statement on
deviations in use of issue proceeds, if any, to
the stock exchange; deposit 1 per cent of the
amount of debt securities offered for subscription
to the public; submit/publish financial
statements to the exchange.
IV. Derivatives
z Stock exchanges have been allowed flexibility
to set the expiry date/day for equity of derivative
contracts while at the same time ensuring that
there is no change in contract specifications or
the risk-management framework and the integrity
of the market is not affected in any manner.
z It was decided to introduce an exchange-traded
10-Year notional coupon bearing GoI security
futures.
V. FIIs
z The overall limit for investments by FIIs and sub-
accounts is US$ 5 billion for government
securities and treasury bills and US$ 15 billion
for corporate debt. Investments by FIIs/ sub-
accounts in debt-oriented mutual fund units
(including units of money market and liquid
funds) are considered corporate debt. A major
part of the debt limit is allocated to FIIs/sub-
accounts on an open bidding platform provided
by the stock exchanges. The auction process
is performed alternatively on NSE and BSE
offered platforms. Maximum and minimum limits
vary as per the total amount available for auction.
The limits availed of in this process need to be
utilized within 45 days. The remaining part of
debt limit is allocated on a ‘first-come-first-served’
basis subject to ceiling. The limits availed of in
this process need to be utilized within 11 working
days.
VII. Mutual Funds
z In order to empower investors to decide the
commission to be paid to distributors in
accordance with the level of service received, to
bring about more transparency in payment of
commissions and to incentivize long-term
investment, it was decided that there should be
no entry load for all mutual fund schemes; the
scheme application forms should carry a suitable
disclosure to the effect that the upfront
commission to distributors will be paid by the
investor directly to the distributor, based on his
assessment of various factors including service
rendered; of the exit load charged to the investor,
a maximum of 1 per cent of the redemption
proceeds should be maintained in a separate
account which can be used by the Asset
Management Companies to pay commissions
to the distributor and to take care of other
marketing and selling expenses. Any balance
should be credited to the scheme immediately.
z It was decided that no distinction among unit
holders should be made based on the amount
of subscription while charging exit loads.
z Considering the importance of a systems audit
in the technology-driven asset-management
activity, it was decided that mutual funds should

have a systems audit conducted by an
independent CISA/CISM-qualified or equivalent
auditor once in two years. For the financial years
April 2008–March 2010, the systems audit
should be completed by September 30, 2010.
z Units of mutual fund schemes were permitted
to be transacted through registered stockbrokers
of recognized stock exchanges.
z All intermediaries of mutual funds units have been
advised to follow the code of conduct strictly.
z It was decided that no mutual fund should invest
more than 30 per cent of net assets in money
market instruments of an issuer. In case of
existing schemes where the investments in
money market instruments of an issuer are not
in compliance with this guideline, the AMC should
ensure compliance within a period of three
months from the date of notification.
z It was clarified that mutual funds can invest in
IDRs [Indian Depository Receipts as defined in
Companies (Issue of Indian Depository Receipts)
Rules 2004] subject to compliance with SEBI
(Mutual Funds) Regulations 1996 and guidelines
issued thereunder, specifically investment
restrictions as specified in the Seventh Schedule
of the Regulations.
z With a view to ensuring that the value of debt
securities reflects the current market situation
in the calculation of net asset value, it was
decided to indicate the discretionary markup and
markdown in the case of rated and unrated debt
securities. It was also decided that the
discretionary mark up or down limit, as detailed
in a circular dated June 12, 2009, should be
applied for valuation of securities purchased after
its issuance.
VII. Regulatory Developments
z The SEBI (Delisting of Equity Shares)
Regulations 2009 notified on June 10, 2009
provide a mechanism for voluntary as well as
compulsory delisting of equity shares of a
company and listing of delisted equity shares.
z The SEBI (Issue of Capital and Disclosure
Requirements) Regulations 2009 provide for, inter
alia, offer for sale by listed companies and
stipulate that the allotment/refund period in public
issues should be 15 days and issue period for
all types of issuers 10 days. Under these
regulations, exemption from eligibility norms for
Financial Intermediation and Markets 117
making an IPO earlier available to a banking
company, corresponding new bank and
infrastructure companies, and firm allotment in
public issues has been removed.
z In order to facilitate the issuance of IDRs, SEBI
has laid down a regulatory structure by carrying
out suitable amendments to the SEBI (Custodian
of Securities) Regulations 1996 (to enable the
custodian to undertake the activity of domestic
depository for IDRs), SEBI (Depository
Participants) Regulations 1996 (to make IDRs
eligible as security for dematerialization), SEBI
(Foreign Institutional Investor) Regulations 1995
(to allow FIIs also to invest in IDRs).
z The fees payable by some of the intermediaries
and market participants, namely custodian of
securities, FIIs, FVCIs, mutual funds and
stockbrokers and sub-brokers, have been
modified.
z The SEBI (Mutual Funds) Regulations 1996 have
been amended in April and June 2009 to make
listing of close-ended schemes mandatory and
to provide that the units under close-ended
schemes shall not be repurchased before
maturity. Close-ended debt schemes have been
allowed to invest in securities of initial or residual
maturities not exceeding their own maturity.
Furthermore, a mutual fund scheme can invest
only up to 30 per cent of its net assets in money
market instruments of an issuer. However, this
limit is not applicable to investments in
Government securities, treasury bills and
collateralized borrowing and lending obligations.
COMMODITY FUTURES MARKET
5.109 Commodities traded in the commodity
futures market during 2009 included a variety of
agricultural commodities, bullion, crude oil, energy
and metal products. Several new commodities were
introduced for futures trading in 2009, such as
almond, imported thermal coal, carbon credits and
platinum. The total value of trades in the commodity
futures market rose from Rs 50.34 lakh crore in 2008
to Rs 70.90 lakh crore during 2009.
5.110 The average daily value of trades in the
commodity exchanges improved from Rs 16,400 crore
during 2008 to Rs 23,200 crore in 2009. Agricultural
commodities, bullion and energy accounted for a
large share of the commodities traded in the
commodity futures market.
118 Economic Survey 2009-10

Table 5.25 : Turnover on commodity futures markets

(Rs crore)
Calendar year
Name of the exchange 2007 2008 2009
Multi Commodity Exchange (MCX), Mumbai 27,30,415 42,84,653 59,56,656
National Commodity and Derivatives Exchange (NCDEX) 7,74,965 6,28,074 8,05,720
National Multi Commodity Exchange, (NMCE) 25,056 37,272 1,95,907
Others 1,24,051 83,885 1,32,173
Total 36,54,487 50,33,884 70,90,456
Source : Ministry of Consumer Affairs

Box 5.1 : Regulation and development of commodity futures markets

The year 2009 began on an optimistic note for the commodity futures market with the revocation of suspension of
futures trading in chana, soy oil, rubber and potato in December 2008. This was followed six months later, in May 2009,
by the revocation of suspension of trading in wheat. However, futures trading in sugar was suspended on May 26, 2009
for a period of six months till December 31, 2009, which was further extended to September 30, 2010. Agricultural
commodity futures staged a remarkable recovery, recording a trading value of Rs10.88 lakh crore in 2009, displaying
growth of 48 per cent over the previous year. During the year, a new national commodity exchange, i.e. the ICEX became
operational.
The Forward Markets Commission (FMC), the regulator for commodity futures trading under the provisions of the
Forward Contracts (Regulation) Act 1952 continued its efforts to broad-base the market. The emphasis was on participation
of physical market participants, especially farmers, as hedgers, to counterbalance the speculative element in price
discovery and to increase the awareness level of farmers and other market participants. The Commission undertook
various regulatory measures to facilitate hedgers’ participation and promote delivery in agricultural commodities, such
as introduction of the Exchange of Futures for Physicals (EFP) and Alternate Futures Settlement Mechanism, allowing
higher position limits to NAFED to facilitate hedging and delivery by it and introduction of an early delivery system in
select commodities. In addition, efforts were made to develop an “aggregation” model in collaboration with commodity
exchanges to promote participation of farmers. The FMC also undertook several regulatory initiatives to prevent market
manipulation and ensure market integrity, financial integrity and customer protection. Major policy developments
initiated by the Forward Markets Commission included the issuance of guidelines for bringing members of the commodity
exchanges under the purview of the Money Laundering Act and guidelines for divestment of the equity by the existing
national exchanges after five years of their operation. A price dissemination project was initiated by the FMC, under
which spot and future prices of agricultural commodities would be made available to farmers on a real-time basis on
price ticker boards placed at Agricultural Produce Marketing Committees.

Source: Ministry of Consumer Affairs.

5.111 The MCX, Mumbai, recorded the highest
turnover in terms of value of trade during 2009,
followed by the National Commodity & Derivatives
Exchange Ltd.(NCDEX) and National Multi
Commodity Exchange of India Ltd.(NMCE)
respectively. (Table 5.25)
INSURANCE AND PENSION FUNDS
Insurance
5.112 The insurance sector was opened for private
participation with the enactment of the Insurance
Regulatory and Development Authority Act 1999.
While permitting foreign participation in ventures set
up by the private sector, the Government restricted
participation of the foreign joint venture partner through
the foreign direct investment (FDI) route to 26 per
cent of the paid-up equity of the insurance company.
New entrants in the insurance sector
5.113 Since the opening up of the sector, the
number of participants has gone up from six insurers
(including LIC of India, four public-sector general
insurers and the General Insurance Corporation as
the national reinsurer) in the year 2000 to 44 insurers
operating in the life, non-life and reinsurance
segments (including specialized insurers, namely
the Export Credit Guarantee Corporation [ECGC] and
Agricultural Insurance Company [AIC]). Two of the
general insurance companies, namely Star Health
and Alliance Insurance Company and Apollo DKV
function as standalone health insurance companies.
 Financial Intermediation and Markets 119
Box 5.2 : Development of electronic spot exchanges
The Government and FMC have allowed the national commodity exchanges to set up three spot exchanges in the
country, namely the National Spot Exchange Ltd. (NSEL), NCDEX Spot Exchange Ltd. (NSPOT) and National Agriculture
Produce Marketing Company of India Ltd. (NAPMC). During 2009, there was significant expansion of spot exchanges’
trading facilities in India. These spot exchanges have created an avenue for direct market linkage among farmers,
processors, exporters and end users with a view to reducing the cost of intermediation and enhancing price realization
by farmers. They would also provide the most efficient spot price inputs to the futures exchanges. The spot exchanges
would encompass the entire spectrum of commodities across the country and would bring home the advantages of an
electronic spot trading platform to all market participants in the agricultural and non-agricultural segments. On the
agricultural side, the exchanges would enable farmers to trade seamlessly on the platform by providing them real-time
access to price information and a simplified delivery process, thereby ensuring them the best possible prices. On the buy
side, all users of the commodities in the commodity value chain would have simultaneous access to the exchanges,
which would be able to procure at the best possible prices. Therefore, the efficiency levels attained as a result of such
seamless spot transactions would result in major benefits for both producers and consumers. Thus the exchanges
would enhance the efficiency of the existing OTC markets in the country

So far, Maharashtra, Karnataka, Gujarat, Rajasthan, Orissa and Madhya Pradesh have given licences to the spot
exchanges to undertake electronic spot trading. The agricultural commodities traded on the spot exchange platform are
cotton, castor seed, desi channa, guar seed, RM seed, wheat, barley, red arecanut, maize, yellow peas, urad, lemon tur,
soyabean, jeera, ground nut, sugar, moong and pepper. In the process, farmers’ realization has increased by 4-5 per cent.
The total turnover of the three exchanges during 2009 was Rs 2,810 crore.
Source: Ministry of Consumer Affairs.

Of the 21 insurance companies that have set up Non-life insurance

operations in the life segment post opening up of
the sector, 19 are in joint venture with foreign partners.
Of the 15 insurers who have commenced operations
in the non-life segment, 14 are in collaboration with
foreign partners. The two standalone health insurance
companies have been set up in collaboration with
foreign joint venture partners. Thus, as of date, 33
insurance companies in the private sector are
operating in the country in collaboration with
established foreign insurance companies from across
the globe.
Life insurance
5.114 The post-liberalization period has been
witness to tremendous growth in the insurance
industry, more particularly so in the life segment.
However, in 2008-09, on account of the financial
meltdown, the life insurance segment saw a
downward trend. The first-year premium, which is
a measure of new business secured, underwritten
by the life insurers during 2008-09 was Rs 87,006
crore as compared to Rs 93,713 crore in 2007-08,
registering a negative growth of 7.2 per cent. In
terms of linked and non-linked business during the
year 2008-09, 50.9 per cent of the first-year premium
was underwritten in the linked segment while 49.1
per cent was in the non-linked segment as against
75:25 in the previous year. The shift towards the
traditional segment is significant during the year
2008-09.
5.115 The non-life insurers (excluding specialized
institutions like the Export Credit Guarantee
Corporation and Agriculture Insurance Corporation
and the standalone health insurance companies)
underwrote premium of Rs 30,352 crore in 2008-09
in India, as against Rs 27,824 crore in 2007-08.
Insurance Penetration
5.116 Insurance penetration is defined as the ratio
of premium underwritten in a given year to GDP.
Insurance penetration in the year 2000 when the
sector was opened up to the private sector was
2.32 (life 1.77 and non-life 0.55), and it has increased
to 4.60 in 2008 (life 4.00 and non-life 0.6). The
increase in levels of insurance penetration has to be
assessed against the average growth of over 8.2 per
cent in the GDP in the last five years.
Initiatives taken in the insurance sector
5.117 The initiatives taken by the insurance
authority in the sector include the following:
z Amendment to Insurance Legislation: The
Insurance Laws (Amendment) Bill 2008
introduced in Parliament recently, proposes to
amend the Insurance Act 1938, the Insurance
Regulatory and Development Authority (IRDA)
Act 1999 and the General Insurance Business
(Nationalization) Act 1972. The amendments to
120 Economic Survey 2009-10
the Insurance Act and the IRDA Act focus on
the current regulatory requirements; the
proposed changes provide for more flexibility in
operations and are aimed at deletion of clauses
that are no longer relevant in the present context.
The amendments also provide for enhancement
of enforcement powers and levy of stringent
penalties.
z De-tariffing: The road map for de-tariffing was
notified by the IRDA on September 23, 2005,
based on the demand from various stakeholders
that continuance of the tariff regime was
inconsistent with the opening up of the sector
to provide healthy competition. As a first step,
de-tariffing was confined to decontrol of rates
only and terms and conditions of the policy were
not permitted to be changed till March 31, 2008.
De-tariffing of the non-life industry was notified
with effect from January 1, 2007. In order to
moderate the impact of tariff increase on
commercial vehicle owners, the IRDA has
retained the powers to determine the rates of
motor-third party premium for commercial
vehicles, and to ensure that all insurers undertake
commensurate exposure to this line of business,
a Motor Pool has been created under Section
34 of the Insurance Act 1938. All non-life insurers
are required to collectively participate in a pooling
arrangement to share in all motor-third party
insurance business for commercial vehicles
underwritten by them with effect from April 1,
2007. The IRDA decided to permit the general
insurers to file variations in deductibles from
those prescribed under the erstwhile tariffs
subject to written disclosures and acceptance
by the insured prior to finalization of the insurance
policy and add-on covers over and above the
erstwhile tariff covers with appropriate additional
premiums with effect from January 1, 2009. The
insurers were also permitted to extend
engineering insurances to mobile/ portable
equipments. Industrial All Risk (IAR) policies
could now be issued to all industries including
the petrochemical industry with the sum insured
less than Rs100 crore. However, the general
insurers were not permitted to abridge the scope
of standard covers available under erstwhile
tariffs.
z Micro Insurance: Micro insurance is widely
accepted as one of the essential ingredients of
financial inclusion packages to provide a hedge
against unforeseen risks. Micro-insurance
regulations issued by the IRDA have provided a
fillip to propagating micro insurance as a
conceptual issue. With the positive and
facilitative approach adopted under micro-
insurance regulations, it is expected that all
insurance companies would come out with a
progressive business approach and carry forward
the spirit of the regulations thereby extending
insurance penetration to all segments of society.
Nine insurance companies have filed 26 micro-
insurance products both in the individual and
group segments. It may be mentioned that some
of the insurers had been selling products that
fall within the parameters stipulated for eligibility
as micro insurance even prior to notification of
micro-insurance regulations.
z Amendments to the Regulations on Rural
and Social Sector Obligations: The
obligations of the new insurers towards the rural
and social sectors for the sixth to tenth years of
their operations have been linked to their past
performance in the said sectors. With a view to
giving a fillip to micro insurance, the performance
in these sectors has now been benchmarked to
the insurance policies satisfying the definition
of ‘micro insurance’ as laid down in the Micro
Insurance Regulations 2005. The regulations
have been further amended to provide for
relaxation in obligations based on whether the
insurance company had commenced operations
in the first or second half of the financial year.
For insurance companies commencing
operations in the first half of the financial year,
the applicable obligations for the first year shall
be 50 per cent of the obligations as specified in
the Regulations. In case of companies which
commence operations in the second half of the
financial year and are in operation for less than
six months, it is stipulated that no rural- or social-
sector obligations shall be applicable for that
year and the annual obligations as indicated in
the Regulations shall be applicable from the next
financial year of operations.
z Guidelines on the Anti-Money Laundering
(AML) Programme: The IRDA issued guidelines
on the AML Programme to the insurance
industry on March 31, 2006, in terms of which
insurers were advised to put a proper AML policy
framework in place in case of life insurance
companies and non-life insurance companies
effective from August 1, 2006 and January 1,
2007 respectively. The AML Programme

emphasizes KYC norms and requires insurers
to document identity, residence, sources of
funds etc. as part of the due diligence process.
While the guidelines are applicable to life
insurance companies on all contracts, in the
case of general insurance companies, the
compliance is required at the payout stage, i.e.
during claims/refunds of over Rs1.00 lakh. Cash
acceptance thresholds have been fixed at Rs
50,000, beyond which premium/proposal
deposits have to be remitted through banking
channels.
z Data Warehouse: The IRDA has initiated steps
to design, build and manage a data warehouse
for the insurance industry recognizing that data
will help the insurers design new products and
allow scientific underwriting, further calculations
of actuarial risks, price setting and various
aspects relating to claims settlement,
management of hazards, etc. As a first step,
the IRDA has designed a data set relating to
health and motor vehicle insurance. The IRDA
also proposes to put in place a formal data
warehouse to enable access by various
stakeholders across the industry.
z Consumer Grievance Redressal Cell: The
Grievance Redressal Cell of the IRDA looks into
complaints from policyholders. Complaints
against life and non-life insurers are handled
separately. This Cell plays a facilitative role by
taking up complaints with the respective
insurers.
z Public Awareness Campaigns/Programmes:
The IRDA’s strategy for consumer awareness/
education includes campaigns through external
media, i.e. mass media, mainly print, television
and the Internet and internal initiatives such as
an exclusive consumer education web page and
sample booklets on various insurance-related
topics, containing generic information, which
insurers would also be advised to publish and
distribute.
z Cap on ULIP Charges: The insurance industry
has introduced unit-linked insurance plans
(ULIPs) which have found favour with insurance
customers in India. These products prescribe
certain charges, which are deducted either from
contributions or from the fund. In order to simplify
and to ensure that the charges are reasonable,
relevant to the services being provided and clearly
understandable by the customers, the IRDA has
Financial Intermediation and Markets 121
mandated an overall cap on all charges put
together. Care has been taken to ensure that
the insurers have freedom to distribute charges
across the term of the policy. This also imparts
flexibility and facilitates product innovation.
z Corporate Governance Guidelines for
Insurance Companies: Corporate Governance
guidelines have been rolled out for insurance
companies, which are effective from April 1, 2010.
The objective of the guidelines is to ensure that
the structure, responsibilities and functions of
the Board of Directors and senior management
of the company fully recognize the expectations
of all stakeholders as well as those of the
regulator. The guidelines broadly cover major
structural elements of corporate governance in
insurance companies.
Pension Sector: Highlights
5.118 Pension-sector reforms were initiated in India
to establish a robust and sustainable social security
arrangement in the country seeing that only about
12-13 per cent of the total workforce was covered by
any formal social security system. The New Pension
System (NPS) was introduced by the Government
from January 1, 2004 for new entrants to the Central
Government service, except the Armed Forces, and
was extended to the general public from May 1,
2009 on a voluntary basis. The features of the NPS
design are self-sustainability, portability and
scalability. Based on individual choice, it is envisaged
as a low-cost and efficient pension system backed
by sound regulation. As a pure “defined contribution”
product with no defined benefit element, returns would
be totally market related. The NPS provides various
investment options and choices to individuals to
switch over from one option to another or from one
fund manager to another, subject to certain regulatory
restrictions.
5.119 The Pension Fund Regulatory &
Development Authority (PFRDA), set up as a
regulatory body for the pension sector, is engaged
in consolidating the initiatives taken so far regarding
the full NPS architecture and expanding the reach
of the NPS distribution network. The full NPS
architecture comprising a Central Recordkeeping
Agency (CRA), pension fund managers (PFMs),
trustee bank, custodian and NPS Trust has been
put in place and is fully operational. The National
Securities Depository Limited (NSDL) has been
selected as the CRA. The PFRDA has also
appointed six Pension Fund Managers (PFM) for
122 Economic Survey 2009-10
the unorganized sector, namely UTI Retirement
Solutions Limited, SBI Pension Funds Pvt. Ltd.,
ICICI Prudential Life Insurance Company Ltd., IDFC
Asset Management Company Ltd., Reliance Capital
Asset Management Ltd. and Kotak Mahindra Asset
Management Company Ltd., as pension fund
sponsors under the NPS.
5.120 NPS implementation in the Central
Government has stabilized with more than 5.64 lakh
employees already covered. Reconciliation of data
pertaining to the period prior to coming into force
of the CRA is on the verge of completion. Currently,
the total amount under management of the three
fund managers appointed by the PFRDA for Central
Government employees is over Rs 3,200 crore.
These PFMs are SBI Pension Fund Private Ltd.,
UTI Retirement Solution Ltd. and LIC Pension Fund
Ltd. The NPS has also been well received by the
State Governments and 23 State Governments/
Union Territories have notified similar schemes for
their new recruits under the ambit of the NPS. The
PFRDA has been working with all the States to
enable them to log on to the NPS architecture with
ease. NPS Trust and CRA have been in continuous
dialogue with State Governments/Union Territories
for facilitating their entry into the NPS. As of date,
the CRA has already signed agreements with 11
State Governments whereas the NPS Trust has
signed agreements with nine State Governments.
5.121 Efforts are under way to extend the reach
of the NPS to new segments like Central and State
autonomous bodies and the organized sector and
introduce micro-pension initiatives focusing on a low
cost model of the NPS to be implemented through
SHGs and similar bodies. More than 250 Central
autonomous bodies have evinced interest in joining
the NPS. Several State Government autonomous
bodies and undertakings are in dialogue with the
PFRDA for extending the NPS to their employees.
The PFRDA has also launched a scheme for
management of the pension corpus of various
corporates under the NPS architecture.
5.122 For all citizens including workers in the
unorganized sector, the NPS is currently available
through nearly 900 service provider (SP) branches
of 21 Points of Presence (PoP). The PFRDA has
also recently appointed the Department of Posts as
PoP in addition to seven other financial institutions
which will expand the PoP-SP network by more
than five times. While Tier I, the non-withdrawable
pension account under the NPS has been in
operation since May 1, 2009, Tier II, the
withdrawable account has been made operational
from December 1, 2009. The PFRDA has also
enhanced the maximum entry age into the NPS
from 55 years to 60 years. These initiatives are
expected to help realize the full potential of the NPS
in terms of economies of scale and benefit the
subscribers in terms of lower fees and charges and
higher returns.
5.123 The pension fund managers manage three
separate schemes consisting of three asset
classes, namely (i) equity, (ii) Government securities
and (iii) credit risk-bearing fixed income instruments,
with the investment in equity subject to a cap of
50 per cent. The fund managers will invest only in
index funds that replicate either the BSE sensitive
index or NSE Nifty 50 index. The subscriber will have
the option to decide the investment mix of his
pension wealth. In case the subscriber is unable/
unwilling to exercise any choice regarding asset
allocation, his contribution will be invested in
accordance with the “auto choice” option with a
predefined portfolio.
5.124 Pension reforms in India have made
substantial progress. With the extension of the NPS
to all citizens from May 1, 2009, every citizen in
the country now has the opportunity to participate
in a regulated pension market. This will contribute
significantly to old age income security in the
country.
CHALLENGES AND OUTLOOK
5.125 Institutional players and corporates
constitute major players in the Indian capital market.
The retail investor participation remains limited in
the corporate debt market and mutual funds. The
interdependence between corporate and mutual
funds has recently raised concerns relating to
volatility in financial markets.
5.126 The recent global financial turmoil raised
many issues about governance of financial
intermediaries and awareness of investors. Investor
awareness is a prerequisite for investor protection.
In fact, investor protection and education are two
sides of the same coin. Neither will have the desired
impact in isolation. A simultaneous and coordinated
effort on both fronts would help investors take well-
informed financial decisions besides protecting their
interests and ensuring orderly conditions in markets.
Greater effort therefore is needed for investor
education and promoting investors’ protection.

5.127 Pension reforms in India have generated
widespread interest internationally. The PFRDA faces
the challenge of expanding the distribution network
of the NPS to cover the entire unorganized sector in
the country, educate citizens to take appropriate
investment decisions, based on their risk and return
profile, and contribute to improved financial literacy
levels. Provision of a statutory status to the pension
regulator would help the PFRDA perform its regulatory
and developmental roles effectively. The success of
pension reforms will not only facilitate the flow of
long-term savings for development, but also help
Financial Intermediation and Markets 123
establish a credible and sustainable social security
system in the country.
5.128 Capital market solutions for catastrophe risk
insurance are another area that needs focus. This
essentially transfers insurance risk of natural
calamities like earthquakes, hurricanes and floods
to the capital markets through issue of catastrophe
bonds. The instrument is widely used in advanced
countries and there is scope for introducing it in
countries like India to provide insurance against
contingencies.
Balance of Payments
6
CHAPTER

F iscal 2009-10 has witnessed a global recovery after a crisis of severe worldwide
proportions. The risks of double-dip recession, however remain, with need for caution
in dealing with high public debt and unwinding of fiscal and monetary stimuli.
The Indian economy also saw a turnaround, registering 7 per cent growth during
H1 (April –September 2009) of 2009-10, after touching a low of 5.8 per cent in the
third and fourth quarters of 2008-09. The balance-of-payments (BoP) situation
improved on the back of a surge in capital flows and rise in foreign exchange reserves,
which have been accompanied by rupee appreciation.

THE GLOBAL CRISIS AND BEYOND
6.2 The last two and a half years have been the
most turbulent for the global economy since World
War II. The crisis that began in a small corner of the
financial system, i.e. the sub-prime mortgage
market in the United States spread like wildfire to
engulf the entire global financial system. The fall of
Lehman in September 2008 was the proverbial last
straw, making the crisis truly global in terms of
outreach, impact and severity for both advanced and
developing countries.
6.3 Countries have, however, been affected by
the crisis differently and in varying degrees.
Advanced economies as a group have been more
severely affected with 3.2 per cent negative growth
forecast for 2009 (IMF World Economic Outlook,
January 2010). All rich countries, with the exception
of Australia, experienced decline, before a likely
upturn in 2010 in most economies.
6.4 Developing countries are likely to grow by
2.1 per cent in 2009 and 6.0 per cent in 2010, led
by India and China, which remained the most resilient
to the crisis. The impact on the emerging world was
through reversal of capital flows, fall in stock
markets, depreciation of local currency, decline in
exports and general risk aversion, which affected
consumption and investment. The social impact of
the crisis, though, has been more severe for the
emerging economies, as they have fewer cushions
against shocks.
6.5 The response to the crisis, however, has
been equally swift, with concerted and coordinated
efforts by governments and monetary authorities,
through conventional and non-conventional fiscal
and monetary instruments. As a result, there are
signs of recovery in the global economy with the
US, Euro Zone and Japan already out of recession
and the momentum of growth picking up in emerging
economies (Table 6.1).
6.6 Risks however remain, with rich countries
continuing to be more vulnerable to double-dip
recession. First, levels of unemployment remains
high despite expansionary polices. Second, the
extensive use of fiscal policy has meant a sizeable
increase in fiscal deficit with the gross public debt
to gross domestic product (GDP) ratio in advanced
economies likely to rise from 75 to 115 per cent
during 2008-2014. Third, the timing of exit is
important. An early exit could increase the risk of
another recession, while late exit could worsen
public debt ratios, crowd out private investment and
fuel inflationary expectations. Fourth, return of
recession could cause havoc. With most policy
toolkits already exhausted, public debt ratios
skyrocketing and the balance sheets of central
banks stretched, little ammunition remains for
dealing with another crisis.
6.7 As emerging economies are ahead on the
recovery curve, a major fallout has been large flows
of capital from rich countries seeking to benefit from
 Balance of Payments 125
Table 6.1 : Selected Economic Indicators : World
Sl. Items 2008 2009 2010
No. Projection Projection
I World Output (per cent change) # 3.0 -0.8 3.9
a Advanced Economies 0.5 -3.2 2.1
b Other Emerging Market and Developing Countries 6.1 2.1 6.0
of which
Developing Asia 7.9 6.5 8.4
China 9.6 8.7 10.0
India 7.3 5.6 7.7
II Net Capital Flows to Emerging Market and Developing Countries
(US$ billion)
i Net Private Capital Flows (a+b+c) 129.5 -52.5 28.3
(a) Net Private Direct Investment 425.0 279.0 269.5
(b) Net Private Portfolio Investment -85.4 -99.8 -110.4
(c) Net Other Private Capital Flows -210.1 -231.6 -130.8
ii Net Official Flows -105.7 50.3 -14.2
III World Trade @
i Trade Volume 3.0 -11.9 2.5
ii Export Volume 2.8 -11.4 2.6
IV Current Account Balance (per cent to GDP)
i US -4.9 -2.6 -2.2
ii China 9.8 7.8 8.6
iii India -2.2 -2.2 -2.5
iv Middle East 18.3 2.6 7.9
Source : For item I-International Monetary Fund (IMF), World Economic Outlook, January 2010; for items II to
IV–World Economic Outlook, October 2009.
# growth rates are based on GDP at purchasing power parities
@ Average of annual percentage change for world exports and imports of goods and services.

Box 6.1 : Asset price bubbles in emerging economies

There are strong signs of recovery in the global economy. The emerging economies, particularly in Asia, are, however, ahead
on the recovery curve. This has negative fallout for emerging economies by way of outsized inflows of capital to take
advantage of higher returns.The higher returns are due to both interest differentials and stock market returns, with the
Emerging Market MSCI Index rising by 77.1 per cent during 2009. The rush of portfolio investment that is not supported
by fundamentals like high economic growth is fuelling the rise in stock markets.
A major fallout of the capital inflow is appreciation of domestic currency through creating a supply-demand imbalance in
the foreign exchange market. The implication is similar to ‘Dutch disease’, a concept that owes its origin to offshore natural
gas finds in the Netherlands in the 1960s, which led to a surge in capital flows and domestic currency appreciation that
made exports uncompetitive and affected domestic industry through cheaper imports. The large inflows are more serious
for countries with current account deficits, as domestic currency appreciation generally worsens the deficit. Together with
loss of international competitiveness due to pegged exchange rates in some countries, the currency appreciation may make
the recovery process more difficult in many emerging economies.
The sharp increase in stock market prices also increases speculative activity, besides contributing to market volatility. The
boom and bust cycle in stock markets, since the onset of the crisis, has followed surge and reversal of capital flows to a
significant extent. Such price volatility is detrimental for the orderly development of the capital markets and for stock
markets to be a viable source for financing capital expenditure.
Another area of asset price bubble is commodities (oil, metals and agricultural), which have emerged as an ‘asset class’ due
to high returns, their role as a hedge against inflation and diversification benefits on account of low correlations. A number
of instruments like exchange traded funds (ETFs) are available, which make commodity investment accessible to institutional
and individual investors. The rise in the global price of oil, however, could affect nascent recovery in oil- importing emerging
economies. Besides, many emerging economies like India are being affected by the high food prices, where apart from
domestic supply factors, investment demand appears to be playing a contributory role. A key element in the speculative
flows is ‘carry trade’, which is characterized by borrowing in currencies with low interest and investment in higher interest
currencies to take advantage of interest differentials. The carry trade money has also been flowing into stock markets in
emerging economies to take advantage of higher returns. Record low interest rates in the US and other advanced countries
are reportedly behind the trade. Carry trade and its unwinding have contributed significantly to currency volatility in the
international markets during the recent past. The same mechanism is now fuelling asset price bubbles in emerging economies
and leading to domestic currency appreciation.
126 Economic Survey 2009-10

interest rate differentials and a stock market boom. account for 15 per cent of the GDP), the Indian
As such outsized inflows are not supported by economy has exhibited considerable resilience in
economic fundamentals, they are contributing to the face of the crisis.
asset price bubbles and appreciation of domestic
currency, which may affect the process of recovery
(Box 6.1).
BALANCE OF PAYMENTS (BOP)
6.9 Under current account of the BoP,
6.8 The Indian economy was initially affected
transactions are classified into merchandise (exports
through a reversal of capital flows, rupee depreciation
and imports) and invisibles. Invisible transactions are
and stock market decline. Thereafter, especially after
further classified into three categories, namely(a)
the collapse of Lehman Brothers, the real sector
Services–travel, transportation, insurance,
was affected through a fall in exports and general
Government not included elsewhere (GNIE) and
risk aversion. The decline, however, was partly offset
miscellaneous, which latter encompasses
by the resilience of the rural economy due to
communication, construction, financial, software,
improvement in the agricultural terms of trade
news agency, royalties, management and business
because of higher support prices for agricultural
services, (b) Income, and (c) Transfers (grants, gifts,
produce, income generated through the National
remittances, etc.) which do not have any quid pro
Rural Employment Guarantee Scheme, agriculture
quo.
loan waivers, building up of rural infrastructure under
the Bharat Nirman programme and increasing 6.10 Capital inflows can be classified by
awareness through media and mobile phone instrument (debt or equity) and maturity (short or
penetration. Together with the fact that it is largely long term). The main components of capital account
domestic demand driven, (merchandise exports include foreign investment, loans and banking

Table 6.2 : Balance of payments : Summary

(US$ million)
Sl. Items 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Sep. Apr-Sep.
No. 2008 2009
PR PR P
1 Exports 85206 105152 128888 166162 189001 111085 81139
2 Imports 118908 157056 190670 257629 307651 175483 139356
3 Trade Balance -33702 -51904 -61782 -91467 -118650 -64398 -58217
4 Invisibles (net) 31232 42002 52217 75731 89923 48549 39599
Non-factor Services 15426 23170 29469 38853 49631 25110 15371
Income -4979 -5855 -7331 -5068 -4507 -1646 -2353
Private Transfers 20525 24493 29825 41706 44567 25091 26695
5 Goods and Services Balance -18276 -28734 -32313 -52614 -69019 -39288 -42846
6 Current Account Balance -2470 -9902 -9565 -15737 -28728 -15849 -18618
7 External Assistance (net) 1923 1702 1775 2114 2637 869 571
8 External Commercial Borrowings (net) 5194 2508 16103 22609 7941 3166 745
9 Non -resident Deposits (net) -964 2789 4321 179 4290 1072 2864
10 Foreign Investment (net) 13000 15528 14753 43326 3467 8349 32088
of which
(i) FDI (net) 3713 3034 7693 15893 17498 13867 14142
(ii) Portfolio (net) 9287 12494 7060 27433 -14030 -5518 17946
11 Other Flows (net)a 9476 2427 9219 39673 -9687 -106 -8117
12 Total Capital Account (net) 28629 24954 46171 107901 8648 13350 28151
(including errors and omission)

13 Reserves (-)26159 (-)15052 (-)36606 (-)92164 (+)20080 (+)2499 (-)9533

[increase (-) / decrease (+)]
Source : RBI PR: Partially Revised P: Preliminary
a Includes, among others delayed export receipts and errors and omissions.

capital. Foreign investment comprising foreign direct
investment (FDI) and portfolio investment represents
non-debt liabilities, while loans (external assistance,
external commercial borrowings and trade credit) and
banking capital including non-resident Indian (NRI)
deposits are debt liabilities.
6.11 India’s BoP exhibited considerable
resilience during fiscal 2008-09 despite one of the
severest external shocks. The current account
balance [ (-) 2.4 per cent of GDP in 2008-09 vis-à-vis
(–) 1.3 per cent in 2007-08] remained well within the
sustainable limits and there was limited use of foreign
exchange reserves, despite massive decline in net
capital flows to US$ 7.2 billion in 2008-09 as against
US$ 106.6 billion in 2007-08. As per the latest BoP
data for fiscal 2009-10, exports and imports showed
substantial decline during April-September (H1) of
2009-10 vis-à-vis the corresponding period in
2008-09. There has been improvement in the BoP
scenario during H1 of 2009-10 over H1 of 2008-09,
reflected in higher net capital inflows and lower trade
deficit. However, the invisible surplus declined and
current account deficit widened vis-a-vis the
corresponding period last year (Table 6.2).
CURRENT ACCOUNT
Merchandise (exports and imports)
6.12 The impact of the global financial crisis was
transmitted to India through various external sector
transactions, mainly the trade and financial routes.
The transmission of external demand shocks was
much more swift and severe on export growth, which,
on a BoP basis, declined from a peak of 57 per cent
in Q1 (April-June 2008) of 2008-09 to (-) 8.4 per cent
in Q3 (October – December 2008) and further to
(-)20 per cent in Q4 (January – March 2009) of
2008-09–-a fall for the first time since 2001-02. Import
growth, which remained robust till the Q2 (July –
September 2008) of 2008-09, declined by 20.8 per
cent in Q3 over Q2 and 20.1 per cent in Q4 over Q3,
moving in tandem with the slowdown in domestic
industrial demand and sharp decline in international
crude oil and other primary commodity prices. Thus
trade deficit generally expanded in the first two
quarters of 2008-09 due to the combined effect of a
high crude oil prices-driven increase in imports and
the collapse in external demand. However, in Q4 of
2008-09, with the pace of decline in imports outpacing
that in exports, trade deficit narrowed down
significantly to US$ 20.2 billion as compared to US$
25.3 billion in Q1, US$ 39.1 billion in Q2 and US$
Balance of Payments 127
34.0 billion in Q3. For the full fiscal 2008-09, however,
trade deficit witnessed a marked expansion to US$
118.7 billion (9.7 per cent of GDP) as compared to
US$ 91.5 billion (7.4 per cent of GDP) in 2007-08.
6.13 India’s current account position during the
first half of 2009-10 (April-September) continued to
reflect the impact of the global economic downturn
and deceleration in world trade witnessed since the
second half of 2008-09. Growth in exports and imports
continued its declining trend during the first half of
2009-10. On a BoP basis, India’s merchandise
exports, which started falling in October 2008,
recorded a decline of 27.0 per cent in H1 (April-
September 2009) of 2009 as against a significant
increase of 48.1 per cent during the corresponding
period of the previous year.
6.14 Similarly, the declining trend in imports,
which began during the third quarter of 2008-09, after
a gap of almost seven years, continued during the
first half of 2009-10. Import payments, on a BoP
basis, registered a decline of 20.6 per cent during
H1 of 2009-10 as compared to robust growth of 51.0
per cent in the corresponding period of the previous
year.
6.15 According to the Directorate General of
Commercial Intelligence and Statistics (DGCI&S)
data, oil imports recorded a decline of 45.0 per cent
in April-September 2009 as against a significant rise
of 83.0 per cent during April-September 2008. During
the same period, non-oil imports showed a relatively
modest decline of 26.3 per cent (as against an
increase of 43.8 per cent in April-September 2008).
In absolute terms, oil imports accounted for about
26 per cent of total imports during April-September
2009 (34.2 per cent in the corresponding period of
the previous year). According to the data released
by the Gem & Jewellery Export Promotion Council,
total import of gems and jewellery declined by 12
per cent during April-September 2009 as against an
increase of 33.6 per cent during the corresponding
period of the previous year.
6.16 Trade deficit, however, remained lower at
US$ 58.2 billion during April-September 2009 as
compared to US$ 64.4 billion in April-September 2008
(9.6 per cent decline), mainly on account of the decline
in oil imports. A detailed analysis of India’s trade
performance occurs in the next chapter.
Invisibles
6.17 Two components of the current receipts,
which remained relatively resilient in the face of the
128 Economic Survey 2009-10
global economic meltdown, were software services
and workers’ remittances, mainly responsible for
higher invisible surplus. The invisibles account
reflects the combined effects of transactions relating
to international trade in services, income associated
with non-resident assets and liabilities, labour and
property and cross-border transfers, mainly workers’
remittances. India’s net invisibles (invisible receipts
minus payments) increased by 18.7 per cent in
2008-09, led mainly by receipts under private
transfers and software services. The net invisibles
surplus increased from US$ 75.7 billion (6.1 per cent
of GDP) in 2007-08 to US$ 89.9 billion (7.4 per cent
of GDP) during 2008-09.
6.18 Services have shown relative resilience as
compared to other components of India’s BoP in the
face of the global economic slowdown, with the net
services surplus expanding from US$ 38.9 billion
during 2007-08 to US$ 49.6 billion during 2008-09,
led primarily by software services exports. Services
exports, however, declined in the last quarter of
2008-09, after a long phase of sustained growth. The
impact of the global economic shocks on India’s
software exports was evident during 2008-09,
especially in the second half of the year.
Notwithstanding this, software exports during
2008-09 (US$ 43.5 billion) recorded a growth of
17.7 per cent (27.2 per cent during 2007-08). Among
other major services, travel receipts were adversely
affected during 2008-09 as the growth of tourist
arrivals in the country significantly went down. Against
the backdrop of slowdown in global trade, business
services exports declined marginally in 2008-09, with
growth remaining volatile over the quarters and
exhibiting significant decline in the second half of
the year.
6.19 Reflecting the adverse impact of continuing
global financial crisis, invisible receipts, comprising
services, current transfers and income, recorded a
decline of 11.6 per cent (US$ 75.4 billion) during H1
of 2009-10 as compared to an increase of 32.5 per
cent (US$ 85.3 billion) in H1 of 2008-09, mainly
attributable to the lower receipts under almost all
components of services. However, private transfer
receipts, which had marginally declined during the
second half of 2008-09, increased by 4.3 per cent in
the first half of 2009-10.
6.20 Private transfers are mainly in the form of (i)
inward remittances from Indian workers abroad for
family maintenance, (ii) local withdrawal from NRI
rupee deposits, (iii) gold and silver brought through
passenger baggage, and (iv) personal gifts/donations
to charitable/religious institutions. Private transfer
receipts, comprising mainly remittances from Indians
working overseas, increased to US$ 27.5 billion in
H1 of 2009 as compared to US$ 26.4 billion in the
corresponding period of the previous year. Private
transfer receipts constituted 17.6 per cent of current
receipts in April-September 2009 (13.4 per cent in
the corresponding period of the previous year).
6.21 NRI deposits, when withdrawn domestically,
form part of private transfers because once withdrawn
for local use these become unilateral transfers and
do not have any quid pro quo. Such local withdrawals/
redemptions from NRI deposits cease to exist as
liability in the capital account of the BoP and assume
the form of private transfers, which are included in
the current account of the BoP. Under NRI deposits,
both inflows as well as outflows remained steady. A
major part of outflows from NRI deposits is in the
form of local withdrawals. These withdrawals,
however, are not actually repatriated but are utilized
domestically. During April-September 2009, the share
of local withdrawals in total outflows from NRI deposits
was 63.4 per cent as compared to 64.9 per cent in
April-September 2008.
6.22 Under private transfers, inward remittances
for family maintenance accounted for 53.3 per cent
of total private transfer receipts, while local
withdrawals accounted for 43.0 per cent in April-
September 2009 as against 52.6 per cent and 42.3
per cent respectively in April-September 2008.
6.23 Software receipts at US$ 21.4 billion in April-
September 2009 showed a decline of 11.5 per cent
as against a growth of 35.3 per cent in April-
September 2008. Miscellaneous receipts, excluding
software exports, stood at US$ 7.8 billion in April-
September 2009 (US$ 14.9 billion in April-September
2008). Receipts under non-software miscellaneous
services like business services, construction and
royalties, copyrights and licence fees declined.
6.24 The key components of business services
receipts and payments were trade-related services,
business and management consultancy services,
architectural, engineering and other technical
services and services relating to maintenance of
offices. Receipts of architectural, engineering and
other technical services, maintenance of offices
abroad and business and management consultancy
services declined while payments related to these
services rose moderately, resulting in decline in net
exports of these services. Investment income
receipts amounted to US$ 7.3 billion in April-
 Balance of Payments 129
Table 6.3 : Selected indicators of the external sector
Sl. Items 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Sep. Apr-Sep.
No. 2008 2009
1 Growth of Exports – BoP (%) 28.5 23.4 22.6 28.9 13.7 48.1 -27.0
2 Growth of Imports – BoP (%) 48.6 32.1 21.4 35.1 19.4 51.0 -20.6
3 Growth of Non-factor Services (Credit) (%) 61.0 33.3 28.0 22.4 12.5 29.1 -21.4
4 Growth of Non-factor Services (Debit) (%) 66.4 24.0 28.5 16.2 1.1 20.3 -4.6
5 Exports/Imports—BoP (%) 71.7 67.0 67.6 64.5 61.4 63.3 58.2
6 Exports/Imports of Goods and Services (%) 87.5 85.0 86.2 83.0 80.8 80.5 73.9
7 Import Cover of FER (No. of months) 14.3 11.6 12.5 14.4 9.8 10.8 12.4
8 External Assistance (net)/ TC (%) 6.9 6.7 3.9 2.0 30.5 6.5 2.0
9 ECB (net)/TC (%) 18.5 9.8 35.6 21.2 91.8 23.7 2.6
10 NRI Deposits / TC (%) -3.4 11.0 9.6 0.2 49.6 8.0 10.2
As per cent of GDPmp
11 Exports 11.8 12.6 13.6 13.5 15.4 18.9 14.5
12 Imports 16.5 18.8 20.1 21.0 25.1 29.8 24.9
13 Trade Balance -4.7 -6.2 -6.5 -7.4 -9.7 -10.9 -10.4
14 Invisible Balance 4.3 5.0 5.5 6.1 7.4 8.3 7.1
15 Goods and Services Balance -2.6 -3.4 -3.4 -4.3 -5.6 -6.7 -7.7
16 Current Account Balance -0.4 -1.2 -1.0 -1.3 -2.4 -2.7 -3.3
17 ECBs 0.7 0.3 1.7 1.8 0.7 0.5 0.1
18 FDI (net) 0.5 0.4 0.8 1.3 1.4 2.3 2.5
19 Portfolio Investment (net) 1.3 1.5 0.7 2.2 -1.2 -0.9 3.2
20 Total Capital Account (net) 4.0 3.0 4.9 8.8 0.6 2.3 5.0
21 External Debt 18.1 16.7 17.5 18.1 20.5 - -

Source: RBI
TC: Total Capital Flows (net); ECBs: External Commercial Borrowings;
FER: Foreign Exchange Reserves; GDPmp: Gross Domestic Product at current market prices.

Figure 6.1 Current account deficit, goods & services balance, trade balance,
invisibles balance and net capital inflows as a per cent of GDP during
2004-05 to 2008-09
10
8.8
8 7.4
6.1 Current
6 5.0 5.5 account
4.3 4.0 4.9
deficit
As per cent of GDP

4 3.0
2
0.6 Goods &
0 services
-0.4 -1.0 balance
-2 -1.2 -1.3
-2.6 -2.4
-4 -3.4 -3.4
-4.3 Trade
-6 -4.7 balance
-6.2 -5.6
-8 -6.5
-7.4
-10 Invisibles
-9.7 balance
-12
2004-05 2005-06 2006-07 2007-08 2008-09 Net capital
inflows
Year
130 Economic Survey 2009-10
September 2009 and remained at almost the same
level as of the previous year.
6.25 Invisibles payments have also shown a
decline of 2.6 per cent in April-September 2009
(against an increase of 15.0 per cent in April-
September 2008). This decline is mainly due to lower
payments towards travel, transportation, non-software
services and private transfers. Lower transportation
payments in April-September of 2009 (a decline of
29.4 per cent) mainly reflected the lower volume of
imports. In addition, lower payments may also be
attributed to the lower freight rates on international
shipping as compared to the corresponding period
of last year. Investment income payments, reflecting
mainly interest payments on commercial borrowings,
external assistance, non-resident deposits and
reinvested earnings of FDI enterprises operating in
India, amounted to US$ 9.4 billion in April-September
2009 higher than that of US$ 8.7 billion during April-
September 2008. The increase in investment income
payments was mainly due to a rise in reinvestment
earnings of the FDI companies.
6.26 Consequently, net invisibles (invisibles
receipts minus invisibles payments) stood lower at
US$ 39.6 billion during April-September 2009 as
compared to US$ 48.5 billion during April-September
2008. At this level, the invisibles surplus financed
about 68.0 per cent of trade deficit during April-
September 2009 as against 75.4 per cent during
April-September 2008. (Table 6.3 and Figure 6.1).
Figure 6.2 Current account deficit, goods & services balance, trade balance,
invisibles balance and net capital inflows as a per cent of GDP
during H1 of 2008-09 and 2009-10
10
8.3
8 7.1
6 5.0
As per cent of GDP
4
2.3
2 Goods &
0 services
-2
-4 -2.7
-6
-8 -6.7
-10
-10.9
-12
2008-09 H1 (Apr-Sep)
Current Account Balance
6.27 The trade channel of the BoP played an
important role in transmitting global economic
shocks to India. A swifter impact of the slowdown in
global demand on exports and relatively lagged
response of imports to domestic demand slowdown
tended to widen the trade deficit, notwithstanding
the sharp decline in international crude oil prices in
the second half of 2008-09. Some of the adverse
impact of the considerable widening of the trade deficit
on the overall current account during the year was,
however, partly contained by the relative resilience
of software services exports and remittances from
overseas Indians. A notable feature in the last quarter
of 2008-09, however, was significant narrowing down
of the trade deficit on account of a larger decline in
imports relative to exports, which along with the
sustained invisibles surplus led to a significant
reduction in the current account deficit (CAD).
However, for fiscal 2008-09, despite the higher
invisibles surplus of US$ 89.9 billion (7.4 per cent of
GDP), the CAD increased to US$ 28.7 billion (2.4
per cent of GDP), mainly on account of the widening
trade deficit, as compared to US$ 15.7 billion (1.3
per cent of GDP) in 2007-08.
6.28 The CAD, despite lower trade deficits,
increased to US$ 18.6 billion in H1 (April-September)
of 2009-10 from US$ 15.8 billion in April-September
2008 mainly due to a lower net invisibles surplus.
(Figure 6.2)
Current
account
deficit
balance
-3.3 Trade
balance
-7.7
Invisibles
balance
-10.4
2009-10 H1 (Apr-Sep) Net capital
inflows

CAPITAL ACCOUNT
6.29 The impact of the global financial crisis
through the financial channel was reflected in the
sharp turnaround in the capital flows cycle from a
sustained phase of surges in inflows to large outflows,
particularly in Q3 (October-December 2008) of
2008-09. The early signs of the impact of the financial
crisis on capital inflows were evident in the portfolio
outflows that started in February 2008. Following
the failure of Lehman Brothers, there was a sudden
change in the external environment, characterized
by a global liquidity squeeze and increased risk
aversion on the part of international investors. As in
the case of other major emerging market economies
(EMEs) there was a withdrawal of funds from the
domestic equity markets by portfolio investors as
part of the global deleveraging process as also a
significant reduction in the access of Indian
corporates to overseas financing. Thus there were
large capital outflows by portfolio investors during
September-October 2008, with concomitant
pressures in the foreign exchange market.
6.30 The deteriorating external financing
conditions also rendered Indian firms’ access to
external commercial borrowings and trade credits
somewhat difficult. The resilience shown by FDI
inflows, however, reflects the continued confidence
in the Indian economy as a long-term investment
destination.
6.31 On the whole, the adverse impact of the
global financial market turmoil was reflected in lower
capital inflows during 2008-09. There was massive
decline in net capital flows from US$ 106.6 billion in
2007-08 (8.8 per cent of GDP) to US$ 7.2 billion (0.6
per cent of GDP) in 2008-09. The decline was mainly
due to net outflows under portfolio investment
including foreign institutional investments (FIIs),
American depository receipts (ADRs)/ global
depository receipts (GDRs) (US$ 14.0 billion),
banking capital including NRI deposits (US$ 3.2
billion) and short-term trade credit (US$ 1.9 billion).
However, notwithstanding these adverse
developments, the resilience of FDI inflows (US$ 17.5
billion in 2008-09) reflected the growing perception
of India as one of the favourite long-term investment
destinations.
6.32 The revival in capital flows witnessed during
Q1 of 2009-10 gathered momentum during Q2 of
2009-10. Net capital flows at US$ 29.6 billion in April-
September 2009 remained higher as compared to
US$ 12.0 billion in April-September 2008. All the
components under net capital flows, except loans
Balance of Payments 131
and banking capital, showed improvement during
April-September 2009 from their levels in the
corresponding period of the previous year. In banking
capital, net inflows under non-resident deposits
remained higher during April-September 2009 as
compared to their previous year’s level.
6.33 Net inward FDI into India remained buoyant
at US$ 21.0 billion during April-September 2009 (as
against US$ 20.7 billion in April-September 2008)
reflecting the continuing liberalization and better
growth performance of the Indian economy. During
this period, FDI was channeled mainly into
manufacturing (21.4 per cent) followed by
communication services (12.8 per cent) and the real
estate sector (12.6 per cent). Net outward FDI of
India at US$ 6.8 billion in April-September 2009
remained at almost the same level as that of the
corresponding period of 2008-09. Due to the large
inward FDI, the net FDI (inward minus outward) was
marginally higher at US$ 14.1 billion in April-
September 2009. Portfolio investment mainly
comprising FIIs and ADRs/ GDRs witnessed large
net inflows (US $ 17.9 billion) in April-September
2009 (net outflows of US $ 5.5 billion in April-
September 2008). This was mainly due to large
purchases by FIIs in the Indian capital market
reflecting revival in the growth prospects of the
economy and improvement in global investors’
sentiment. The inflows under ADRs/GDRs increased
to US$ 2.7 billion in April-September 2009 (as against
US$ 1.1 billion in April-September 2008).
6.34 The net external commercial borrowings
(ECBs) inflow remained lower at US$ 0.7 billion in
April-September 2009 than the US $ 3.2 billion in
April-September 2008. Banking capital (net)
amounted to US$ 1.1 billion in April-September 2009
as compared to US$ 5.0 billion in April-September
2008. Among the components of banking capital,
NRI deposits witnessed higher net inflows of US$
2.9 billion in April-September 2009 as compared to
US$ 1.1 billion in April-September 2008. Short-term
trade credit recorded a net outflow of US$ 0.6 billion
(inclusive of suppliers’ credit up to 180 days) during
April-September 2009 as against a net inflow of US$
4.9 billion during the same period of the previous
year. Other capital includes leads and lags in exports,
special drawing rights (SDR) allocation, funds held
abroad, advances received pending issue of shares
under FDI and other capital not included elsewhere
(n.i.e). Other capital recorded a lower net outflow of
US$ 4.3 billion in April-September 2009 as compared
to US$ 10.3 billion in April-September 2008.
132 Economic Survey 2009-10
Box 6.2 : Dubai Financial Crisis and the Indian
Economy
Dubai World, the flagship holding company of the Dubai
Government with active participation in some large real
estate projects, sought a debt restructuring and six-month
standstill in its debt repayment (estimated at US$ 59 billion
as of August 2009) on November 25, 2009. Although there
was initial reaction in the domestic foreign currency and
Indian stock markets, the impact was insignificant and
short-lived. The primary capital market remained
unaffected and there was no visible effect of the Dubai
news on the money and government securities markets.
The markets recovered immediately, backed by the news
of 7.9 per cent GDP growth in Q2 of 2009-10.
As regards its impact on the real sector, a quick assessment
suggests that it may be modest. There could be some
impact on India’s exports and imports, keeping in view
the significant share of the UAE in India’s international
trade. As Indian expatriates comprise a large percentage
of the total workforce in Dubai, 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. The UAE accounts for 10 per cent of
total remittances and 11.3 per cent of NRI deposits.
Subsequent developments indicate that the impact of the
Dubai crisis on financial markets around the world has
been contained, following the announcement by the UAE
central bank that it would stand behind UAE banks and
branches of foreign banks operating in the UAE.
Furthermore, the Government of Abu Dhabi and the UAE
central bank agreed to provide financial support to Dubai
World. The Government of Abu Dhabi has agreed to grant
US$ 10 billion to the Dubai Financial Support Fund for
meeting a series of upcoming obligations of Dubai World
including sukuk (Islamic bond) obligations of US$ 4.1
billion, which fell due on December 14, 2009. These
assurances to trade creditors and contractors have provided
confidence to the financial markets.
FOREIGN EXCHANGE RESERVES
6.35 Foreign exchange reserves are an important
component of the BoP and an essential element in
the analysis of an economy’s external position.
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). The level of foreign
exchange reserves is largely the outcome of the RBI’s
intervention in the foreign exchange market to
smoothen exchange rate volatility and valuation
changes due to movement of the US dollar against
other major currencies of the world. Foreign
exchange reserves are accumulated when there is
absorption of the excess foreign exchange flows by
the RBI through intervention in the foreign exchange
market, aid receipts, interest receipts, and funding
from the International Bank for Reconstruction and
Development (IBRD), Asian Development Bank
(ADB), International Development Association (IDA),
etc. Both the US dollar and euro are intervention
currencies. Foreign currency assets are maintained
in major currencies like the US dollar, euro, pound
sterling, Australian dollar and Japanese yen. Foreign
exchange reserves are denominated and expressed
in the US dollar only.
6.36 Beginning from a low level of US$ 5.8 billion
at end-March 1991, foreign exchange reserves
increased gradually to US$ 25.2 billion by end-March
1995, US$ 38.0 billion by end-March 2000, US$
113.0 billion by end-March 2004 and US$ 199.2 billion
by end-March 2007. They reached their peak at US$
314.6 billion in end-May 2008. The reserves declined
thereafter to US$ 252.0 billion at the end of March
2009. The decline in reserves in 2008-09 was inter
alia a fallout of the global crisis and strengthening of
the US dollar vis-à-vis other international currencies
and the fact that our reserves are measured in dollar
terms. During 2009-10, the level of foreign exchange
reserves increased from US$ 252.0 billion at the end
of March 2009 to US$ 283.5 billion at the end of
December 2009, mainly on account of valuation gain
as the US dollar depreciated against most of the
other major international currencies in 2009. The
component-wise details of foreign exchange reserves
from 1950-51 to 2009-10 (up to December 2009) in
rupees and US dollars are given in Appendix 6.1 (A)
and 6.1 (B).
6.37 In fiscal 2008-09, the widening of the CAD
coupled with net capital outflows resulted in the
drawdown of foreign exchange reserves of US$ 20.1
billion (excluding valuation) as against an accretion
of US$ 92.2 billion in 2007-08. During 2009-10, the
accretion in foreign exchange reserves on a BoP
basis (i.e. excluding valuation) was US$ 9.5 billion
in H1 (April-September 2009) of 2009-10 as against
a decline of US$ 2.5 billion during the corresponding
period of the previous year. This was mainly on
account of higher capital inflows to the tune of US$
17.9 billion in the form of portfolio investment vis-a-
vis an outflow of US$ 5.5 billion in H1 (April-
September 2008) of 2008-09.
6.38 Taking into account the valuation effect,
India’s foreign exchange reserves recorded a decline
of US $ 57.7 billion during 2008-09 to US $ 252.0
billion as at end-March 2009. Valuation loss arising
out of depreciation of major currencies against the
US dollar, at US$ 37.6 billion, accounted for 65.2
per cent of the total decline in foreign exchange
reserves during 2008-09. However, in 2009-10 foreign
 Balance of Payments 133
Table 6.4 : Sources of variation in foreign exchange reserves on BoP basis and valuation
effect (US$ billion)
April-September
Sl.No. Items 2007-08 2008-09 2008-09 2009-10
I Current Account Balance (-) 15.7 (-) 28.7 (-)15.8 (-)18.6
II Capital Account (net) (a to g) 107.9 8.6 13.4 28.2
a Foreign Investment (i+ii) 43.3 3.5 8.3 32.1
(i) FDI 15.9 17.5 13.9 14.1
(ii) Portfolio Investment 27.4 (-) 14.0 (-)5.5 17.9
of which:
FIIs 20.3 (-) 15.0 (-)6.6 15.3
ADRs/GDRs 6.6 1.2 1.1 2.7
b External Commercial Borrowings 22.6 7.9 3.2 0.7
c Banking Capital 11.8 (-)3.2 5.0 1.1
of which: NRI Deposits 0.2 4.3 1.1 2.9
d Short-term Trade Credit 15.9 (-)1.9 4.9 (-) 0.6
e External Assistance 2.1 2.6 0.9 0.6
F Other Items in Capital Account* 11.0 -1.5 (-)10.3 (-)4.3
g Errors and Omissions 1.3 1.4 1.4 -1.4
h Overall balance (I+II) 92.2 (-)20.1 (-) 2.5 9.5
III Reserve Change on BoP Basis (-) 92.2 (+) 20.1 (+) 2.5 (-)9.5
(Increase - / Decrease +)
IV Valuation Change 18.4 (-) 37.6 (-) 20.9 19.8
Total Reserve Change (III+IV) 110.6 (-) 57.7 (-) 23.4 29.3
(Increase in reserves (+) /
Decrease in reserves (-))
Source: RBI.
Note: * : ‘Other items in capital account’ include SDR allocations, leads and lags in exports, funds held abroad,
advances received pending issue of shares under FDI and transactions of capital receipts not included
elsewhere.
As per the BoP compilation practice, an increase in reserves is indicated by (-) sign and a decrease
by (+) sign. For other items (+) sign indicates increase and (-) sign means decrease.
exchange reserves recorded an increase of US$ 29.3 19.8 billion was on account of valuation gain (Table
billion in H1 (April-September 2009) of which US$ 6.4).
Table 6.5 : Summary of changes in foreign exchange reserves (US$ billion)
Sl. Year Foreign exchange Total Increase / Increase/decrease Increase/decrease
No. reserves at the decrease in in reserves in reserves due
end of financial reserves on a BoP to valuation
year (end March) basis effect
1 2004-05 141.5 + 28.6 +26.2 + 2.4
(91.6%) (8.4%)
2 2005-06 151.6 + 10.1 +15.0 (-) 4.9
(148.5%) (- 48.5%)
3 2006-07 199.1 + 47.5 +36.5 + 11.0
(76.8%) (23.2%)
4 2007-08 309.7 + 110.6 +92.2 + 18.4
(83.4%) (16.6%)
5 2008-09 252.0 - 57.7 -20.1 - 37.6
(34.8%) (65.2%)
6 2009-2010 283.5 +31.5 +11.2 + 20.3
(upto Dec. 2009) (35.6%) (64.4%)
Source: RBI.
Note: Figures in parentheses indicate percentage share in total change.
134 Economic Survey 2009-10

6.39 A summary of changes in the foreign million (equivalent to US$ 340 million) under special
exchange reserves since 2004-05 with a breakdown allocation from the IMF. These SDR allocations have
into increase/decrease on a BoP basis and valuation resulted in an increase of US$ 5.2 billion in India’s
effect is presented in Table 6.5. foreign exchange reserves. The third major
6.40 In 2009-10, three major developments have development was the purchase of gold from the IMF
taken place in the area of foreign exchange reserves by the RBI (Box 6.3).
management. The first relates to investment of foreign 6.41 In line with the principles of preserving the
exchange reserves in infrastructure projects. long-term value of the reserves in terms of purchasing
Pursuant to the announcement made in the Union power and minimizing risk and volatility in returns,
Budget 2007-08 about using a part of the foreign the RBI holds foreign currency assets (FCAs) in
exchange reserves for financing domestic major convertible currencies instruments. These
infrastructure requirements without the risk of include deposits of other-country central banks, the
monetary expansion, the India Infrastructure Finance
Bank for International Settlements (BIS) and top-
Company Limited was set up as a wholly owned
rated foreign commercial banks, and in securities
subsidiary in London, UK, called IIFC (UK) in April
representing debt of sovereigns and supranational
2008. The subsidiary will borrow up to US$ 5 billion
institutions with residual maturity not exceeding
in tranches from the RBI by issuing US dollar-
10years, to provide a strong bias towards capital
denominated bonds and on-lend the resources to
preservation and liquidity. The annualized rate of
Indian infrastructure companies for meeting their
return, net of depreciation, on the multi currency-
capital expenditures outside India. It has already
raised the first tranche of US$ 250 million. The multi asset portfolio of the RBI and gold declined
second development relates to the IMF’s allocation marginally to 4.2 per cent in 2008-09 from 4.8 per
of SDRs to member countries including India. A cent in 2007-08.
general allocation of SDRs for an amount equivalent 6.42 Country-wise details of foreign exchange
to US$ 250 billion and a special SDR allocation reserves reveal that India is the fourth largest foreign
pursuant of the fourth amendment of the IMF’s exchange reserves holder in the world, after China,
Articles of Agreement, amounting to US$ 33 billion, Japan and Russia (Table 6.6).
was made by the IMF to member countries on August
28, 2009 and September 9, 2009 respectively. India
received SDR 3,082 million (equivalent to US$ 4,821 Table 6.6 : Foreign exchange reserves of
million) under general allocation and SDR 214.6 some major countries
Sl. Country Foreign exchange
No. reserves during 2009
Box 6.3 : RBI purchase of gold from the IMF (US$ billion)
The Executive Board of the IMF, on September 18, 2009
1 China (December 2009) 2399.2
announced its decision to sell 403.3 metric tonnes of gold
as a central element of its New Income Model and in order 2 Japan (December 2009) 1049.4
to increase its resources for lending to low-income
3 Russia (December 2009) 439.0
countries. The IMF also decided that the initial offer of the
sale would be directly to official holders, including central 4 India (December 2009) 283.5
banks. Consequent of this, the RBIconcluded the purchase
of 200 metric tonnes of gold from the IMF, under the 5 Korea (December 2009) 270.0
IMF’s limited gold sales programme, at the cost of US$ 6 China P R Hong Kong 256.3
6.7 billion, in November 2009, as part of its foreign (November 2009)
exchange reserves management operation. The purchase
7 Brazil (December 2009) 238.5
was an official- sector off-market transaction and was
executed over a two-week period during October 19-30, 8 Germany (November 2009) 189.5
2009 at market-based prices. With this purchase, gold
holdings in the country’s foreign exchange reserves have 9 Singapore(November 2009) 188.9
increased from 357.7 tonnes to 557.7 tonnes, which is 10 Italy (November 2009) 140.1
about 6 per cent of the reserves. Post–purchase, India has
become the 10th largest official gold-holding country in 11 France (November 2009) 139.1
the world. Source: IMF except China.
 Balance of Payments 135
Table 6.7 : International comparison of management of exchange rates with flexibility, while
foreign exchange reserves (US $ billion) allowing the underlying demand and supply
and ratio of reserves to imports of goods & conditions to determine its movements over a period
services in an orderly manner. Subject to this predominant
Country/ objective, RBI intervention in the foreign exchange
Country market is guided by the goals of reducing excess
Group 2005 2006 2007 2008 2009 volatility, preventing the emergence of destabilizing
(Proj.)
speculative activities, maintaining adequate levels
Country
of reserves, and developing an orderly foreign
Russia 176.5 296.2 467.6 413.4 380.7 exchange market.
(107.4) (141.7) (165.5) (112.3) (163.2)
6.45 In fiscal 2008-09, the rupee depreciated
China 822.5 1069.5 1531.3 1950.3 2240.0
(115.5) (125.4) (148.0) (158.2) (227.8) against major international currencies, except the
India 132.5 171.3 267.6 248.0 263.1
pound sterling, due to deceleration in capital flows
(72.8) (75.5) (95.1) (73.6) (81.1) and widened trade deficit. The annual average
Brazil 53.3 85.2 179.5 192.9 219.8
exchange rate of the rupee in 2008-09 was Rs
(54.4) (70.7) (113.8) (87.6) (129.6) 45.99 per US dollar, Rs 64.98 per euro and Rs
Mexico 74.1 76.3 87.1 95.1 93.5
46.22 per 100 yen, indicating depreciation by 12.5
(30.5) (27.4) (28.5) (28.5) (36.3) per cent, 12.2 per cent and 23.5 per cent
Country Group respectively over the annual average exchange rate
Developing 202.8 250.7 332.6 339.3 363.8
during 2007-08. However, annual average exchange
Asia (38.4) (42.3) (49.0) (41.8) (53.6) rate of the rupee per pound sterling of 78.29 in
(excluding 2008-09 indicated appreciation by 3.2 per cent over
China & India) 2007-08.
Middle 357.7 491.1 695.6 825.9 870.3
East (87.4) (99.3) (112.8) (101.1) (113.0) 6.46 In fiscal 2009-10, the rupee has
strengthened against the US dollar on the back of
Source : World Economic Outlook Database, October
2009. significant turnaround in FII inflows, continued
Note : Reserves are based on offical holding of gold
inflows under FDI and NRI deposits, better
valued at SDR 35 an ounce. This convention results in macroeconomic performance of the Indian economy
a marked underestimation of reserves for countries and weakening of the US dollar in international
that has substantial gold holdings. markets. Additionally, the outcome of the general
India’s FOREX reserves were US$ 283.5 billion (end of elections, which generated expectations of political
December 2009) and US$ 252.0 billion at the end of
stability, buoyed the market sentiment and
March 2009.
strengthened the rupee, especially in the second
Figures in parentheses indicate ratio of reserves to
imports of goods and services.
half of May 2009. The rupee exhibited significant
strength against the US dollar in October 2009.
However, since then it has generally been range-
6.43 A comparative picture of foreign exchange bound moving in the range of Rs 46-47 per US
reserves and import cover as measured by the dollar. As a result, the rupee/US dollar exchange
ratio of foreign exchange reserves to import of goods rate, which was Rs 50.95 per dollar in end-March
and services for select country groups and countries 2009, appreciated to Rs 46.64 per dollar as on
including India is presented in Table 6.7. Among January 1, 2010. At this level, the Indian rupee has
the country groups, “Developing Asia” and the appreciated by 9.2 per cent over its March 31,
“Middle East” accumulated reserves during the 2009 level. Over the same period, the rupee
period 2005- 09, leading to steady improvement in recorded an appreciation of 1.0 per cent against
the ratio of reserves to import of goods and services. the euro and 3.5 per cent against the Japanese
yen. However, it depreciated by 3.4 per cent against
the pound sterling. Movement in exchange rate of
EXCHANGE RATE the rupee vis-à-vis major international currencies,
6.44 The exchange rate policy is guided by the month-wise, during 2009-10 (up to December 2009)
broad principles of careful monitoring and is presented in Figure 6.3.
136 Economic Survey 2009-10

Figure 6.3 Month on month appreciation(+)/depreciation(-) of rupee against major

international currencies during 2009-10
5
4 US$
Appreciation/depreciation

3
Pound
2 Sterling
1
Euro
0
-1 Yen
-2
-3
-4
-5
-6
Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec
2009

Figure 6.4 Monthly average exchange rate (Rupee per US dollar) during
Mar - Dec 2009 and appreciation/depreciation over the previous month
53 4

Appreciation/depreciation
52 3 Monthly
Rupee per US dollar

51 2 average
exchange rate
50 1 (Rs. per US
49 0 dollar) - LHS

48 -1 Appreciation /
47 -2 Depreciation
- RHS
46 -3
45 -4
Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2009

6.47 In 2009-10, on a month-on-month basis, 6.49 The exchange rate of the rupee vis-à-vis
the average monthly exchange rate of the rupee select international currencies since 1980-81, year-
appreciated during April-June, August and October- wise, and during 2009-10, month-wise, is indicated
November while it depreciated during July, in Appendix 6.5.
September and December. The average monthly
exchange rate of the rupee strengthened from 6.50 During 2008-09, the US dollar generally
Rs 51.23 per US dollar during March 2009 to appreciated against most currencies, except the
Rs 46.63 per US dollar during December 2009 Japanese yen and Chinese yuan. During 2009-10
(Figure 6.4). so far, the appreciating trend has been reversed
6.48 The month-wise details of the exchange rate because of declining safe haven flows to the US,
of the rupee against major international currencies large-scale quantitative easing in the US and change
and the RBI’s sale/purchase of foreign currency in in market sentiment against the dollar. However, the
the foreign exchange market during 2009-10 are dollar gained some strength against major currencies,
indicated in Table 6.8. especially in December 2009, on the back of various
 Balance of Payments 137
Table 6.8 : Exchange rates and RBI’s sale/purchase of foreign currency in the exchange
market during 2009-10

Monthly average exchange rates (Rupee per foreign currency)*,

Month US$ Pound Euro Yen** RBI Net sale (-) /
Sterling purchase (+)
(US$ million)
Average 2008-09 45.99 78.29 64.98 46.22 -
(-12.46) (3.24) (-12.20) (-23.53) -
March 2009 51.23 72.90 66.92 52.51 (-) 3,388
(-3.84) (-2.85) (-6.03) (1.83)
2009-10
April 2009 50.03 73.58 65.81 50.84 (-) 2,487
(2.39) (-0.92) (1.69) (3.29)
May 2009 48.53 74.83 66.20 50.22 (-) 1,437
(3.09) (-1.67) (-0.60) (1.25)
June 2009 47.77 78.16 66.98 49.45 (+) 1,044
(1.59) (-4.25) (-1.16) (1.56)
July 2009 48.48 79.35 68.24 51.26 (-) 55
(-1.46) (-1.50) (-1.85) (-3.55)
August 2009 48.30 79.93 68.87 50.80 (+) 181
(0.37) (-0.73) (-0.92) (0.92)
September 2009 48.44 79.35 70.44 52.85 (+) 80
(-0.29) (0.74) (-2.22) (-3.89)
October 2009 46.72 75.73 69.29 51.76 (+) 75
(3.68) (4.78) (1.66) (2.12)
November 2009 46.57 77.33 69.50 52.28 (-) 36
(0.33) (-2.07) (-0.31) (-1.0)
December 2009 46.63 75.76 68.18 52.00
(-0.13) (2.06) (1.93) (0.52)
Source : RBI
* FEDAI indicative rate; ** Per 100 Yen.
Figures in parentheses indicate appreciation (+) and depreciation (-) over the previous month/year.

indicators suggesting a pick-up in economic activity more conducive to economic growth. Between end-
in the US and financial market conditions turning March and end-December 2009, the US dollar

Table 6.9 : Exchange rate of US dollar against international currencies during 2009-10
Month / Year (End month) GBP/USD Euro/USD USD/JPY AUD/USD
March 2009 1.4327 1.3249 98.84 0.6921
April 2009 1.4787 1.3226 98.57 0.7252
May 2009 1.5511 1.3690 96.79 0.7656
June 2009 1.6466 1.4036 96.33 0.8070
July 2009 1.6721 1.4250 94.68 0.8354
August 2009 1.6276 1.4249 95.18 0.8321
September 2009 1.6257 1.4506 90.85 0.8544
October 2009 1.6202 1.4772 90.18 0.8949
November 2009 1.6570 1.4886 88.08 0.9156
December 2009 1.6278 1.4696 89.65 0.9044
US$ Appreciation (+) / Depreciation (-)
(End December 2009 over March 2009) -11.99 -9.85 -9.30 -23.47
Source: RBI
138 Economic Survey 2009-10

depreciated by 12.0 per cent against the pound
sterling, 9.9 per cent against the euro, 9.3 per cent
against the Japanese yen and 23.5 per cent against
the Australian dollar. Among Asian currencies, it
depreciated against the Indian rupee, Indonesian
rupiah, Malaysian ringgit, South Korean won and
Thai Baht. The exchange rate of the US dollar vis-a-
vis other major international currencies, namely pound
sterling, euro, Japanese yen and Australian dollar is
presented in Table 6.9.
6.51 The nominal effective exchange rate (NEER)
and real effective exchange rate (REER) indices are
used as indicators of external competitiveness of
the country over a period of time. NEER is the
weighted average of bilateral nominal exchange rates
of the home currency in terms of foreign currencies.
REER is defined as a weighted average of nominal
exchange rates adjusted for home and foreign
country relative price differentials. REER captures
movements in cross-currency exchange rates as
well as inflation differentials between India and its
major trading partners. The RBI has been
constructing six currency (US dollar, euro for
eurozone, pound sterling, Japanese yen, Chinese
renminbi and Hong Kong dollar) and 36 currency
indices of NEER and REER.
6.52 The rupee appreciated against the US dollar
by 10.0 per cent during 2009-10 till November 2009.
The rupee appreciation was, however, modest at 3.23
per cent against the six-currency trade-weighted
NEER during 2009-10 (March to November 2009).
The average six-currency trade-weighted REER
(base:1993-94=100) increased from 98.58 in April
2009 to 104.94 in November 2009 mainly on account
of appreciation of the rupee against the US dollar
and increase in inflation differentials between India
and its trading partners (Table 6.10 and Appendix
6.6).
THE G-20
6.53 The G-20 is taking up the cause of global
stability, policy coordination and growth at global
level. The details of G-20 summits held in 2009 are
as under:
London Summit (UK): April 2, 2009
6.54 The summit was held against a backdrop of
economic and financial crisis of enormous
proportions. The leaders resolved to restore
confidence, growth and jobs; repair the financial
system to restore lending; strengthen financial
regulation to rebuild trust; fund and reform the
international financial institutions; promote global
trade and investment and reject protectionism; and
build an inclusive and sustainable recovery.
6.55 The ‘Global Plan for Recovery and Reform’
brought out at the Summit, inter alia, pledged
significant reforms towards:

Table 6.10 : Movement of rupee and indices of NEER and REER during 2009-10

Month/Year Rs per Appreciation NEER * REER * Appreciation Appreciation

US dollar (+)/ (+)/ (+)/
depreciation (-) depreciation depreciation
in Rs per dollar (-) in NEER (-) in REER
over previous over previous over previous
month month month
2008-09 (April-March) 45.99 64.87 104.47
March 2009 51.23 60.35 95.68
2009-10
April 2009 (P) 50.03 2.39 61.49 98.58 1.89 3.03
May 2008 (P) 48.53 3.09 62.31 101.37 1.33 2.83
June 2009 (P) 47.77 1.59 62.43 101.11 0.19 (-) 0.26
July 2009 (P) 48.48 (-) 1.46 61.36 100.64 (-) 1.71 (-) 0.46
August 2009 (P) 48.30 0.37 61.22 101.52 (-) 0.23 0.81
September 2009 (P) 48.44 (-) 0.29 60.61 101.25 (-) 1.00 (-) 0.27
October 2009 (P) 46.72 3.68 62.40 103.84 2.95 2.56
November 2009 (P) 46.57 0.33 62.30 104.94 (-) 0.16 1.05
December 2009 (P) 46.63 (-) 0.13
Source : RBI
* Six-Currency Trade Based Weights- Base: 1993-94 (April-March) =100

z Restoring growth and jobs;
z Strengthening financial supervision and
regulation;
z Strengthening our global financial institutions;
z Resisting protectionism and promoting global
trade and investment; and
z Ensuring a fair and sustainable recovery for all.
6.56 As per the London communique the leaders
have agreed to treble resources available to the IMF
to $ 750 billion, to support a new SDR allocation of
$ 250 billion, to support at least $100 billion of
additional lending by the multilateral development
banks (MDBs), to ensure $ 250 billion of support for
trade finance, to use the additional resources from
agreed IMF gold sales for concessional finance for
the poorest countries and to constitute an additional
$ 1.1 trillion programme of support to restore credit,
growth and jobs in the world economy.
Box 6.4 : What is the G-20?
The Group of Twenty (G-20) Finance Ministers and Central
Bank Governors was established in 1999 in Berlin to bring
together systemically important industrialized and
developing economies to discuss key issues in the global
economy. The member countries of the G-20 are Argentina,
Australia, Brazil, Canada, China, France, Germany, India,
Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia,
South Africa, South Korea, Turkey, the United Kingdom,
the United States of America and the European Union
represented by rotating Council presidency and the
European Central Bank. To ensure that global economic
fora and institutions work together, the Managing Director
of the IMF and the President of the World Bank, plus the
chairs of the International Monetary and Financial
Committee and Development Committee of the IMF and
World Bank, are ex-officio members of the G-20. Together
G-20 member countries represent 90 per cent of global
gross national product, 80 per cent of world trade as well
as two-thirds of the world’s population.
Pittsburgh Summit (USA): September
24-25, 2009
6.57 The summit of G-20 leaders was held in the
midst of a critical transition from crisis to recovery
to turn the page on an era of irresponsibility and to
adopt a set of policies, regulations and reforms to
meet the needs of the 21st century global economy.
The Summit declaration, inter alia, pledged to sustain
a strong policy response until a durable recovery is
Balance of Payments 139
secured and to adopt the policies needed to lay the
foundation for strong, sustained and balanced global
growth in the 21st century. The G-20 leaders agreed
to:
z Launch a framework that lays out the policies
and the way we act together to generate strong,
sustainable and balanced global growth.
z Make sure the regulatory system for banks and
other financial firms reins in the excesses that
led to the crisis.
z Reform the global architecture to meet the needs
of the 21st century.
z Take new steps to increase access to food, fuel
and finance among the world’s poorest while
clamping down on illicit outflows.
z Phase out and rationalize over the medium term
inefficient fossil fuel subsidies while providing
targeted support for the poorest.
z Maintain openness and move toward greener,
more sustainable growth.
6.58 The Pittsburgh Summit agreed that the G-
20 would be the premier forum for international
economic issues. The Summit agreed on an at least
5 per cent shift in the IMF quota to underrepresented
countries and on a new framework for global macro-
balances that includes contributions that individual
countries can make through their own policies, with
a process of peer review. The objective is that
members agree on shared policy objectives, set out
medium-term policy frameworks and work together
to assess the collective implications of national
policy for global growth, identifying potential risks to
financial stability and based on mutual assessment,
and agree on actions to meet common goals.
6.59 The G-20 leaders also announced that there
would be two meetings in 2010, in Canada in June
2010 and in Korea in November 2010 to coincide
with the APEC Summit, and annual summits
thereafter.
St Andrews Meeting (Scotland): November
7, 2009
6.60 G20 Finance Ministers and Central Bank
Governors observed that though the economic and
financial conditions have improved following
coordinated response to the crisis, the recovery is
uneven and remains dependent on policy support,
with high unemployment being a major concern. To
restore the global economy and financial system to
140 Economic Survey 2009-10
health, it was agreed to maintain support for the
recovery until it is assured.
6.61 To underscore the new approach to
economic cooperation, the G20 has launched a
‘Framework for Strong, Sustainable and Balanced
Growth’, adopted a detailed timetable and initiated
a new consultative mutual assessment process to
evaluate whether policies will collectively deliver the
agreed objectives. The first challenge in using the
Framework is the transition from crisis response to
stronger, more sustainable and balanced growth,
consistent with the goals of sustainable public
finances; price stability; stable, efficient and resilient
financial systems; employment creation; and poverty
reduction. The International Financial Institutions
(IFIs) will play an important role in supporting the
work to secure sustainable growth, stability, job
creation, development and poverty reduction. In
addition to strengthening the global financial system,
the G-20 agreed to work with the Financial Stability
Board (FSB) to maintain the momentum of the
programme of reforms, and ensure its full, timely
and consistent implementation and a level playing
field.
Achievements of the G-20
6.62 The G-20 has made considerable progress
over a range of issues since 1999, including
agreement about policies for growth, reducing abuse
of the financial system, dealing with financial crises
and combating terrorist financing. The G-20 also aims
to foster the adoption of internationally recognized
standards through the example set by its members
in areas such as transparency in fiscal policy and
combating money laundering and the financing of
terrorism. In 2004, G-20 countries committed to new
higher standards of transparency and exchange of
information on tax matters. This aims to combat
abuses of the financial system and illicit activities
including tax evasion. The G-20 also aims to develop
a common view among members on issues related
to further development of the global and financial
system.
6.63 To tackle the financial and economic crisis
that spread across the globe in 2008, the G-20
members were called upon to further strengthen
international cooperation. Since then, the concerted
and decisive actions of the G-20 have helped the
world deal effectively with the current financial and
economic crisis. The G-20 has already delivered a
number of significant and concrete outcomes. For
example, it committed to implementing the
unprecedented and most coordinated expansionary
macroeconomic policies, including fiscal expansion
of US$ 5 trillion and establishment of the FSB, and
substantially strengthening the IFIs, including the
expansion of resources and the improvement of their
precautionary lending facilities.
6.64 Reflecting on these achievements and
recognizing that more needs to be done to ensure a
strong, sustained and balanced global recovery, the
G-20 leaders at Pittsburgh designated the G-20 as
the premier forum for international economic
cooperation.
EXTERNAL DEBT
6.65 India’s external debt stock stood at US $
224.59 billion (Rs 1,142,618 crore) in end-March 2009,
that is fractionally higher than its previous year’s
level of US$ 224.41 billion (Rs 897,314 crore).
6.66 During the first half of 2009-10, total external
debt increased by US$ 18.2 billion (8.1 per cent) to
US$ 242.8 billion (Rs 1,166,217 crore). Long-term
debt posted an increase of US$ 19.2 billion (10.6
per cent) to stand at US$ 200.4 billion, while short-
term debt fell by US$ 985 million (-2.3 per cent) to
stand at US$ 42.4 billion. The share of long-term
debt was higher at 82.5 per cent in end-September
2009 as against 80.7 per cent in end-March 2009.
Concomitantly, the share of short-term debt declined
to 17.5 per cent in end-September 2009 from 19.3
per cent in end-March 2009.
6.67 The valuation effect arising due to
depreciation of the US dollar against major
international currencies contributed an increase of
US$ 8.3 billion in the total increase of US$ 18.2
billion in external debt as in end-September 2009
over the end-March 2009 level. Excluding the valuation
effect, the increase in external debt would have been
US$ 9.9 billion.
6.68 Commercial borrowings remained the
largest component of external debt with a share of
27.5 per cent in end-September 2009 (27.8 per cent
in end-March 2009). Reflecting the impact of an
increase in NRI deposits attributable to an upward
revision in interest rate ceiling on these deposits,
there was an improvement in their share from 18.5
per cent in end-March 2009 to 18.9 per cent in end-
September 2009. Multilateral debt accounted for 17.4
per cent of total external debt, followed by bilateral
debt (9.1 per cent), export credits (6.3 per cent),
IMF representing SDR allocations (2.6 per cent) and
rupee debt (0.7 per cent) as in end-September 2009.
 Balance of Payments 141
Table 6.11 : India’s external debt
Components (US$ billion)
End March End-June End-
2009 PR Sept.
2005 2006 2007R 2008 R 2099 PR 2009 QE
Long-term Debt 116.28 119.58 144.23 178.68 181.23 187.75 200.45
Short-term Debt 17.72 19.54 28.13 45.74 43.36 42.03 42.38
Total External Debt 134.00 139.11 172.36 224.41 224.59 229.78 242.82
(Rupee crore)
Long-term Debt 5,08,777 5,33,367 6,28,771 7,14,433 9,21,710 9,01,840 9,62,640
Short-term Debt 77,528 87,155 1,22,631 1,82,881 2,20,908 2,01,234 2,03,577
Total External Debt 5,86,305 6,20,522 7,51,402 8,97,314 1,142,618 1,103,074 1,166,217
R: Revised; PR: Partially Revised; QE: Quick Estimates.

Trade-related credits at US$ 39.3 billion constituted cent of total external debt at the end of September
92.8 per cent of total short-term debt and 16.2 per 2009.

Box 6.5 : External commercial borrowing (ECB) policy measures during 2009-10
The broad ECB policy stance towards liberalization continued during the first half of 2009-10. However, it has been decided
to roll back some of the policy measures which were introduced against the backdrop of tightness in financial markets
during the period of financial crisis. These policy measures have become effective from January 1, 2010.
Non-banking financial companies (NBFCs), exclusively involved in financing of the infrastructure sector, were allowed to
avail of ECBs from multilateral/regional financial institutions and Government-owned development financial institutions
for on-lending to borrowers in the infrastructure sector under the approval route, subject inter alia to the condition that the
direct lending portfolio of these lenders vis-à-vis their total ECB lending to NBFCs, at any point of time, should not be less
than 3:1 (January 2, 2009). On a review of the policy, it was decided to dispense with this condition with effect from July
1, 2009 (June 30, 2009). Furthermore, it has been decided with immediate effect to allow NBFCs exclusively involved in
financing infrastructure projects to avail of ECB from the recognized lender category including international banks under
the approval route, subject to complying with the prudential standards prescribed by the Reserve Bank and the borrowing
entities fully hedging their currency risk (December 9, 2009).
Payment for obtaining licence/permit for the 3G Spectrum was allowed as an eligible end-use for the purpose of ECB under
the automatic route (October 22, 2008). It has been decided to permit eligible borrowers in the telecommunication sector
with immediate effect to avail of ECB for the purpose of payment for spectrum allocation (December 9, 2009).
It was decided to extend the permission granted to corporates engaged in the development of integrated township to avail
of ECBs under the approval route until December 31, 2009. This has been extended further to December 31, 2010 (December
9, 2009).
Keeping in view the prevailing market conditions, the all-in-cost ceilings applicable to ECBs under the approval route were
dispensed with until June 30, 2009 (January 2, 2009). On considering the continuing pressure on credit spreads in the
international markets, it was decided in June 2009 to extend the relaxation in all-in-cost ceilings under the approval route
until December 31, 2009. However, in view of the improvement in credit market conditions and narrowing credit spreads
in the international markets, it has been decided to withdraw the existing relaxation with effect from January 1, 2010. The
all-in-cost ceilings under the approval route for ECBs, where loan agreements have been signed on or after January 1, 2010,
will be 300 basis points and 500 basis points over six month Libor for an average maturity period of three years and up to
five years and more than five years, respectively (December 9, 2009).

Buy-back/pre-payment of foreign currency convertible bonds (FCCBs)

The procedure relating to premature buyback of FCCBs by Indian companies, both under the automatic and approval
routes was liberalized on December 6, 2008, by which the Reserve Bank could consider proposals from Indian companies
for buyback of FCCBs under the approval route subject to the buyback value of the FCCB being at a minimum discount of
25 per cent on the book value and use of funds out of internal accruals of the company. Total amount of buyback under the
approval route is subject to a limit of US$ 50 million of the redemption value per company. The date for completing the
entire procedure for buyback of FCCBs was extended from March 31, 2009 to December 31, 2009. Keeping in view the
prevailing macroeconomic conditions and global developments, especially the improvement in the stock prices, it has
recently been decided to discontinue the facility with effect from January 1, 2010 (December 9, 2009).
142 Economic Survey 2009-10

Table 6.12 : Currency composition of India’s external debt and sovereign external debt
(as per cent of total external debt)
Sl. Currency Total external debt Sovereign external debt
No. As at the end of
March March June Sept. March March June Sept.
2008R 2009R 2009PR 2009QE 2008R 2009R 2009PR 2009QE
1. US Dollar 55.3 54.1 52.3 51.4 26.7 29.6 29.1 25.8
2. SDR 10.5 9.8 10.0 12.0 40.8 39.5 39.2 44.2
3. Indian Rupee 16.2 15.4 16.3 16.6 7.9 5.7 6.7 6.8
4. Japanese Yen 12.0 14.3 14.5 13.6 18.6 19.9 19.8 18.4
5. Euro 3.5 4.1 4.3 3.9 5.9 5.2 5.2 4.8
6. Pound Sterling 2.2 2.0 2.2 2.1 0.1 0.1 0 0
7. Others 0.3 0.3 0.4 0.4 0 0 0 0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

R: Revised PR: Partially Revised. QE Quick Estimates

6.69 Short-term debt by residual maturity, which
comprises principal repayments during a one-year
reference period under medium- and long-term debt
liabilities, and short-term debt with original maturity
of one year or less are important indicators of debt
sustainability in volatile financial market conditions.
Short-term external debt by original maturity stood
at US$ 42.4 billion in end-September, while total
short-term debt by residual maturity was US$ 93.2
billion, accounting for 38.4 per cent of total external
debt outstanding in end-September 2009. NRI
deposits maturing within a period of one year at US$
36.7 billion worked out to 39.4 per cent of total short-
term debt by residual maturity. However, 69.3 per
cent of these deposits are denominated and payable
in Indian rupees. The observed redemption pattern
of NRI deposits indicates that these are generally
locally withdrawn and are also renewed by NRIs.
Between end-March and end-September 2009, there
was an improvement in the ratio of short-term debt
by residual maturity to foreign exchange reserves
from 37.0 per cent to 33.1 per cent.
6.70 Government debt stood at US$ 65.7 billion
in end-September 2009 while non-Government debt
amounted to US$ 177.1 billion. The share of
Government debt in total external debt declined from
40.6 per cent in end-March 2004 to 24.9 per cent in
end-March 2009, before rising to 27.1 per cent in
end-September 2009. The external assistance
component of Government debt at US$ 55.1 billion
in end-September 2009 was higher than its end-
March 2009 level of US$ 51.8 billion. Other
Government external debt also recorded an increase
from US$ 4.1 billion in end-March 2009 to US$ 10.6
billion in end-September 2009, attributable mainly
to additional SDR allocations of 3,082.51 million
under general allocation on August 28, 2009 and
214.57 million under special allocation on September
9, 2009 by the IMF. The ratio of Government debt to
GDP remained around 5.0 per cent in the last three
years.
6.71 US dollar-denominated debt accounted for
51.4 per cent of total external debt in end-September
2009, followed by Indian rupee (16.6 per cent),
Japanese yen (13.6 per cent), SDR (12.0 per cent),
Euro (3.9 per cent) and pound sterling (2.1 per cent)
denominated debt. The currency composition of
Government debt indicates predominance of SDR-
denominated debt, which is attributable to borrowing
from the International Development Association (IDA),
that is the soft loan window of the World Bank under
the multilateral agencies and inclusion of SDR
allocations by the IMF as an external debt liability of
the Government. The share of the Japanese yen in
Government debt is also higher on account of
borrowing from Japan, which is denominated in
Japanese yen.
6.72 The debt sustainability indicator, that is ratio
of foreign exchange reserves to total external debt
showed an improvement from 112.1 per cent in end-
March 2009 to 115.4 per cent in end-June 2009 and
further to 115.8 per cent in end-September 2009.
The ratio of short-term external debt to foreign
exchange reserves, which had increased from 14.8
per cent in end-March 2008 to 17.2 per cent in end-
March 2009, was also lower at 15.1 per cent in end-
September 2009. The concessional debt portion of
external debt has declined steadily and worked out
 Balance of Payments 143
Table 6.13 : India’s key external debt indicators (per cent)
Year External Ratio of Debt- Ratio of Ratio of Ratio of Ratio of
debt total service foreign conces- short-term short-
(US$ external ratio@ exchange sional debt debt to term debt
billion) debt to reserves to to total foreign to total
GDP total ex- external exchnage debt
ternal debt debt r e s e r v e s
1990-91 83.8 28.7 35.3 7.0 45.9 146.5 10.2
1995-96 93.7 27.0 26.2 23.1 44.7 23.2 5.4
2001-02 98.8 21.1 13.7 54.7 35.9 5.1 2.8
2003-04 R 112.7 18.0 16.1** 100.3 35.8 3.9 3.9
2004-05 R 134.0 18.1 5.9 ^ 105.6 30.7 12.5 13.2
2005-06 R 139.1 16.7 10.1# 109.0 28.4 12.9 14.1
2006-07 R 172.4 17.5 4.7 115.6 23.0 14.1 16.3
2007-08 R 224.4 18.1 4.8 138.0 19.7 14.8 20.4
2008-09PR 224.6 20.5 4.4 112.1 18.7 17.2 19.3
End-June 2009 PR 229.8 - - 115.4 18.9 15.9 18.3
End-Sept. 2008 PR 225.1 - - 127.2 18.4 17.7 22.5
End-Sept. 2009 QE 242.8 - - 115.8 18.4 15.1 17.5
R: Revised; PR: Partially Revised; QE: Quick Estimates.
- Not worked out for the broken period.
@ Debt-service ratio is the proportion of gross debt service payments to External Current Receipts (net of official transfers).
** Works out to 8.2 per cent, with the exclusion of pre-payment of US$ 3,797 million and redemption of Resurgent India Bonds
(RIBs) of US$ 5,549 million.
^ Works out to 5.7 per cent with the exclusion of pre-payment of US$ 381 million.
# Works out to 6.3 per cent, with the exclusion of IMDs repayments of US$ 7.1 billion and pre-payment of US$ 23.5 million.

Table 6.14 : International comparison of top 20 debtor developing countries 2007

Sl Countries External External Short-term Foreign Concessional

No. debt stock debt to GNI debt to exchange debt to total
(US $ million) (per cent) external debt reserves to external debt
(per cent) external debt (per cent)
(per cent)

1 Argentina 1,27,758 49.7 29.8 36.1 1.3

2 Brazil 2,37,472 18.7 16.5 75.9 1.0
3 Chile 58,649 40.3 22.7 28.7 0.4
4 China 3,73,635 11.6 54.5 413.9 10.1
5 Colombia 44,976 22.5 11.9 46.6 2.1
6 Croatia 48,584 97.7 10.5 28.1 2.1
7 India 2,20,956 18.9 19.8 125.2 21.7
8 Indonesia 1,40,783 33.9 24.8 40.4 26.2
9 Kazakhstan 96,133 103.7 12.2 18.4 1.0
10 Malaysia 53,717 29.4 28.4 189.9 6.1
11 Mexico 1,78,108 17.7 5.1 49.0 0.6
12 Philippines 65,845 41.9 10.8 51.2 20.0
13 Poland 1,95,374 47.7 30.9 33.6 0.4
14 Romania 85,380 51.5 35.7 46.8 1.6
15 Russian Federation 3,70,172 29.4 21.4 129.1 0.4
16 South Africa 43,380 15.8 38.2 75.9 -
17 Thailand 63,067 26.5 34.3 138.7 9.6
18 Turkey 2,51,477 38.8 16.6 30.4 2.1
19 Ukraine 73,600 52.9 31.1 44.1 2.2
20 Venezuela 43,148 18.7 27.1 78.2 0.5
All developing countries 34,66,045 24.5
Source : Global Development Finance 2009, World Bank.
144 Economic Survey 2009-10
to 18.4 per cent in end-September 2009 as against
18.7 per cent in end-March 2009 (Table 6.13).
International Comparison level
6.73 A cross-country comparison of external debt
of 20 most indebted developing countries, based on
the data given in World Bank’s publication titled
Global Development Finance, 2009 showed that India
was the fifth most indebted country in 2007 in terms
of stock of external debt. The ratio of India’s external
debt stock to gross national income (GNI) as of 2007
at 18.9 per cent was the sixth lowest with China
having the lowest ratio at 11.6 per cent. The element
of concessionality in India’s external debt portfolio
was the second highest after that of Indonesia.
6.74 In terms of the cover of external debt provided
by foreign exchange reserves, India’s position was
the fifth highest at 125.2 per cent after China,
Malaysia, Thailand and the Russian Federation. A
comparison of the share of short-term debt in total
external debt across countries reveals that India’s
position was the eighth lowest with Mexico having
the lowest ratio.
CHALLENGES
6.75 Indian economy has been one of the least
affected by the global crisis. In fact, India is one of
the growth engines, along with China, in facilitating
faster turnaround of the global economy. Risks,
however, remain. Firstly, despite recovery, advanced
countries continue to face risk of double-dip recession
with high unemployment rate, growing fiscal deficit
and high public debt - GDP ratios. Such risks can
have direct implications for the Indian economy, which
is increasingly integrated with the rest of the world.
6.76 Secondly, with interest rates at historic low
in most advanced economies, capital flows from
these countries are finding their way into the fast
growing Asian economies including India. The issues
that arise are whether the inflows are in excess of
the domestic absorptive capacity and whether they
could lead to overheating of the economy. The related
issue is the need to balance the competing
objectives of price and exchange stability. This can
also be looked at as the “impossible trinity” dilemma
of policy choice between price stability, exchange
rate stability and capital mobility.
International Trade
7
CHAPTER

The years 2008 and 2009 were tumultuous ones for global trade. The simmering
sub-prime crisis in the US in 2007 which triggered the global financial crisis in
September 2008 spread its tentacles in full, leading to a full blown global recession
resulting in unprecedented fall in global trade. World trade volume (goods and
services) grew by only 2.8 per cent in 2008 compared to 7.3 per cent in 2007, with
trade growth tumbling down month after month from September 2008 onwards.
While the fall seems to have been stalled with the recent recovery, world trade
continues to be vulnerable given the nature of the recovery.

WORLD TRADE forecast a 9 per cent decline in global trade for

7.2 The deepening world recession had profound
impact on world trade. The US$16 trillion global trade
of 2008 collapsed, reaching US $ 5.8 trillion in the
first half of 2009 compared to US$8.2 trillion in the
corresponding period of 2008. As a result, growth of
world output and trade volume of goods and services
fell to (-) 0.8 and (-) 12.3 per cent respectively in
2009 according to the International Monetary Fund’s
(IMF) World Economic Outlook (WEO) January 2010.
The World Trade organization (WTO) in March 2009
2009, the largest in over 60 years. The decline was
more marked in the case of advanced economies
(Table 7.1)
7.3 The World Bank’s Global Economic Prospects,
2010, estimates world real GDP growth and world
trade volume to fall by (-) 2.2 per cent and (-) 14.4
per cent respectively in 2009. As per the World Bank,
the dollar value of world trade plummeted 31 per cent
between August 2008 and its low point in March
2009. After discounting for falling commodity prices

Table 7.1 : Trends in growth in trade volumes (per cent change)

Projections
2008 2009 2010 2011
World Trade Volume (Goods and Services) 2.8 (-)12.3 5.8 6.3
Imports
Advanced Economies 0.5 (-)12.2 5.5 5.5
Emerging and Developing Economies 8.9 (-)13.5 6.5 7.7
Exports
Advanced Economies 1.8 (-)12.1 5.9 5.6
Emerging and Developing Economies 4.4 (-)11.7 5.4 7.8
Source: IMF:WEO, January 2010
146 Economic Survey 2009-10
and exchange rate fluctuations, global trade volumes
were down by 22 per cent by March 2009.
7.4 The crisis seems largely to have petered out in
the second half of 2009 and beginning of 2010 with
global trade recovering from the troughs and the
appearance of green shoots and the IMF even
projecting a better-than-expected growth in world
trade volume of 5.8 per cent and 6.3 per cent for
2010 and 2011 respectively, which is also a reflection
of the higher-than-expected world output growth
projections of 3.9 per cent and 4.3 per cent in 2010
and 2011 respectively. Though we are still not out of
the woods, there is a greater degree of confidence,
particularly in countries with strong fundamentals
like India and China which have weathered the crisis
with great dexterity and spearheaded the recovery.
7.5 Examination of the month-wise exports and
imports for the world, India and some major trading
partners of India from 2008 onwards [Figures 7.1 (A
to H)] indicates a recovery in trade with export growth
becoming positive in November 2009 over November
2008 in the EU(11.4 per cent), Hong Kong (1.3per
cent), India (18.2 per cent), Japan (1.5 per cent) and
Singapore (13.3 per cent) and remaining marginally
negative in the USA (-2.5 per cent) and China (-1.2
per cent). Pick up in import growth rates was led by
China (26.7 per cent), followed by Hong Kong (6.5
per cent), the EU (5.2 per cent) and Singapore (4.4
per cent). Import growth also became less negative
in the case of the US (-3.8 per cent), India (-2.6 per
cent) and Japan (- 9.9 per cent).
7.6 As observed in the previous chapter, while the
global recession seems to be lifting, a note of caution
is needed as recovery of trade is still vulnerable and
fragile given the fact that it is mainly Government
support and policy driven and some policies like the
“cash for clunkers” scheme in the US and similar
schemes for the automobile sector in other countries
could have simply brought forward the demand.
Besides, the turnaround in trade growth is largely
due to the lower base effect of the last year (2008)
which was in fact a lost year on the trade front as
the progress in export sector of earlier years was
mercilessly frittered away by the onslaught of the
global recession. This is evident if we see the actual
exports and imports in the pre-recession months
along with those in the corresponding recession/post-
recession months. It is a matter of concern that
except for India in the case of exports and India and
China in the case of imports, for the world and all
other countries considered here, the actual monthly
exports/imports in 2007 were higher than the
corresponding monthly exports/imports in 2009 in
almost all the months. The concern is more in the
case of imports with monthly imports in 2007 being
relatively higher than the corresponding monthly
imports for most of the trading partners of India in
2009. The growth rates of exports/imports in 2009
over 2007 given in Figures 7.1(A to H) also clearly
shows that while the freefall of global trade has been
stopped, real growth from pre-crisis levels is yet to
happen.
TRADE CREDIT DURING WORLD
RECESSION
Impact of the crisis on trade credit
7.7 The global economic crisis also impacted trade
credit. A number of banks, global buyers and firms
surveyed independently by the World Bank,
International Monetary Fund (IMF) and Bankers
Association for Finance and Trade (BAFT), have felt
that lack of trade credit and other forms of finance,
such as working capital and pre-export financing,
has affected growth in world trade. In addition, the
costs of trade credit have substantially gone up and
are higher than they were in the pre-crisis period,
raising the challenge of affordability of credit for
exporters. Higher funding costs and increased risk
continue to put upward pressure on the price of trade
credit. In 2008, as the financial crisis intensified, the
spreads on trade finance increased by a factor of
three to five in major emerging markets, like China,
Brazil, India, Indonesia, Mexico, and Turkey. For
example, the spread (over the six-month LIBOR) for
Turkey jumped to 200 basis points in November 2008
from 70 basis points in the third quarter(Q3), while
Brazil’s spread almost trebled in 2008 (from 60 bps
to 175 bps); India’s spread increased from 50 bps to
150 bps during the same year. Similarly, spreads for
several Sub-Saharan countries jumped from 100
basis points to 400 basis points. (Figure 7.2)
7.8 Small and Medium Enterprises (SMEs) and
exporters in emerging markets appear to have faced
the greatest difficulties in accessing affordable credit.
Increased uncertainty initially led exporters and
importers to switch from less secure forms of trade
finance to more formal arrangements. Exporters
increasingly asked their banks for export credit
insurance (ECI) or asked importers to provide Letters
of Credit (LCs). Importers were asked to pay for
goods before shipment and exporters sought more
liquidity to smooth their cash flow. Further, the
realization of export proceeds was not taking place
 International Trade 147
Figure 7.1 Export/import growth (month wise)
50 7.1A USA
40 Exports
2009/08
Growth rate (per cent)

30
20 Imports
2009/08
10
0 Exports
2009/07
-10
-20 Imports
2009/07
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov
2008 2009

50 7.1B EU(27)
40 Exports
2009/08
Growth rate (per cent)

30
20 Imports
2009/08
10
0 Exports
2009/07
-10
-20 Imports
2009/07
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov
2008 2009

50 7.1C China
40 Exports
2009/08
Growth rate (per cent)

30
20 Imports
2009/08
10
0 Exports
2009/07
-10
-20 Imports
2009/07
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

2008 2009

50 7.1D Hong Kong

40 Exports
2009/08
Growth rate (per cent)

30
20 Imports
2009/08
10
0 Exports
2009/07
-10
-20 Imports
2009/07
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

2008 2009
148 Economic Survey 2009-10

Figure 7.1 Export/import growth (month wise)

50 7.1E Japan
40 Exports
2009/08
Growth rate (per cent)

30
20 Imports
2009/08
10
0 Exports
2009/07
-10
-20 Imports
2009/07
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov
2008 2009

50 7.1F Singapore
40 Exports
2009/08
Growth rate (per cent)

30
20 Imports
2009/08
10
0 Exports
2009/07
-10
-20 Imports
2009/07
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov
2008 2009

40 7.1G World
Growth rate (per cent)

30 Exports
2009/08
20
10 Exports
2009/07
0
-10
-20
-30
-40
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

2008 2009

80 7.1H India
70 Exports
2009/08
60
50 Imports
Growth rate (per cent)

2009/08
40
30 Exports
2009/07
20
10 Imports
2009/07
0
-10
-20
-30
-40
-50
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

2008 2009
 International Trade 149
Figure 7.2 Spike in spreads on trade finance in 2008
250
India
200
Brazil
Basis points

150 China

Indonesia
100
Turkey
50
Russian
Federation
0
2003

2004

2005

2006

2007

2008e
Years Source: World Bank, Global Development Finance 2009.

on the due date. This led firms to trim down Table 7.2 : Export Credit
inventories, and direct the funds so generated to meet
Outstanding Export Variations Export
their working capital requirements.
as on Credit (Per credit as
7.9 While there is strong anecdotal evidence that (Rs. Crore) Cent) per cent
the financial crisis might have reduced the availability of NBC
of trade credit leading to decline in the volume of March 24, 2000 39,118 9.0 9.8
trade and possibly deepening and prolonging the March 23, 2001 43,321 10.7 9.3
recession, data from the IMF indicates that the pace March 22, 2002 42,978 -0.8 8.0
of decline in trade finance was just one-fourth that of March 21, 2003 49,202 14.5 7.4
the decline in trade volumes during the period October March 19, 2004 57,687 17.2 7.6
2008 to January 2009. The World Bank estimates March 18, 2005 69,059 19.7 6.3
that the shortage in trade finance in the market would March 31, 2006 86,207 24.8 5.7
have accounted for 10-15 per cent of the decline in March 30, 2007 1,04,926 21.7 5.4
trade. A survey carried out by the IMF and BAFT in March 28, 2008 1,29,983 23.9 5.5
August-September 2009 shows that decreases in March 27, 2009 1,28,940 -0.8 4.6
the value of trade finance business accelerated Jan. 15, 2010* 1,24,360 -3.6 4.1
between October 2008 and June 2009. The regions Source: Reserve Bank of India (RBI).
most affected were the industrialized countries and * Variation over the March 27, 2009 figure
Latin America. Note : 1. Data upto March 2004 relate to select banks
accounting for 90 percent of bank credit.
Trade credit: Indian scenario 2. March 18, 2005 onwards, data pertain to all
7.10 As a result of difficult financing conditions scheduled banks excluding RRBs availing
prevailing in the international credit markets and export credit refinance from the RBI.
increased risk aversion by the lending counterparties,
gross inflows of short-term trade credit to India
declined by 12.2 per cent to US$ 41.8 billion during US$ 1.9 billion during 2008-09, financing of short-
2008-09. Export credit as a percentage of net banking term trade credit did not pose much of a problem.
credit also fell from 5.5 per cent as on March 28,
7.12 This trend also continued in 2009-10. During
2008 to 4.6 per cent as on March 27, 2009 and further
the first half of 2009-10, the gross inflow of short-
to 4.1 per cent as on January 15, 2010 (Table 7.2).
term trade credit stood at US$ 21.7 billion, lower by
7.11 On the other hand, short-term trade credit 9.2 per cent than that in the corresponding period in
repayments registered an increase of 37.9 per cent 2008-09, while the outflows at US$ 22.3 billion were
during 2008-09 to touch US$ 43.7 billion. Since the higher by 17.5 per cent, thereby resulting in a net
gap between the inflows and outflows of short-term outflow of US$ 0.6 billion (inclusive of suppliers’ credit
trade credit to India were limited to a net outflow of up to 180 days) compared to a net inflow of US$ 4.9
150 Economic Survey 2009-10
billion during the corresponding period of the previous
year. Although the higher net outflows during the
second half of 2008-09 and in the first half (H1) of
2009-10 suggest some challenges in rolling over
maturing trade credits, the continuing trend in inflows
indicates no significant problem in servicing short-
term debt. This is also indicative of the confidence
enjoyed by Indian importers in the international
financial markets. The various policy initiatives taken
by the Government and RBI have also helped ease
the pressure on trade financing. This is further
corroborated by the increase in share of short-term
trade credit (both inflows and outflows) in the overall
gross capital flows with share in inflows increasing
from 10.9 per cent in 2007-08 to 13.4 per cent in
2008-09 and share in outflows increasing from 9.6
per cent to 14.3 per cent, thereby indicating that the
impact of global financial crisis on trade credit was
less when compared to other forms of capital flows
such as portfolio investment and external
commercial borrowings (ECBs).
POLICY RESPONSE
Response of Multilateral Institutions and
Governments
7.13 Governments and multilateral institutions have
responded with a range of trade finance programmes,
including a pledge by the G20 leaders at their April
2009 London Summit to provide US$ 250 billion of
support for trade finance. The commitment of G-20
leaders was reaffirmed in the Pittsburg Summit in
September 2009, calling for swift implementation of
the package and a collective fight against
protectionism as also stated in chapter 6. Multilateral
agencies also responded quickly to counter the trade
finance aspect of the crisis (Box 7.1).
7.14 Governments across the world have also taken
various policy initiatives. According to a World Bank
survey on “Trade and Trade Finance Developments
in 14 Developing Countries Post September 2008”,
these policies include various combinations of short-
term solutions to provide immediate relief to firms
and banks and long-term adjustment strategies to
bolster countries’ export competitiveness. According
to the survey, the main actions taken by
Governments can be grouped in two categories: (i)
to increase banks’ liquidity to alleviate liquidity
pressure including for trade finance; (ii) to enhance
the long-term competitiveness of the country’s
exports by developing and expanding export
promotion programmes.
7.15 In the wake of the crisis, most banks moved
away from funding open-account facilities to more
traditional forms of cash-backed or collateralized
letters of credit. Several countries entered into
bilateral agreements to ease the strains on access
to foreign currencies, including trade credit. In
December 2008, the US Federal Reserve entered
into currency swap agreements with some of its
counterparts, including Brazil and Mexico. Each
partner in the agreement received a swap line of US$
30 billion. In addition, the United States and China –
acting through their respective import-export banks
– created a bilateral trade facility of US$ 20 billion.
In March 2009, China entered into similar agreements
with its major trading partners (Argentina, Belarus,
the Republic of Korea, Malaysia, Indonesia, and the
Philippines) by providing swap facilities in its
currency.
7.16 Export Credit Agencies (ECAs) have also
greatly helped Governments, particularly in the
developing countries, channel trade finance to firms.
In addition, some Governments’ actions directly
targeted the reported shortage of trade finance to
firms. According to the World Bank, while some
Governments have tried to achieve this objective by
establishing rediscount and refinance facilities to
increase liquidity for trade loans and export credit,
many have implemented direct measures through
the established ECAs or Export Import (Exim) Banks.
Being mostly under public sector, these entities
typically serve as channels for the Government to
issue trade credits, loans, and guarantees and
insurance to the private sector. In many emerging
countries, public ECAs and Exim Banks served as
“providers of last resort” for trade finance as in Brazil,
India, the Philippines, South Africa and Turkey. ECAs
and Exim Banks were used by national governments
to channel new lines of trade credit and loans. For
example, the Brazilian government established new
credit lines via the National Bank for Economic and
Social Development (BNDES) to provide pre-export
and export finance.
7.17 In the absence of formal entities established
by the Government, that offer trade finance
instruments, some Governments have decided to
set them up or make existing ones legal and use
other public bodies. For example, in Indonesia, the
Government passed legislation in December 2008
to transform an existing government agency into an
official EximBank that would provide funding and
insurance for trade finance. In the Ukraine, the
parliament passed a law that granted the
 International Trade 151
Box 7.1 : Measures by International Institutions related to Trade Finance
The World Bank Group’s (WBG) support to bolster trade finance includes the following:
z The Global Trade Finance Program (GTFP) has been doubled to US $ 3 billion over a three-year period to provide
additional guarantees to mitigate risks in trade transactions with local banks in emerging markets.
z The Global Trade Liquidity Program (GTLP) is expected to contribute up to US $ 50 billion over a three-year period
to channel trade finance liquidity to developing countries.
z The World Bank has also launched a US $ 40 million Trade Facilitation Facility (TFF) to support developing country
priorities to improve trade facilitation systems, including infrastructure, institutions, services, procedures and
regulatory systems.
z World Bank Trade-Related Lending has more than doubled from US $ 1.4 billion in FY 2008 to US $ 3.4 billion in FY
2009, driven by projects in the Europe, Central Asia and Africa regions, in support of trade facilitation, regional
integration and export competitiveness. Support was also provided by the World Bank Group to select developing
countries like India, Indonesia, Kenya, Turkey, Tunisia and Ukraine. In the Indian case, the World Bank has established
a US $ 120 million line of credit for SMEs and a small guarantee fund. This project was scheduled to close in June
2009, but as a response to the crisis, the Bank recently negotiated additional financing of US$400 million to extend
the original project by four years.
The Asian Development Bank(ADB) had allocated a total of US $ 8.94 billion in crisis support for 43 projects as on
October 31, 2009. The ADB’s crisis-related lending is expected to increase by more than US $ 10 billion in 2009-10
comprising US $ 1 billion for trade finance.
The Inter America Development Bank (IDB) enhanced its Trade Finance Facilitation Program (TFFP) from US $ 400
million to a maximum of US $ 1 billion in January, 2009. The IDB also added loans to its offering of guarantees and now
supports non-dollar- denominated trade finance transactions.
The European Bank for Reconstruction and Development (EBRD) announced in January 2009 that it would raise the
ceiling on its Trade Finance Program (TFP) from •800 million to •1.5 billion to increase trade with and within Eastern
Europe, Central Asia, Russia and the Ukraine.
The African Development Bank (AfDB) established a multi-phase US $ 1 billion Trade Finance Initiative (TFI) in
March 2009. The AfDB launched a new trade finance line of credit that will allow African commercial banks and
development finance institutions to use AfDB resources to support trade finance operations. The Bank also launched a
“multi-purpose” line of credit that enables the borrower to use the proceeds for trade finance as well as long-term project
and corporate finance operations.
The International Finance Corporation (IFC) doubled its Global Trade Finance Program (GTFP) ceiling to US $ 3
billion in November 2008. The GTFP offers confirming banks partial or full guarantees covering payment risk on banks
in the emerging markets for trade-related transactions. The IFC Global Trade Liquidity Program (GTLP) is the newest
programme to be instituted in May 2009 in response to the crisis. The programme is designed to support up to US $ 50
billion in international trade in the next three years.

Ukreximbank the status of official export credit
agency and supports plans to establish a Government
export insurance company, “Ukrainian Export
Insurance Company”.
Policy Response by India
7.18 India has also taken many steps to ease the
problems related to trade finance due to the global
economic crisis (Box 7.2).
Prospects of Recovery
7.19 According to the IMF and BAFT survey, the
upward price pressures seem to be easing for some
trade financing instruments, with increasing evidence
that the collapse in trade is bottoming out, as
demand starts to recover and banks become more
positive about the economic outlook. For example,
price increases have started to ease for export credit
insurance and LCs. The survey notes that the shift
towards bank-intermediated trade finance appears
to be continuing. It is estimated that open account
transactions (for which exporters provide credit
directly to importers) as a share in the total,
continued to remain subdued, at less than 40 per
cent in the second quarter of 2009, as compared to
45 per cent that prevailed at the end of 2007. This
has been largely offset by the increasing reliance of
traders on bank finance –mainly LCs – as well as by
a more modest shift toward cash-in-advance
transactions (for which importers pay for goods
before shipment).
INDIA’S MERCHANDISE TRADE
7.20 India’s merchandise exports have shown
remarkable resilience in recent years with a growth
rate of 20 per cent plus in dollar terms since 2002-
152 Economic Survey 2009-10
Box 7.2 : India’s policy response related to
trade finance
Select measures taken by the Government of India since
the outbreak of crisis in September 2008 include the
following:
z Interest rate ceiling of 250 basis points p.a. below the
benchmark prime lending rate (BPLR) for pre-shipment
rupee export credit up to 270 days and post-shipment
rupee export credit up to 180 days has been extended
to the end of April 30, 2010.
z The ceiling rate on export credit in foreign currency
increased to LIBOR plus 350 basis points.
z The all-in-cost ceiling for raising trade credit was
revised to 200 basis points over six months of LIBOR
from the then (October 2008) prevailing ceiling of 75
basis points over six months of LIBOR.
z The prescribed interest rate as applicable to post-
shipment rupee export credit was extended to overdue
bills up to 180 days.
z Limit for Export Credit Refinance facility was
increased from 15 per cent to 50 per cent of eligible
outstanding export credit to provide additional
liquidity support to banks (returned to the pre-crisis
level of 15 per cent in the Second Quarter Review of
Monetary Policy for the Year 2009-10).
z A refinance facility of Rs 50 billion was established for
the Exim Bank of India on 15, December 2008 which
has since been extended to March 2010.
z Interest subvention has been extended up to March
2010 for pre- and post-shipment export credit (in
rupees) for certain employment-oriented export sectors
such as textiles (including readymade garments and
handloom), handicrafts, carpets, leather, gems and
jewellery, marine products and SMEs.
z The period of entitlement has been extended by 90
days for the first slab of pre-shipment and post-
shipment rupee export credit with effect from
November 15, 2008 and November 28, 2008
respectively.
z Foreign exchange (US dollars) has been sold through
agent banks to augment supply in the domestic foreign
exchange market or intervene directly to meet any
demand-supply gaps.
z Special market operations have been undertaken to
meet the foreign exchange requirements of public-sector
oil marketing companies against oil bonds.
z A foreign exchange swap facility with tenure up to
three months has been given to Indian public and
private sector banks having overseas operations in
order to provide them flexibility in managing their
short-term funding requirements at their overseas
offices (discontinued subsequent to the Second Quarter
Review of Monetary Policy for the Year 2009-10).
03. The global recession jolted this continued upward
growth with initial estimates showing a growth rate
of only 3.6 percent for 2008-09 as stated in last year’s
Economic Survey. However, according to revised
figures, export growth in 2008-09 stands at a
respectable 13.6 per cent, indicating that India had
weathered the crisis better than other countries. The
compound annual growth rate (CAGR) for India’s
merchandise exports for the five-year period 2004-
05 to 2008-09 increased to 23.8 per cent from the
14.0 per cent of the preceding five-year period. India’s
ranking in the leading exporters in merchandise trade
which slipped marginally from 26th in 2007 to 27th in
2008 is likely to improve in 2009 due to its reasonably
good export growth when world export growth fell.
However, this overall reasonably good picture for the
whole year hides the travails through which the export
sector went in the 13 crisis-ridden months. This can
be seen by comparing India’s export performance in
the pre-recession period with that in the recession
period (Table 7.3).
Table 7.3 : Quarterly export and import
growth
(Percentage)
2008-09 2009-10
(Pre- (Recession)
Recession)
Q1 Q2 Q3 Q4 Q1 Q2 Q3
Exports 57.0 39.5 -4.0 -20.3 -38.6 -21.0 6.0
Imports 38.7 73.8 7.4 -24.0 -35.0 -33.6 1.2
7.21 As a result of the full-blown global recession
coupled with the deepening of the global financial
crisis in 2008, India’s export growth rate started
plummeting from the high 40 per cent to 63 per cent
range witnessed during April to August 2008 to 26.1
per cent in September, turning negative from October
2008 to October 2009 except for December 2008
with a low 4.2 percent as per revised estimates. This
type of situation was not witnessed in the last twenty
four years. Even in 2001-02 and 1998-99 when export
growths were negative at (-) 1.6 per cent, (-) 5.1 per
cent respectively, such a long period of continuous
negative monthly export growths was not witnessed.
Only in 1985-86 when export growth was negative at
(-)9.9 percent there was a similar situation with
continuous negative growth for twelve months. The
Government had set an export target of US$ 200
billion for 2008-09 which was revised to US$ 175
billion. With merchandise exports reaching US$
185.3 billion in 2008-09, the target was surpassed

by 5.9 per cent which is no mean achievement in
trying times like these.
7.22 Given the uncertain global scenario, the
Government did not fix an export target for 2009-10,
instead the Foreign Trade Policy (FTP) 2009-14 set
the objective of an annual export growth of 15 per
cent with an annual export target of US$200 billion
by March 2011. The beginning of 2009-10 saw
acceleration in the fall of export growth with further
deepening of the global recession. The upwardly
revised export figures for the first half of 2008-09 also
partly contributed to this. While export growth rate
was (-) 22.3 per cent in April-November 2009-10, in
the month of November 2009, it became positive at
18.2 per cent after a nearly continuous 12-month
spell of negative growth. However, this is due to the
low base figures in November 2008 (at $11.2 billion
compared to $14.1 billion in October 2008 and $13.4
billion in December 2008). The month-over-month
export growth rate in November 2009 over October
2009 was marginally positive at 0.04 per cent. In
International Trade 153
December 2009 also export growth rate over
December 2008 was positive at 9.3 per cent and
over the previous month it has been better at 10.7
per cent.
7.23 While export growth in dollar terms
accelerated in 2007-08 and decelerated in 2008-09,
in rupee terms it exhibited an opposite movement
(Table 7.4 and Figures 7.3 and 7.4) reflecting the
direct effect of appreciation of the rupee by 12.4 per
cent in 2007-08 and its depreciation by 12.5 per cent
in 2008-09. In 2009-10 (April-December), as a result
of global recession, export growth was negative both
in dollar and rupee terms, with the latter being less
negative due to the depreciation of the rupee by 6.7
per cent.
7.24 The deceleration in export growth in rupee
terms in 2007-08 though due to slowing down of
growth in both volume and unit values, was more so
because of the latter. This was mainly due to the
export unit values registering zero growth in
manufactured goods classified chiefly by materials

Figure 7.3 Export growth and exchange rate movement

120 6
100 Export

Exchange rate changes

4
growth in
80 US$ terms
2
Export growth

60
0 Export
40 growth in
20 -2 Rs. terms
0 Exchange
-4
-20 rate
-6 changes
-40 (month over
-60 -8 month)
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

2007 2008 2009

Years

Figure 7.4 Import growth and exchange rate movement

120 6
100 Import
Exchange rate changes

4
growth in
80 US$ terms
Import growth

2
60
0 Import
40 growth in
20 -2 Rs. terms
0 Exchange
-4
-20 rate
-6 changes
-40 (month over
-60 -8 month)
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

2007 2008 2009

Years
154 Economic Survey 2009-10

Table 7.4 : Trade Performance : Volume and Unit Values

(Annual per cent change)
Exports Imports Terms of Trade
Value Value
Rupee US$ Volume Unit Rupee US$ Volume Unit Net Income
terms terms Value terms terms Value
2001-02 2.7 -1.6 0.8 1.0 6.2 1.7 4.0 2.8 -2.1 -1.3
2002-03 22.1 20.3 19.0 2.9 21.2 19.4 5.8 14.3 -9.8 7.4
2003-04 15.0 21.1 7.3 7.5 20.8 27.3 17.4 3.1 3.6 11.2
2004-05 27.9 30.8 11.2 14.9 39.5 42.7 17.2 18.9 -3.5 7.3
2005-06 21.6 23.4 15.1 6.1 31.8 33.8 16.0 14.0 -6.0 8.2
2006-07 25.3 22.6 10.2 13.7 27.3 24.5 9.8 15.1 -1.3 8.8
2007-08 14.7 29.0 7.9 5.1 20.4 35.5 14.1 1.9 2.6 10.7
2008-09 28.2 13.6 9.0 16.9 35.8 20.7 20.2 13.8 2.5 11.7
2009-10a -13.7 -20.3 —- —- -17.6 -23.6 —- —- —- —-
Source : Computed from data of Directorate General of Commercial Intelligence and Statistics(DGCI&S), Kolkata
a
April-December 2009.
Volume and unit value index of exports and imports are with new base (1999-2000=100)

and miscellaneous manufactured articles and low
growth in another major item, i.e. chemicals and
related products, despite a very high growth in non-
fuel crude materials and high growth in mineral fuels,
lubricants and related materials.
7.25 In 2008-09, contrary to general expectations,
the highest export growth in the whole decade in
rupee terms was registered which apart from the
depreciation of the rupee, was due both to volume
and unit value growth, but more so the latter which
has registered the highest growth of 16.9 per cent in
the decade. This in turn was due to the high growth
in export unit value indices of miscellaneous
manufactured articles, manufactured goods
classified chiefly by materials, besides mineral fuels,
lubricants and related materials and non-fuel crude
materials. The major data revisions for 2008-09,
particularly in the new SEZs for gems and jewellery
items where a lot of trading took place leading to
high trade volumes could also have contributed to
this phenomenon. In fact the quantum index of
exports of pearls and precious stones shows a high
growth rate of 19.7 per cent in 2008-09 over and
above the 26.8 per cent growth in 2007-08. This is
higher than the growth rate for manufactured goods.
7.26 The region-wise quantum indices show high
growth in export volumes to Organization of
Petroleum Exporting Countries (OPEC), the Asia-
Pacific Economic Cooperation (APEC) and the
European Union (EU) in 2008-09. The bilateral
quantum indices available for some trading partners
show high growth in export volumes to the United
Arab Emirates, Germany and Russia. In the case of
China, the quantum index is very high though it is
slightly lower than in 2007-08.
7.27 Import growth in rupee and dollar terms also
shows the same see-saw movement in 2007-08 and
2008-09 due to exchange rate movements. The
deceleration of imports in rupee terms in 2007-08 is
mainly due to a major slowing down in growth of unit
value indices. This is due to the negative growth in
unit value of machinery and transport equipment and
manufactured goods classified chiefly by materials
and low growth in chemicals and related products.
In 2008-09 the acceleration in imports in rupee terms
is due to the high growth in both volume and unit
value indices. The sectors which contributed to this
are manufactured goods classified chiefly by
materials, chemicals and related products, mineral
fuels and non-fuel crude materials, in the case of
unit value indices; and all categories of manufactured
goods including machinery and transport equipments
and chemicals and related products, in the case of
the quantum index indicating high import of machinery
and inputs needed for industrial recovery in 2008-
09.
7.28 The net terms of trade, which measures the
unit value index of exports as a proportion of unit
value index of imports, grew by more or less the
same percentage in both 2007-08 and 2008-09 due
to the relatively higher growth in export unit value
indices, the only difference being that the growth in
both the export and import unit value indices in 2008-
09 was very high, while in 2007-08, it was very low.
Income terms of trade, reflecting the capacity to
import, grew at more than 10 per cent in both 2007-
08 and 2008-09, due to the combined effect of
improvement in net barter terms of trade and
moderately high growth in export volume indices.

7.29 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) mainly due to the relatively greater
fall in world export growth than India (Table 7.5). The
increase in China’s share of world exports between
2000 and 2008 at 5.0 percentage points is around
39 per cent of the total increase in the share of
emerging and developing countries over this period.
However, China’s export growth rate which was above
25 per cent in this decade till 2007 moderated to
17.3 per cent in 2008 and declined to (-) 21.7 per
cent in the first half of 2009, as a result of global
recession. Although India’s export growth was also
negative at (-)18.4 per cent in the first half of 2009 it
was lower than the negative growth of the other major
emerging and developing countries and other select
countries except Hong Kong. However, in absolute
terms, India is way behind China with its exports
constituting only 12.4 per cent of China’s in 2008.
While India’s exports were higher than those of China
till 1954, they started lagging thereafter. Ironically
the gap started widening since the 1990s, the period
of India’s reforms. In 1990, the shares in world
exports of China and India were 1.8 per cent and 0.5
per cent respectively and in 2008, their respective
shares stood at 8.9 percent and 1.1 percent. This
growing gap between India and China calls for greater
introspection on the part of India.
7.30 India’s merchandise imports were also
affected by the global recession though with a slight
International Trade 155
lag and grew by 20.7 per cent to US$ 303 billion in
2008-09. This was due to the moderate growth of
23.5 per cent in import of non-petroleum, oil and
lubricants (non-POL) products and 14.7 per cent in
POL products. POL import growth was low mainly
due to both low volume growth by 6.2 per cent and
low growth of import price of the Indian crude oil
import basket by 5.5 per cent (Figure 7.5).
7.31 International oil prices recorded unprecedented
rise during 2008 and remained considerably volatile
during the entire ensuing period. The price of Indian
basket of crude oil which moved in tune with
international oil prices was also volatile, averaging
at 83.57 per barrel during 2008-09 after reaching an
unprecedented US $ 142 per barrel on July 3, 2008
before declining sharply following the global
recession. The monthly movements in oil prices
during 2007-08 to 2009-10 (April-December) clearly
reflect this volatility (Figure 7.6)
7.32 Non-POL non-bullion imports grew by 23.6 in
2008-09 per cent reflecting relatively low demand for
imports for industrial activity, partly due to low
industrial growth and partly due to the use of
inventories, and also for imports used as inputs for
exports due to fall in global demand following the
world economic recession.
7.33 During 2009-10 (April-December) import
growth was negative at (-)23.6 per cent accompanied
by a decline in both POL and non-POL imports at
(-) 29.8 per cent and (-)20.7 per cent respectively.

Table 7.5 : Export growth and share in world exports : India and other select countries

Value Growth rate % Share in world exports (%) change in

(US$ CAGR Annual shares
billion)
2008 2000-06 2007 2008 2009 2000 2007 2008 2009 2008/
(Jan- (Jan- 2000
Jun) Jun)
China 1,429 25.4 25.6 17.3 -21.7 3.9 8.8 8.9 9.1 5.0
Hong Kong 363 7.8 8.7 5.3 -16.7 3.2 2.5 2.3 2.5 -0.9
Malaysia 210 8.5 9.6 19.1 -31.2 1.5 1.3 1.3 1.2 -0.2
Indonesia 148 7.9 14.7 24.4 -28.3 1.0 0.9 0.9 0.9 -0.1
Thailand 173 11.3 17.0 12.9 -23.4 1.1 1.1 1.1 1.2 0.0
Singapore 338 12.0 10.1 13.0 -31.7 2.2 2.2 2.1 2.1 -0.1
India 177 19.1 21.4 20.4 -18.4 0.7 1.1 1.1 1.2 0.4
Brazil 198 16.5 16.6 23.2 -22.8 0.9 1.2 1.2 1.2 0.4
Mexico 292 7.1 8.6 7.3 -30.3 2.6 2.0 1.8 1.8 -0.8
Russia 472 19.3 16.6 33.1 -46.8 1.7 2.6 2.9 2.2 1.3
Korea 422 11.2 14.1 13.6 -22.7 2.7 2.7 2.6 2.9 -0.1
Emerging &
Develop. Eco. 6,218 17.3 15.2 25.7 -27.6 25.9 35.9 38.9 38.4 12.9
World 16,001 11.2 14.1 16.2 -29.5 100.0 100.0 100.0 100.0 —
Source : Computed from International Financial Statistics, IMF, November 2009.
156 Economic Survey 2009-10

Figure 7.5 POL imports

450 120

POL
400 imports
100 (Rs ‘000
crore )
Value (Rs.’000 crore) and quantity (MMT)

350
POL
300 80 imports
(quantity

Price (US$/bbl.)
MMT)
250
Brent
60 price
200 (US$/bbl)

Crude
150 40 price
(US$/bbl)

100
20
50

0 0
2006-07 2007-08 2008-09 2008-09 (Apr-Dec) 2009-10 (Apr-Dec)

Gold and silver imports registered negative growth which has been positive since 2002-03 stood at 25.7
of (-) 7.3 per cent. The continuous rise in prices of per cent in 2008-09 compared to 32.4 per cent in
gold also dampened demand. Non-POL non-bullion 2007-08. However, during 2009-10 (April-September),
imports declined by 22.4 per cent due to slowdown it fell by 40 per cent with the softening of international
in industrial activity and exports. Import growth is oil prices compared to the corresponding previous
positive in December 2009 at 27.2 per cent partly period (Table 7.6).
due to the base effect, partly due to the 42.8 per
cent positive growth of POL products with the pick Trade Composition
up in oil prices and industrial demand, and partly
due to growth of non-POL items at 22.4 per cent Export composition
including a high growth of gold and silver imports. 7.35 There were substantial changes in the
7.34 Trade deficit fell by 28.2 per cent to US$ 76.2 composition of exports in 2008-09 and 2009-10(April-
billion (as per customs data) in 2009-10 (April– September) with the fall in share of petroleum, crude
December) from US$ 106 billion in the corresponding and products and primary products resulting in
period of the previous year. Net POL import growth corresponding rise in share of manufactured goods.

Figure 7.6 Crude oil price (Indian basket) ($/bbl)

140
120 Crude oil
Crude oil price

price
100
80
60
40
20
0
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec

2007 2008 2009

Years
 International Trade 157
Table 7.6 : Growth in POL trade and non-POL imports (US$ terms)

Total POL POL Net POL Non- POL Gold & Non-POL, non-
imports imports exports imports imports silver gold & silver
imports imports
2001-02 1.7 -10.5 9.8 -13.4 7.2 -1.2 8.5
2002-03 19.4 26.0 21.6 26.8 17.0 -6.4 20.3
2003-04 27.3 16.6 38.5 12.9 31.5 59.9 28.5
2004-05 42.7 45.1 95.9 34.4 41.8 62.6 39.0
2005-06 33.8 47.3 69.8 40.4 28.8 1.5 33.1
2006-07 24.5 30.0 59.3 19.1 22.2 29.4 21.4
2007-08 35.5 39.4 53.6 32.4 33.8 22.0 35.3
2008-09 20.7 14.7 -4.6 25.7 23.5 22.3 23.6
2009-10 (Apr-Sept) -32.9 -41.0 -44.0 -39.7 -28.6 -24.9 -29.2
Source : DGCI&S and own calculations.

The share of petroleum, crude and products fell from
17.8 per cent in 2007-08 to 14.9 per cent in 2008-09
and 14.2 per cent in the first half of 2009-10, while
the share of primary products fell from 15.5 per cent
in 2007-08 to 13.3 per cent in 2008-09 and further to
12.7 per cent in the first half of 2009-10. The share
of manufactured exports increased by 2.3 percentage
points to 66.4 per cent in 2008-09 and further to
69.2 per cent in the first half of 2009-10 (Table 7.7).
7.36 India’s moderate growth of 13.6 per cent in
2008-09 which was due to the high growth in the
first half of the year prior to the setting in of global
recession, was only due to manufactured exports
as both primary products and petroleum, crude and
products registered negative growths of (-)2.4 per
cent and (-)4.6 per cent respectively. Among
manufactured products, the major drivers were gems
and jewellery, engineering goods and chemicals and
related products with export growths of 42.1 per cent,
18.7 per cent and 7.2 per cent respectively.
7.37 The first half of 2009-10 when the global
recession was in full swing, also saw an accentuation
in the fall of India’s export growth resulting in negative
growth of (-) 29.7 per cent compared to the positive
48.1 per cent in the corresponding period of the
previous year. All the three sectors were badly
affected during this period with petroleum, crude and
products being the worst affected at (-)44 per cent
export growth due to the low crude oil prices in the
first half of 2009-10, which started declining from the
high reached in the first half of 2008-09. Primary
product exports also registered a decline of 32.4 per
cent with fall in growth of both ores and minerals
and agriculture and allied products. Manufactured
goods registered negative export growth of (-)24.9
per cent, with the worst affected sectors being
engineering goods at (-)34.6 per cent, followed by
handicrafts including carpets at (-) 33.7 per cent and
leather and leather manufactures at (-) 24.2 per cent.
7.38 Examination of composition cum direction of
exports in the Economic Survey 2007-08 had clearly
shown the possible effect of the US slowdown on
India’s exports and the Economic Survey 2008-09
had shown the worsening effect of the US and global
recession on India’s exports. A comparison of the
commodity-wise growth of major exports to the
United States, the European Union and ‘Others’ in
2008-09 and 2009-10 (April-September) shows that
the fall in the shares of petroleum crude and products
and primary products for the period was mainly in
the ‘Others’ category. The consequent rise in share
of manufactured goods during the above period was
also in the case of ‘Others’. Though the share of
manufactures continues to be more important in the
case of India’s exports to the US market, there is a
fall in the share in the first half of 2009-10 after a
marginal rise in 2008-09. Exports of manufactured
goods to the EU followed a similar pattern
(Table 7.7).
7.39 The export growth performance of different
categories of exports in 2008-09 shows that while
primary products and petroleum products buckled
under the pressure of world recession, despite a good
growth in the first half of 2008-09, manufactured
goods exports particularly to the EU and ‘Others’
were more resilient, though there was a moderation
in growth. However, India’s exports of manufactures
to the US market grew by only 2.2 percent. This
was due to the accentuation of the negative growth
in textiles exports and the growth in gems & jewellery
exports to the US turning negative. Textiles exports
growth to the EU and ‘Others’, though low was
158 Economic Survey 2009-10

Table 7.7 : Composition of exports by major markets

Percentage share CAGR Growth ratea
2000-01 2007-08 2008-09 2008-09 2009-10 2000-01 2007-08 2008-09 2008-09 2009-10
(Apr.- (Apr.- (Apr.- (Apr.- (Apr.- to (Apr.- (Apr.- (Apr.- (Apr.-
Mar.) Mar.) Mar.) Sept.) Sept.) 2006-07 Mar.) Mar.) Sept.) Sept.)

I Primary Products
World 16.0 15.5 13.3 13.2 12.7 16.9 38.2 -2.4 44.5 -32.4
USA 9.4 7.2 7.4 7.5 7.0 8.3 5.5 4.5 18.0 -30.7
EU 13.1 9.4 8.3 8.5 9.0 11.5 20.0 -0.1 20.0 -26.3
Others 19.8 19.1 16.2 15.5 14.8 19.5 44.7 -3.3 51.5 -33.2
(a) Agri & Allied Products
World 14.0 9.9 9.1 9.1 9.0 10.4 43.0 4.4 53.7 -30.9
USA 9.0 5.5 6.2 6.2 5.8 3.9 7.6 15.2 30.9 -29.9
EU 11.9 7.4 6.9 7.0 7.3 8.7 22.8 4.4 30.8 -26.8
Others 16.8 11.6 10.5 10.2 10.0 12.0 52.6 3.4 62.1 -31.8
(b) Ores and Minerals
World 2.0 5.5 4.2 4.1 3.7 40.4 30.5 -14.6 27.2 -35.6
USA 0.4 1.7 1.2 1.3 1.1 45.6 -0.6 -29.7 -19.6 -34.9
EU 1.3 2.0 1.4 1.5 1.6 28.8 10.4 -17.1 -13.6 -23.7
Others 3.0 7.5 5.7 5.3 4.8 42.1 34.1 -13.6 34.4 -35.7
II Manufactured Goods
World 78.8 64.1 66.4 64.8 69.2 16.1 21.8 17.7 45.4 -24.9
USA 90.6 82.1 82.9 82.4 78.9 10.9 8.2 2.2 22.2 -28.6
EU 86.8 71.9 72.6 73.2 68.8 13.9 22.9 14.1 35.4 -34.5
Others 70.9 58.3 63.0 59.7 67.7 19.2 25.6 23.3 56.0 -20.7
(a) Textiles incl. RMG
World 23.6 11.2 10.2 9.2 11.1 7.5 12.0 4.4 13.0 -14.7
USA 27.2 19.8 18.6 17.1 18.6 8.5 -1.0 -4.8 0.2 -18.6
EU 29.2 19.2 18.4 16.3 18.3 11.3 12.4 7.9 12.4 -21.7
Others 19.8 6.9 6.5 5.8 7.7 4.1 20.3 6.2 20.5 -7.3
(b) Gems & Jewellery
World 16.6 12.1 15.1 15.9 17.8 13.7 23.2 42.1 82.4 -21.7
USA 29.3 24.0 21.9 24.2 24.7 9.7 4.6 -7.7 16.8 -23.6
EU 11.5 7.5 8.3 9.8 7.1 8.7 28.5 24.8 72.6 -49.6
others 13.9 11.2 16.4 16.5 19.7 17.9 31.6 66.2 111.8 -16.4
( c) Engineering Goods
World 15.7 20.7 21.6 21.3 19.8 24.9 27.2 18.7 48.8 -34.6
USA 13.4 21.0 24.1 24.5 16.5 20.3 14.7 16.1 50.4 -49.7
EU 14.0 23.1 25.7 27.6 22.8 26.3 31.8 25.7 56.1 -42.5
Others 17.2 19.9 20.3 19.0 19.5 25.6 28.4 16.6 45.5 -28.2
(d) Chemical & Related Products
World 10.4 13.0 12.3 11.5 13.1 24.6 22.2 7.2 29.0 -20.3
USA 5.7 13.4 15.0 13.4 15.9 26.8 26.8 12.8 35.7 -11.2
EU 9.7 13.8 13.2 12.4 12.8 23.8 28.1 7.4 24.4 -27.8
Others 12.5 12.6 11.8 11.0 12.7 24.5 19.3 6.0 29.3 -19.6
(e) Leather & Leather Mnfrs
World 4.4 2.1 1.9 1.9 2.0 7.5 16.1 1.5 17.6 -24.2
USA 3.7 1.5 1.7 1.6 1.6 -1.5 -1.2 16.1 20.1 -27.4
EU 11.4 6.6 5.9 5.9 6.7 7.8 20.2 1.0 17.6 -21.8
Others 1.6 0.8 0.7 0.7 0.7 12.5 13.0 -2.1 16.6 -29.0
(f) Handicrafts including Carpet Handmade
World 2.8 0.9 0.6 0.6 0.5 1.5 7.2 -25.8 -12.2 -33.7
USA 6.0 2.4 1.6 1.7 1.5 -1.2 -4.7 -30.6 -23.8 -35.0
EU 4.4 1.5 1.1 1.1 1.1 3.4 -6.8 -18.0 -3.8 -33.2
Others 0.8 0.4 0.2 0.2 0.2 3.4 65.8 -30.2 -6.9 -32.9
III Petroleum, Crude & Products
World 4.3 17.8 14.9 17.8 14.2 46.3 53.6 -4.6 49.9 -44.0
USA 0.0 3.2 0.7 1.3 1.8 230.3 136.0 -77.6 -64.5 1.4
EU 0.0 11.5 10.7 10.3 12.8 883.9 99.3 5.4 65.8 -13.3
Others 7.9 22.7 19.0 22.6 16.6 43.2 46.7 -4.2 52.4 -48.5
Total Exports
World 100.0 100.0 100.0 100.0 100.0 19.0 29.0 13.6 48.1 -29.7
USA 100.0 100.0 100.0 100.0 100.0 12.5 9.8 1.3 18.6 -25.4
EU 100.0 100.0 100.0 100.0 100.0 16.6 28.7 13.0 38.1 -30.3
Others 100.0 100.0 100.0 100.0 100.0 21.9 33.5 14.1 57.3 -30.0
Source: DGCI&S and own calculations.
Note : a Growth rate in US dollar terms.

positive, while growth of gems & jewellery exports
to ‘Others’ was very robust at 66.2 per cent and was
at 24.8 per cent to the EU market. In the case of
chemicals and related products and leather and
leather manufactures, India’s export growth to the
US was better than to other markets.
7.40 In the first half of 2009-10, India’s export
growth of all items to almost all three destinations
was negative with global recession in full swing.
Among manufactured goods, textiles export growth
was comparatively less negative mainly to ‘Others’,
whose share also rose. India’s gems & jewellery
exports and chemicals & related products exports
were more affected in the EU market, while the worst
affected sector was engineering goods, especially
in the US and EU markets with negative export
growths of (-)49.7 per cent and (–)42.5 per cent,
respectively. The performance of handicrafts
(including carpets) exports which were badly affected
even in 2008-09, worsened in all the three markets
with a negative growth above 30 per cent in all of
them.
International Trade 159
Import composition
7.41 The composition of imports also underwent
changes. Reflecting growing domestic concerns like
inflation, the share of food and allied products imports
which fell from 2.3 per cent in 2007-08 to 2.1 per
cent in 2008-09 increased to 3.5 per cent in the first
half of 2009-10 with the increase in imports of edible
oils and pulses (Table 7.8). The share of fuel imports
fell from 34.2 per cent in 2007-08 to 33.4 per cent in
2008-09 and 33.2 per cent in the first half of 2009-
10. Among fuel items, the share of POL, the major
item, fell to 30.1 per cent in the first half of 2009-10
from 34.2 per cent in the corresponding period of
2008-09 reflecting the relatively lower oil prices. The
share of fertilizers increased suddenly from 2 per
cent in 2007-08 to 4.3 per cent in 2008-09 with growth
in imports of nearly 250 per cent, but fell to 2.5 per
cent in the first half of 2009-10. The most notable
change is the fall in share of capital goods imports
from 18.7 per cent to 15.5 per cent in 2008-09 and
to 14.3 per cent in the first half of 2009-10. The
commodity group ‘Others’ saw increase in share from
38.9 per cent in 2007-08 to 40.0 per cent in 2008-09

Table 7.8 : Commodity composition of imports

Percentage share CAGR Growth rate (per cent) a
Commodity Group 2000-01 2008-09 2008-09 2009-10 2000-01 2007-08 2008-09 2008-09 2009-10
(Apr.- (Apr.- (Apr.- (Apr.- to (Apr.- (Apr.- (Apr.- (Apr.-
Mar.) Mar.) Sept.) Sept.) 2006-07 Mar.) Mar.) Sept.) Sept.)

I. Food and Allied Products,

of which 3.3 2.1 1.5 3.5 21.6 8.6 9.1 9.7 52.9
1 Cereals 0.0 0.0 0.0 0.0 112.4 -46.8 -93.3 32.6 -6.7
2 Pulses 0.2 0.4 0.3 0.6 41.1 55.2 -2.4 -10.3 40.0
3 Edible Oils 2.6 1.1 0.8 2.0 8.3 21.4 34.4 4.7 67.6
II. Fuel, of which 33.5 33.4 37.3 33.2 24.3 39.4 17.7 84.1 -40.3
4 POL 31.3 30.1 34.2 30.1 24.1 39.4 14.7 82.8 -41.0
III. Fertilizers 1.3 4.3 4.1 2.5 28.9 66.2 156.8 249.4 -59.4
IV. Capital Goods, of which 10.5 15.5 13.7 14.3 33.8 62.7 -3.9 71.7 -30.2
5 Machinery except Electrical
& Machine Tools 5.9 7.8 7.3 8.2 31.8 43.9 7.7 46.6 -24.2
6 Electrical Machinery 1.0 1.2 1.2 1.2 26.4 46.5 27.7 82.3 -29.1
7 Transport Equipment 1.4 4.4 3.6 2.3 54.3 113.1 -34.3 134.9 -57.3
V. Others, of which 46.3 40.0 40.8 43.4 22.9 22.7 23.8 46.5 -28.6
8 Chemicals 5.9 5.0 5.1 5.8 21.9 25.8 23.0 59.0 -23.3
9 Pearls, Precious,
Semi-precious Stones 9.6 5.5 5.7 4.4 7.7 6.5 107.7 122.2 -48.0
10 Gold & Silver 9.3 7.2 8.3 9.3 21.1 22.0 22.3 32.3 -24.9
11 Electronic Goods 7.0 7.7 7.0 8.6 28.7 26.5 15.3 31.1 -17.7

TOTAL IMPORTS 100.0 100.0 100.0 100.0 24.5 35.5 20.7 55.1 -32.9
Source: Calculated from DGCI&S data.
a Growth rate in US dollar terms.
160 Economic Survey 2009-10
and 43.4 per cent in the first half of 2009-10. Even
gold and silver and electronic goods increased their
import shares in the first half of 2009-10 over the
corresponding period in the previous year, despite
high negative growths, as other items in the import
basket had still higher negative growths.
7.42 In 2008-09 there was high import growth of
fertilizers reflecting the rise in fertilizer prices
mirroring skyrocketing POL prices in the first half of
the year, besides chemicals, pearls, precious and
semi-precious stones and gold and silver. The high
import growth of the last two items also contributed
to the high export growth of gems and jewellery
including diamond trading. In the first half of 2009-
10, the only category showing positive and high
import growth is food and allied products to meet
the domestic needs.
Composition of Imports by Broad Economic
Categories (BEC)
7.43 The classification of imports as per BEC
introduced by the UN shows that most of India’s
imports consist of intermediate goods followed by
capital goods. While the share of intermediate goods
is still dominant, it fell from 83.5 per cent in 2001 to
76.8 per cent in 2006. In 2007, there was a marginal
rise to 77.2 per cent. Share of capital goods imports
has increased from 8.9 per cent in 2001 to over 14
per cent in 2006 and 2007. The share of consumption
and other goods is quite low. Contrary to the general
belief, not only is the share of consumer goods low,
it has fallen from 4.3 per cent in 2001 to 3.5 per cent
in 2007 (see Table 7.9).
7.44 The WTO’s “International Trade Statistics
2009” has indicated that increasing trade in
intermediate goods is one of the major reasons for
world trade experiencing larger changes than world
GDP. The higher composition of intermediate goods
also has tariff policy implications as higher duties
on these items make our exports and manufacturing
less competitive (also see Tariff Policy section).
Export diversification
7.45 In 2008, India had a global export share of 1
per cent or more in 42 out of a total of 99 commodities
at two digit Harmonised System (HS) level, but a
significant share of 5 per cent or more in eleven items
(Table 7.10). Three items, vegetable textile fibres
n.e.s., paper yarn, woven fabric; vegetable plaiting
materials, vegetable products, n.e.s.; and residues,
wastes of food industry and animal fodder, had an
increase in global share by 0.5 per cent point or
more in 2008 over 2007. Four items lost global shares
which include carpets and other textiles floor
coverings; other made textile articles, sets, worn
clothing, etc; lac, gums, resins, vegetable saps and
extracts, n.e.s.; and pearls, precious stones, metals,
coins, etc. One item, namely silk had stagnant
growth. In the remaining 31 items, 10 lost their
shares in 2008 over 2007.
7.46 While India has diversified its export basket
as well as export markets, a more systematic
approach of diversification of dynamic products to
developed countries and non-dynamic products to
developing countries could pay better dividends (Box
7.3).
Direction of trade
7.47 The directional pattern of India’s trade has been
changing constantly during the decade with the share
of the top 15 trading partners increasing by 9.5
percentage points to 61.3 per cent in between 2004-
05 and 2008-09 (Table 7.11). In the first half of 2009-
10, their share was 59.6 per cent. The major
development in the direction of India’s trade is that
USA which was in the first position in 2007-08 has
been relegated to the third position in 2008-09, with
UAE becoming India’s largest trading partner,
followed by China. However, in the first half of 2009-
10, with oil prices moderating, China has gained a
slight edge over the UAE to become India’s major
trading partner.
7.48 According to the WTO’s “International Trade
Statistics 2009” the global recession reduced the
trade imbalances of many countries. Japan’s trade
surplus fell from 2.1 per cent of the GDP before the
crisis to 0.4 per cent in 2008, turning into a trade
deficit of 0.02 per cent of the GDP during the first
quarter of 2009. Germany’s trade surplus of 8 per
cent of the GDP until 2008 fell to 7 per cent in 2008
and United States’ trade deficit of 6.8 per cent of the
GDP in 2006 fell to 6.2 per cent in 2008 and further
to 3.4 per cent in the first quarter of 2009. For the
BRIC(Brazil, Russia, India and China) countries trade
balances as a percentage of the GDP were more
volatile due to trade in primary commodities, Russia
and Brazil being specific examples. The report states
that India has faced a structural deficit in
merchandise trade that has grown especially from
2000 onwards. China’s trade surplus of 7.6 per cent
of the GDP in 2007 fell to 6.7 per cent in 2008 and
4.7 per cent in the first quarter of 2009, though initial
monthly figures indicate that it is benefiting
noticeably from the initial recovery of trade. Export-
 International Trade 161
Table 7.9 : Distribution of India’s imports according to BEC: 2001 to 2007
BEC Descriptions 2001 2006 2007 No. of Basic duty
tariff (per cent)
lines Unweigh- Peak
ted
(Percentage of value of imports) average

Total Total Imports 100 100 100

1 Food &Beverages 5.1 3.2 3
11 - Primary 2.1 1.8 1.7
111 - For Industry 0 0.7 0.6 116 49.83 100
112 - For Households 2.1 1.1 1.1 334 38.89 100
12 - Processed 3 1.4 1.3
121 - For Industry 2.6 1.2 1.2 148 50 150
122 - For Households 0.5 0.1 0.1 447 51.92 150
2 Industrial Supplies 43.9 36.8 37.4
21 - Primary 14.2 9.3 8.4 724 13.76 70
22 - Processed 29.7 27.5 28.9 5671 9.45 150
3 Fuels & Lubricants 29.9 32.9 33.2
31 - Primary 26.9 27.3 26.9 13 11.54 55
32 - Processed 2.9 5.6 6.3 15 8.67 10
321 - Motor Spirit 2.1 3.5 4
322 - Fuels and Lubricants, Processed
(Other than Motor Spirit) 0.8 2.1 2.3 22 7.95 10
4 Machinery 15.4 18.3 19.1
41 - Capital Equipment 7.8 11.6 12.4 1,323 7.41 30
42 - Parts 7.7 6.7 6.7 573 7.59 10
5 Transport 2.7 5.4 4
51 - Passenger Cars 0 0.1 0.1 37 100 100
52 - Other 1.1 3.3 1.7
521 - Industrial 1.1 3.2 1.7 89 9.17 10
522 - Non-industrial 0 0.1 0.1 37 63.19 100
53 - Parts 1.6 2 2.1 197 9.05 10
6 Consumption Goods 1.7 2.1 2.2
61 - Durable 0.4 0.8 0.7 270 9.72 10
62 - Semi-durable 0.5 0.7 0.9 727 9.91 10
63 - Non-durable 0.8 0.6 0.6 576 11.08 60
7 Goods n.e.s. 1.3 0.1 1.2 21 9.52 10
Others (unclassified) 16 14.69
Total $ bn/Nos/% 51.9 185.38 218.64 11,356 13.46 150
Memorandum:
Capital Goods 8.9 14.8 14.1 1,412 7.52 30
(41+521)
Intermediate Goods 83.5 76.8 77.2 7,454 11.14 150
(111+121+21+22+31+322+42+53)
Consumption Goods 4.3 3.4 3.5 2,391 22.9 150
(112+122+522+61+62+63)
Other Goods 3.4 3.7 5.3 58 67.24 100
(321+51+7)/(51+7)

Source : Based on UN data.

162 Economic Survey 2009-10

Box 7.3 : Consistency of Indian Exports with Global Demand

In the recent episode of global recession, the shocks were transmitted very fast from industrialized countries to developing
countries, through international trade among other channels. The pace of export growth recovery could be relatively faster,
if the export basket is in harmony with the globally dynamic products, though the depth of recession affecting different
segments of the world economy also counts. Dynamic products play a crucial role in the global economic recovery as demand
for these products picks up very fast with change in global trade winds. Based on the twin criteria of export growth and
market share, 1,242 export products at the four-digit level are classified into five different groups. Two sub-periods, 1999-
2001 and 2004-06 are taken for computation of the CAGR. The sub-period 2004-06 is taken for global exports share of
products. Based on the twin criteria, five groups of products are identified as 1) trend setters, 2) champions, 3) under
achievers, 4) achievers in adversity and 5) losers in declining markets. Dynamic products falling under the “trend setters”
group with high CAGR and high share and “champions” group with high CAGR and relatively high share are the drivers of
global trade. Most of the dynamic products fall under four broad categories of exports: machinery, auto components and
cinematography which are high and medium technology-intensive; chemicals and plastics which are medium technology-
intensive; gems and jewellery and base metals which are mainly low technology-intensive; and mineral products which are
mainly primary and resource-based products. The non-dynamic products include all the other three categories, namely the
“under- achievers” with high CAGR but low share and heavily concentrated in sectors like processed food, minerals,
chemicals, plastics, T&C and base metals; “achievers in adversity” with high share and low or declining growth rate mostly
concentrated in sectors like processed food, pulps of wood, T&C, machinery and auto components; and “losers in Declining
Markets “with low share and low CAGR concentrated in sectors like vegetable products, chemicals, pulps of wood, T&C,
plaster & cement, base metals and machinery with bleak prospects of revival in the medium term. Securing market access for
the last two sets of product groups is a major concern, because the global market is shrinking for these products.
Global dynamic products constitute nearly 10 per cent of products but slightly less than 50 per cent of value. On the contrary,
the product share of non-dynamic products is around 90 per cent and value share is slightly above 50 per cent. In the Indian
case, dynamic products constitute 10 per cent of products and 51.3 per cent of value, while non-dynamic products
constitute 90 per cent of products and 48.7 per cent of value. Thus the general pattern of composition of dynamic and non-
dynamic products is similar in India and the world. (Table 1).
Table 1 : Compositon of Dynamic & Non-dynamic products
(Percentage) Dynamic products Non-dynamic products
World Number 9.8 (121) 90.2 (1121)
Value 47.6 52.4
India Number 10.0 (40) 90.0 (1217)
Value 51.3 48.7
Source: Computed from PC-TAS CD, 2008, ITC, Geneva and India Trades, Online, CMIE, Mumbai.
Note: World figures refer to 2006 and figures for India correspond to 2006-07. Figures in brackets indicate actual number of products.
Since the Asian Crisis, dynamic export products have provided a new direction to Indian exports. Products under the “trend
setters” group have consistently improved their share in Indian exports from 21.5 per cent in 1998-99 to 35 per cent in 2006-
07, posting a CAGR of 26.3 per cent during 1999/2000-2006/07 in rupee terms. The robust performance of the “trend
setters” has been supported by the sustained growth of these products in global exports. The “champions” have also
significantly improved their share in Indian exports from 10.8 per cent in 1998-99 to 16.3 per cent in 2006-07. This segment
of exports has registered the fastest CAGR of 27.1per cent, even better than the “trend setters”, during the period 1999/2000-
2006/07. While the share of the tiny emerging products, that is the group of “under achievers”, is almost stagnant even
during the period of global export boom, the two weak segments of the export sector, namely “achievers in adversity” and
“losers in declining markets” together have a share of nearly 35 per cent.
The differing performances of dynamic versus non-dynamic products are particularly important in the context of multilateral
vs regional/ bilateral trade. The composition of India’s exports by the two categories in the Regional Trading Arrangements
(RTAs) of India with developing countries shows that the share of dynamic products is high in value terms in all the RTAs,
while the share of non-dynamic products is very high in terms of numbers and quite substantial in value terms in all the RTAs
(Table 2)
Table 2 : Share of dynamic and non-dynamic products in India’s exports to RTAs.
RTA (Percentage) Dynamic products Non-dynamic products
ASEAN (Value) 56.2 43.8
(No.) 11 89
Andean (Value) 47.7 52.3
(No.) 15.3 84.7
COMESA (Value) 55.4 44.6
(No.) 11.3 88.7
GCC (Value) 61.2 38.8
(No.) 10.6 89.4
MERCOSUR (Value) 59.3 40.7
(No.) 14.7 85.3
SAARC (Value) 37.7 62.3
(No.) 10.7 89.3
Other Countries* (Value) 51 49
(No.) 10.2 89.8
Source: Computed from PC-TAS CD 2008, ITC, Geneva.
Note: *Includes all other countries not in the RTAs given above.
Import preference for globally non-dynamic products is either thinly spread across the globe or heavily concentrated
in some select regions. Marketing globally dynamic products could be done with ease under the multilateral set up without
any preferential arrangement, while the regional approach could help in exporting sizeable amounts of globally non-dynamic
products. As India is actively engaged in the process of regional trade, sizeable amounts of such products could find market
in different regional, sub-regional and bilateral trading arrangements through negotiations. Thus systematic planning could
help in diversification of India’s commodity basket as well as markets.
 International Trade 163
Table 7.10 : India’s share in world exports: Commodity- wise ( share of more than 1 per cent)
Sl. HS Chapter 2007 2008 Change
No.
1 50 Silk 10.53 10.53 0.00
2 13 Lac, gums, resins, vegetable saps and extracts n.e.s. 9.48 9.45 -0.03
3 52 Cotton 8.51 8.84 0.34
4 57 Carpets and other textile floor coverings 8.74 8.51 -0.24
5 53 Vegetable textile fibres n.e.s., paper yarn, woven fabric 4.61 6.27 1.66
6 71 Pearls, precious stones, metals, coins, etc. 6.60 5.72 -0.88
7 63 Other made textile articles, sets, worn clothing, etc. 5.73 5.52 -0.20
8 14 Vegetable plaiting materials, vegetable products n.e.s. 4.66 5.48 0.83
9 9 Coffee, tea, mate and spices 5.23 5.30 0.07
10 23 Residues, wastes of food industry, animal fodder 4.01 5.16 1.15
11 67 Bird skin, feathers, artificial flowers, human hair 5.03 5.09 0.06
Source : Calculated from National Centre for Trade Information (NCTI) data based on UN-ITC Trade Map Data,
2008.

Import ratios in Table 7.11 show that among its top
15 trading partners, India had bilateral trade surplus
with five countries, namely the UAE, USA,
Singapore, the UK and Hong Kong in 2008-09 and
the first half of 2009-10. India’s trade deficit with the
USA and Singapore in 2007-08, turned into trade
surplus thereafter. The export import ratio fell in 2008-
09 in the case of Hong Kong, though it recovered in
the first half of 2009-10. The fall in export-import ratio
from 0.8 in 2004-05 to the present 0.3 in the case of
China needs special attention. Among the countries
not in the top 15, Brazil is an interesting case. India’s
export-import ratio which had stabilized at above 2
till 2008-09 indicating a high trade surplus for India
has suddenly turned into a trade deficit at 0.64 in
the first half of 2009-10. The disaggregated data for
April-June 2009 indicate that this was probably due
to the sudden fall in India’s exports of refined POL to
Brazil because of softening of crude oil prices and
the sudden high rise in imports from Brazil of crude

Table 7.11 : India's trade and export-import ratio with major trading partners
Share in total trade Export/Import ratioa
2004-05 2007-08 2008-09 2008-09 2009-10 2004-05 2007-08 2008-09 2008-09 2009-10
(Apr- (Apr- (Apr- (Apr-
Sept) Sept) Sept) Sept)

1 UAE 6.1 7.0 9.8 8.7 9.2 1.6 1.2 1.0 1.5 1.5
2 China 6.5 9.2 8.6 7.4 9.4 0.8 0.4 0.3 0.3 0.3
3 USA 10.6 10.1 8.2 6.9 8.1 2.0 1.0 1.1 1.4 1.2
4 Saudi Arabia 1.4 5.6 5.1 5.6 4.4 1.1 0.2 0.3 0.3 0.3
5 Germany 3.5 3.6 3.8 3.1 3.5 0.7 0.5 0.5 0.6 0.5
6 Singapore 3.4 3.7 3.3 3.3 3.2 1.5 0.9 1.1 1.4 1.1
7 Iran 0.8 3.1 3.0 3.2 3.3 3.0 0.2 0.2 0.2 0.2
8 Hong Kong 2.8 2.2 2.7 1.8 2.5 2.1 2.3 1.0 2.8 2.1
9 Korea RP 2.3 2.1 2.6 2.2 1.9 0.3 0.5 0.5 0.5 0.0
10 UK 3.7 2.8 2.6 2.2 2.4 1.0 1.4 1.1 1.3 1.3
11 Australia 2.3 2.2 2.6 2.5 2.9 0.2 0.1 0.1 0.1 0.1
12 Switzerland 3.3 2.5 2.5 3.1 2.8 0.1 0.1 0.1 0.0 0.0
13 Japan 2.7 2.5 2.2 2.0 2.3 0.7 0.6 0.4 0.4 0.5
14 Malaysia 1.7 2.1 2.2 1.9 1.9 0.5 0.4 0.5 0.4 0.7
15 Nigeria 0.4 2.1 2.1 2.3 1.9 13.3 0.1 0.2 0.1 0.2
Total (1 to 15) 51.8 60.7 61.3 56.3 59.6 1.0 0.6 0.5 0.6 0.6

Total trade 100.0 100.0 100.0 100.0 100.0 0.7 0.6 0.6 0.6 0.6
Source : Computed from DGCI&S data.
a
A coefficient of export and import ratio between 0 and 1 implies that India’s imports are greater than
exports and a coefficient greater than one, that India exports more than what it imports.
164 Economic Survey 2009-10
petroleum, besides sugar to meet domestic needs.
High growth in imports of beverages, iron and steel,
fats and oils from Brazil also seems to have
contributed to the trade deficit.
7.49 The UAE has displaced the USA as the
topmost destination of India’s exports in 2008-09
and 2009-10 (April-September) with an export share
of 13.1 per cent and 14.4 per cent respectively. India’s
exports to all the top three export destinations—the
UAE followed by the USA and China—registered
negative growth of (-) 28.7, (-) 25.3 and (-) 21.9 per
cent respectively. Region-wise, over half of India’s
exports (55 per cent) in the first half of 2009-10 were
to Asia (including ASEAN), up from around 40 per
cent in 2001-02. During 2009-10 (April-September),
exports to Asia (including ASEAN) declined by 27.6
per cent and to Europe by 30.9 per cent. India’s
merchandise exports to South Asian countries
declined by 30.4 per cent.
7.50 In 2009-10 (April-September), Asia and
ASEAN continued to be the major source of India’s
imports accounting for 61.3 per cent of the total.
Country-wise, China remained the largest source with
a share of 12 per cent in India’s total imports followed
by the USA (5.95 per cent), UAE (5.93 per cent) and
Saudi Arabia (5.5 per cent). As a result of global
recession, India’s import growth from 14 of the top
15 trading partners was negative, Indonesia being
the exception.
SERVICES TRADE
7.51 Trade in some services like transportation of
goods is directly dependent on merchandise trade
while in some others like financial services it is
complementary. However, some other services like
tourism and software are near standalone services
not directly related to merchandise trade. There are
many such services and with the spread of
telecommunications and computer technology,
virtually all commercial services including health care
Table 7.12 : World exports of commercial services trade by major category, 2008
Value
(US$ billion)
2008 2000-08
Commercial services 3730
Transport 890
Travel 950
Other commercial services 1935
Source : WTO
and education have become tradeable across borders
without movement of natural persons. The trend
towards globalization, reinforced by liberalization
policies and the removal of regulatory obstacles, has
fuelled steady growth of international investment and
trade in services.
World trade in services
7.52 The US$ 3.78 trillion world export of
commercial services was dominated by the developed
countries in 2008, with the exception of India and
China which were also among the top 10 exporters.
As in the case of merchandise trade, India has
improved its rank in commercial services trade. As
per the latest “International Trade Statistics
2009”brought out by the WTO, world export and
import growth in services decelerated from 19 and
18 per cent respectively to 12 per cent in both the
cases. The deceleration was more or less similar in
most of the major regions like North America, Europe
and Asia. Import growth in commercial services in
the US was particularly low at 8 per cent, while its
deceleration in EU by 9 percentage points was
particularly sharp. While India ranks 27th in world
merchandise exports in 2008 compared to China at
2ndposition , in commercial services exports it ranks
9th compared to China at 5th rank.
7.53 The three broad categories of commercial
services, namely transport, travel and other
commercial services witnessed a decline in export
growth in 2008 compared to a high growth in 2007
(Table 7.12).
7.54 In commercial services imports, India moved
from 15th position in 2004 to 13th position in 2005,
and remained in 13th position in 2008, with a 2.4 per
cent share. The United States, the European Union-
15 and Japan are the major importers of services in
the world. Among top exporters/importers of services
(with EU-27 taken as a single unit) India ranked
among the first five countries in the export of
computer and information services, commercial
Annual percentage change
2006 2007 2008
12 14 20 12
13 11 20 16
9 10 15 10
14 17 22 11

services, communication services including
telecommunications services and other business
services and in the import of computer and
information services, financial services and transport
services (Table 7.13).
7.55 The Global Economic Prospects 2010 report
of the World Bank states that the global economic
crisis also affected services trade which, however,
was more resilient than merchandise trade. However,
systematic and up to date information on trade in
services is lacking. The term “Invisibles”, which is
generally used as a synonym for services, is most
apt for this sector as regards recent data and
information. Any analysis on the impact of the crisis
on trade in services has to be made from the titbits
of information available from several widely spread
out sources. Piecing these bits of information
together shows that the global financial crisis which
affected trade credit and also resulted in a slump in
merchandise trade had both a direct and indirect
bearing on trade in services. Some services like
transport for which goods trade itself is a barometer
of performance were severely hit. The Baltic Dry Index
(BDI) which reached a record high of 11440 in May
2008 fell by 93 per cent in December 2008. In the
case of other services, the tight financial situation
International Trade 165
coupled with depressed economic activity led to
deceleration in growth in trade of these services
7.56 As per the WTO’s “International Trade
Statistics 2009”, world exports of commercial
services which increased by 20 per cent on average
on a year-on-year basis in the first two quarters of
2008, decelerated in the third quarter and dropped
by 6 per cent in the last quarter. Preliminary figures
for the first quarter of 2009 suggest a more
pronounced decline of 19 per cent. While
transportation and Travel were severely hit due to
the global crisis, financial services plummeted due
to the turmoil in the financial sector with the WTO’s
preliminary figures for the first quarter of 2009 showing
a further decline in exports for the leading exporters
ranging from 13 per cent for the US to an estimated
30 per cent for the EU. However, some of the
sharpest declines in the first quarter of 2009 were
recorded in Asian economies such as Hong Kong,
China (a drop of 32 per cent), Chinese Taipei (53 per
cent) and the Republic of Korea (56 per cent). Other
commercial services have shown more resilience to
the economic recession than transportation and
travel services as the decline in the last three months
of 2008 was only 5 per cent. In the first quarter of
2009, however, exports of commercial services were

Table 7.13 : India’s sector-wise rank and share in world exports / imports of services
Per cent
Services Rank Share Change
2008 2000 2008 2008

Transportation Services Export 11 0.6 1.2 23

Import 5 2.1 4.0 34
Travel Services Export 14 0.7 1.2 10
Import 15 0.6 1.1 17
Other Commercial Services Export 4 .. 4.1 18
Import 9 .. 2.0 3
Communication Services* Export 4 .. 3.3 10
Import 13 .. 1.1 22
Construction Services* Exporta 9 .. 1.3 ..
Importa 11 .. 1.1 ..
Insurance Services* Export 7 .. 2.1 35
Import 7 .. 2.7 19
Financial Services* Export 8 .. 1.4 121
Import 5 .. 2.9 175
Computer and Information Services* Exporta 2 .. 18.1 ..
Importa 4 .. 4.4 ..
Other Business Services* Exporta 5 .. 4.0 ..
Importa 6 .. 3.0 ..
Personal, Cultural and Recreational Services* Exporta 6 .. 1.6 ..
Import .. .. .. ..
Source: Compiled from WTO, International Trade Statistics 2009. WTO.
Notes: * data relate to 2007; a WTO Secretariat estimates.
166 Economic Survey 2009-10

estimated to have declined by 15 per cent globally,
possibly due to the lagged effect of the economic
recession.
7.57 The Organisation for Economic Cooperation
and development(OECD) data shows that in Q3 2008,
the value growth of exports and imports of services
in OECD countries, measured in current US dollars
decelerated turning negative in all the subsequent
quarters till Q3 2009 for which latest data are available.
The fall was at its peak in Q2 2009 with both export
and import growth rates at (-)20.2 percent and (-)
18.4 percent respectively, In Q3 2009 the extent of
negative growth has been slightly less, with signs of
turnaround. The seasonally adjusted quarterly value
growth over previous quarter which had turned
negative since Q3 2008, both for exports and imports
of services of OECD has become positive in Q2 and
Q3 with growth rates of 1.8 per cent and 2.6 percent
for exports respectively and 1.6 percent and 3.3
percent for imports respectively. The contraction in
the Air Transportation sector which began in the end
of 2008 continued in 2009. As per the International
Air Transport Association (IATA), in 2009 international
passenger demand and cargo demand declined by
4.1 percent and 13.0 percent respectively with
passenger and cargo yields plummeting by 12
percent and 15 percent respectively. In 2010, while
passenger traffic and cargo demand are expected
to grow by 4.5 percent and 7 percent respectively
and cargo yields are expected to improve by 0.9
percent, passenger yields are not expected to
improve from their extraordinary low level due to
excess capacity in the market and reduced corporate
travel budgets. Thus as per IATA eventhough demand
continues to improve, there is still a lot of ground to
be recovered.
7.58 The World Bank in a report has also given
some such examples of fall in services trade. Quoting
reports of World Tourism Organization, the World
Bank states that tourism arrivals were off by 7 per
cent in the first six months of 2009. The outbreak of
A H1NI compounded the woes of some countries
like Mexico which was particularly hard hit.
Notwithstanding widespread efforts to support
tourism through special tax deductions, the easing
of visa restrictions and investment plans, the World
Tourism Organization expects global tourist volumes
to have declined by between 4 and 6 per cent during
2009.
India’s services exports
7.59 India, which is moving towards services-
dominated GDP growth with a 9 per cent CAGR for
services which is higher than the 5.8 per cent for
non-services during 2000-01 to 2006-07, is also
moving towards a services-dominated export growth
with a CAGR of 28.7 per cent for services during
2000-01 to 2006-07 which is higher than the 19 per

Table 7.14 : India's exports of services

Commodity Groups Percentage share CAGR Growth ratea
April- 2000-01 April-
Sl. September to September
No. 2000- 2008- 2008- 2009- 2006- 2007- 2008- 2008- 2009-
01 09 09 10 07 08 09 09 10

1 Travel 21.5 10.7 10.4 12.0 17.3 24.4 -4.0 22.0 -9.2
2 Transportation 12.6 11.1 11.1 12.6 25.4 25.6 12.7 39.9 -10.6
3 Insurance 1.7 1.4 1.4 1.9 28.1 37.2 -13.4 1.8 6.1
4 GNIE 4.0 0.4 0.4 0.5 -14.6 30.8 17.5 30.2 -5.2
5. Miscellaneous 60.3 76.4 76.7 73.0 33.4 21.3 15.9 27.4 -25.2
a) Software Services 39.0 45.5 47.5 53.4 30.5 28.8 14.9 35.3 -11.5
b) Non-software Services 21.3 30.9 29.2 19.5 38.0 11.6 17.5 16.3 -47.5
of which
i) Business Services 2.1 16.2 16.5 12.7 87.6 15.3 -1.9 9.9 -39.5
ii) Financial Services 2.1 3.9 4.5 4.6 44.1 3.6 22.7 58.4 -19.2
iii)Communication Services 7.0 2.1 2.5 1.8 12.1 6.5 -9.8 11.0 -42.0
Total Services Exports 100.0 100.0 100.0 100.0 28.7 22.4 12.5 27.6 -21.4
Source: Calculations based on RBI data.
Note: a Growth rate in US dollar terms.
GNIE = Government Not Included Elsewhere

cent for merchandise exports during the
corresponding period. Services exports reached US$
102 billion in 2008-09 with a moderate growth of 12.5
per cent over the previous year. Growth has been
reasonably good in the miscellaneous services
category which has increased its share by 16.1
percentage points to 76.4 per cent in 2008-09
compared to 2000-01. While the share of software
services increased by 6.5 percentage points to 45.5
per cent, the share of non-software services increased
by 9.6 percentage points to 30.9 per cent. The
CAGR of miscellaneous services was very high at
33.4 per cent during 2000-01 to 2006-07 followed by
annual growth rates of 21.3 per cent and 15.9 per
cent respectively in 2007-08 and 2008-09 (Table
7.14). While the high growth rate of the US $ 47
billion (2008-09) software services exports is well
known, the high CAGR of non-software services
during 2000-01 to 2006-07 is noteworthy. This was
due to the high growth in communication services
and business services exports, which, however, have
fared very badly in both 2008-09 and the first half of
2009-10 with negative growth rates ; and financial
services which registered high CAGR during 2000-
01 to 2006-07 and high growth in 2008-09.
7.60 The impact of global recession was visible on
India’s services exports, the growth of which declined
to (-)21.4 per cent in the first half of 2009-10
compared to the high growth of 27.6 per cent in the
corresponding period of the previous year . Except
insurance, all the items witnessed a negative growth.
While fall in transportation exports is a reflection of
the fall in merchandise trade, fall in travel services is
a reflection of the decline in tourist arrivals which
International Trade 167
declined by 1.8 per cent in the first quarter of 2009-
10. In 2009, Foreign Tourist Arrivals (FTAs) at 5.11
million registered a negative growth of (-)3.3 percent
as compared to the 4 percent positive growth in 2008.
Foreign Exchange Earnings (FEE) from tourism
which grew by 9.5 percent in 2008 fell to US $11.39
billion in 2009 with a negative growth of (-)3 per cent
7.61 Services exports are expected to grow in
2009-10, though at a relatively slower pace. While
the lower merchandise trade affected transportation
exports in the first half of the year, with pick up in
global and India’s trade, transportation exports are
also expected to pick up. Software including BPO
services after a negative export growth in the first
half of 2009-10 has shown a recovery with an
estimated positive but tepid growth of 5 percent in
2009-10 and a projected 13-15 per cent growth in
2010-11, according to NASSCOM. Receipts under
business and professional services are also expected
to be higher. According to the Ministry of Tourism,
though foreign tourist arrivals declined in the first
quarter of 2009-10, the growth rate has marginally
improved during April-September 2009 as compared
to the corresponding period of the previous year. In
fact, both FTA and FEE have picked up in December
with growth rates of 21 percent and 44.4 percent
respectively over December 2008. Given the trend,
travel receipts are also expected to improve in the
remaining period of the year.
India’s services imports
7.62 Imports of commercial services have become
important in recent years reaching US$ 52.0 billion
in 2008-09 though growth had decelerated to 1.1 per

Table 7.15 : India's imports of services

Percentage share CAGR Growth rate a
Sl. Commodity Group April-September 2000-01 April-September
No. to
2000-01 2008-09 2008-09 2009-10 2006-07 2007-08 2008-09 2008-09 2009-10
1. Travel 19.2 18.1 18.8 17.8 15.6 38.5 1.8 23.3 -9.8
2. Transportation 24.4 24.6 27.4 20.2 14.6 42.7 11.3 39.2 -29.4
3. Insurance 1.5 2.2 2.1 2.7 19.3 62.6 8.2 13.6 22.9
4. GNIE 2.2 1.5 0.8 0.9 4.0 -6.7 110.9 -13.4 12.6
5. Miscellaneous 52.6 53.6 50.9 58.3 24.5 2.7 -4.8 12.0 9.3
a) Software Services 4.1 5.4 6.9 3.4 25.1 48.1 -16.2 20.1 -53.4
b) Non-software Services 48.6 48.2 44.1 55.0 24.4 -1.2 -3.4 10.7 19.1
of which
i) Business Services 7.0 29.7 28.0 34.3 57.9 4.3 -6.8 7.3 16.9
ii) Financial Services 13.5 5.7 6.1 8.4 7.2 4.7 -5.6 37.8 30.0
iii) Communication Services 0.9 2.1 2.0 2.5 35.8 8.0 26.4 27.3 19.5
Total Services Imports 100.0 100.0 100.0 100.0 20.4 16.2 1.1 20.2 -4.6
Source : Calculations based on RBI data.
Note: a Growth rate in US dollar terms.
168 Economic Survey 2009-10

cent due to global recession (Table 7.15). Business
services is the most important category of services
imports, followed by transportation and travel. Import
growth of business services which declined by (-)
6.8 per cent in 2008-09 picked up by 16.9 per cent
in the first half of 2009-10. Import growth of
transportation and travel which decelerated in 2008-
09 was negative in the first half of 2009-10 and
particularly so in the case of transportation.
Insurance, financial and communication services
have registered positive growths.
Policies related to services
7.63 Given the difficult situation arising out of the
global economic crisis, which also affected services
trade, the Government took some specific measures
for the services sector, besides the general measures
related to liquidity and trade finance. Some such
specific policy measures in the Union Budget and
Foreign Trade Policy include extension of the 10A
sunset clause for Software Technology Parks of India
(STPI) for the financial year 2010-11 and exemption

Box 7.4 : Policy suggestions for India’s services sector

Some policy suggestions for India’s services sector based on interactions with service providers and literature survey are
given below. This is only an indicative and not exhaustive list.
FDI related
z Opening some segments of the insurance sector like health insurance and removing the 10-year disinvestment clause; and
liberalizing FDI in the animation sector.
z Making available FDI policy on the website in a user-friendly way.

Tariff and Tax related

z Rationalizing taxes in the shipping sector and addressing the issue of multiple levies and duties the in telecom sector.
z Rationalizing the entry fees for monuments and privatization of these services.
z Relocation of business of the Indian film industry from foreign countries to India by addressing the tax credit issue.
z Addressing the inverted duty issue in the printing sector.
z Allowing advance tax instead of tax deduction at source (TDS) in some services like engineering and construction.
z Abolishing octroi at least for capital goods used in hospitals including super speciality hospitals exporting health-care
services and in health-related research centres.
z Making TDS uniform for all heads of income with exemptions for small incomes up to a certain minimum limit
z Expediting the measures related to transfer pricing.
z Single return for service tax and excise tax which is being administered by the same department
Credit and Finance related
z Exempting ECBs from withholding tax for financing export-related activities and overseas acquisition including of ships.
z Encouraging venture capital in services.
z Operationalizing offshore financial centres.

Other trade related

z Increasing visibility of India in services through trade fairs, buyers-sellers meets and setting up convention centres;
facilitating services exports by setting up joint offices with common facilities; setting up a portal for services and devoting
some SEZs exclusively to services.
z Speeding up 3 G technology auctions.
z Strengthening Indian fleets and providing long-term contracts for Indian flags.
z Resolving the issue of precondition in most of the overseas tenders wherein equipment to be supplied by the contracting
company should necessarily be sourced from an approved list of suppliers from developed countries.
z Facilitating International accreditation for Indian health services.
z Tapping outsourcing opportunities in niche areas like actuarial and accounting services.
z Totalization agreements with target countries and necessary changes in domestic laws.
z Revamping the system of teaching, research, etc. in universities/ institutions, phased introduction of education reforms,
allowing foreign educational institutions in higher education with proper checks and balances, etc.
z Skill certifying unskilled labour.
Source : Ministry of Finance, Government of India, “Draft Policy Paper on Services 2009” and “Strategy for India’s
Services sectors: Broad Contours”, Working paper No.1/2007/DEA,.

from service tax for certain services linked to exports
(see Box 7.5). Well-thought- out policy measures
could give a further boost to this sector. While
policies like disinvestment of services’ PSUs and
easing domestic regulations can create the
conducive atmosphere, liberalization of foreign
investment-related policies could also help as trade
in services is usually accompanied by foreign
investment in services due to the high intra-firm trade
of multinational parent firms with affiliates. These
should be complemented by specific trade policies
including tariff, tax and credit-related policies for
services (see Box 7.4)
TRADE POLICY
Recent trade policy measures
7.64 Trade policy measures taken by the
Government and the RBI this year focused on
mitigating the adverse impact of the global recession
on the Indian economy and on checking inflation.
Many measures were taken including three stimulus
packages announced in 2008-09, measures by the
RBI and the Government in the Union Budget 2009-
10 and the Foreign Trade Policy (2009-14) to help
the export sector in general and the employment-
intensive sectors affected by the world recession in
particular (Box 7.5)
7.65 Trade Policy measures to check inflation
caused mainly by supply-side constraints include
among others, the following–-reducing import duties
to zero for sugar, rice, wheat, pulses, edible oil
(crude) and maize; reducing import duties on refined
and hydrogenated oils and vegetable oils to 7.5 per
cent; allowing import of raw sugar at zero duty under
open general licence (OGL) up to December 31, 2010
and opening import of raw sugar to private trade up
to December 31, 2010 for being processed by
domestic factories on job basis; allowing import of
white/refined sugar up to 1 million tonnes by the
STC/MMTC/PEC and NAFED under OGL at zero
duty up to March 31, 2010 and also extending it to
other Central/State Government agencies and to
private trade; banning export of non-basmati rice,
edible oils and pulses (except kabuli chana); use of
minimum export price (MEP) to regulate exports of
onion and basmati rice; scheme for permitted public-
sector units (PSUs) to import and sell pulses;
permitting sugar factories to sell processed raw sugar
in the domestic market and fulfil export obligation
on tonne-to-tonne basis; and not changing the tariff
values of edible oils.
International Trade 169
Policy for promoting State-wise exports
7.66 State-wise exports are reflected in the data
on state of origin of export goods which at present
are the only available comparable data for State-wise
exports (Table 7.16). This does not include export of
services
7.67 In 2008-09 and the first half of 2009-10, the
major exporters were Maharashtra, followed by
Gujarat, Tamil Nadu and Karnataka as in 2007-08.
In 2008-09, the two major exporting states, namely
Maharashtra and Karnataka, registered negative
growth rates along with West Bengal. Kerala with
growing SEZ exports, registered the highest growth
rate with doubling of exports. This was followed by
UP, Delhi, AP, Goa and Tamil Nadu with high export
growth rates. The importance of states likes Kerala,
UP and Delhi in the export effort is rising. In the first
half of 2009-10, negative growth was registered by
all the states except Kerala with 9.2 per cent growth
and Haryana with a paltry 0.1 per cent growth.
7.68 To encourage exports by States, outlay under
the Assistance to States for Developing Export
Infrastructure and Allied Activities (ASIDE) Scheme
has been increased in the Eleventh Five Year Plan
to Rs. 3,793 crore (tentative) as against the actual
release of funds of Rs. 2,050.5 crore in the Tenth
Five Year Plan. During 2008-09, Rs. 437.84 crore
and Rs. 131.4 crore were sanctioned/released under
the State and Central-Sector components
respectively out of an actual outlay of Rs. 570 crore.
In 2009-10, as on December 22,2009, out of the
outlay of Rs. 570 crores, Rs 296.65 crore and Rs.
82.83 crore have been released to the States and
Centre respectively. Under ASIDE, projects aimed
at setting up of critical infrastructure for exports are
approved, namely creation of new SEZs and
augmenting of facilities in existing ones, equity
participation in infrastructure projects, development
of complementary infrastructure such as roads
connecting production centres to ports, setting up
of ICDs and CFSs, stabilizing of power supply, etc.
7.69 State-wise allocation of funds under the ASIDE
scheme for the past few years shows only slight
change. However, highest allocation to Maharashtra
followed by Gujarat, Tamil Nadu, Karnataka, Uttar
Pradesh and West Bengal continued. The top 15
States had a share of 92.8 per cent in total allocation
in 2008-09.
170 Economic Survey 2009-10

Box 7.5 : Trade Policy Measures

The latest trade policy measures for 2008-09 and 2009-10 include the following:

z Interest subvention of 2 per cent from December 1,2008 to September 30, 2009 to the labour-intensive sectors of exports
such as textiles (including handloom), handicrafts, carpets, leather, gems and jewellery, marine products andSMEs. This
was further extended to March 2010.
z Inclusion of handicrafts items in the Vishesh Krishi and Gram Udyog Yojana (VKGUY);
z Provision of an additional Rs 1,100 crore to ensure full refund of CST/terminal excise duty/duty drawback claims on
deemed exports.
z Extension of the DEPB scheme till the end of December 2010.
z Restoration of DEPB rates for all items where they were reduced in November 2008 and increase in duty drawback rates
on certain items effective from September 1, 2008.
z Provision of additional fund of Rs 1,400 crore for the textile sector to clear the backlog claims of the Technology
Upgradation Fund (TUF).
z Excise duty reduction across the board by 4 per cent for all products except petroleum products and those products
where the current rate was less than 4 per cent.
z Extension of the adjustment assistance scheme to provide enhanced Export Credit Guarantee Corporation (ECGC) cover
at 95 per cent to badly hit sectors up to March 2010.
z Sections 10A and 10B related to sunset clauses for STPI and EOUs schemes respectively extended for the financial year
2010-11. Anomaly removed in Section 10AA related to taxation benefit of ‘unit vis-à-vis assessee’;
z Additional items allowed within the existing duty-free imports entitlement for some employment-oriented sectors like
sports goods, leather garments, footwear and textile items.
z Measures related to service tax which include, among others, exemption from service tax on services linked to exports like
the transport of goods by road and commission paid to foreign agents.
z Diversification of exports to emerging markets of Africa, Latin America, Oceania and CIS countries under the Focus
Market Scheme and Market Linked Focus Product Scheme.
z Setting up a Directorate of Trade Remedy Measures to support Indian industry and exporters especially the MSMEs, in
availing of their rights through trade remedy instruments under the WTO framework.
z Higher support for market and product diversification and additional resources under the MDA and MAI.
z Introduction of EPCG at zero duty for engineering and electronic products, basic chemicals, pharmaceuticals, apparels
and textiles, plastics, handicrafts, chemicals and allied products and leather and leather products till March end 2011.
z Duty drawback facilities on jewellery exports to neutralize duty incidence

z Expanding the Market Linked Focus Product Scheme to bicycle parts, motor cars and motor cycles, apparels and clothing
accessories, auto components etc. for exports from April 4,.2009 to September 30, 2009.
z Enhancement of the Export Obligation Period under the Advance Authorization Scheme from 24 to 36 months without
payment of composition fee.
z Widening the coverage of the ECGC by making available back up guarantee to the ECGC to the extent of Rs350 crore to
enable it to provide guarantees for exports to difficult markets/products.
z Abolishing basic customs duty of 5 per cent on rough / unworked corals.
z Constituting two high-level committees, one chaired by the Prime Minister and the other by the Cabinet Secretary for
regular monitoring.
z A Committee under the Chairmanship of Finance Secretary constituted to resolve all problems related to non-availablity
of dollar credit to exporters by the concerned Banks.
z To accelerate exports and encourage technological upgradation, additional duty credit scrips for status holders @ 1 per
cent of the f.o.b. value of past exports for certain specified sectors upto March end 2011.
z New incentives in January 2010 by adding new products in FPS, new products and markets under MLFPS, new products
under VKGUY and new markets under FMS.
 International Trade 171
Table 7.16 : State-wise exports of top 15 states
(US$ million)
(April-September) Share(%) Growth rate (%)
Sl. State 2007-08 2008-09 2008-09 2009-10 2008-09 2008-09 2009-10
No. (Apr-Sept.)

1 Maharashtra 44,841 44,667 25,612 20,180 24.1 -0.4 -21.2

2 Gujarat 34,736 40,272 26,802 16,433 21.7 15.9 -38.7
3 Tamil Nadu 14,816 18,540 10,654 7,770 10.0 25.1 -27.1
4 Karnataka 14,641 12,296 7,877 4,181 6.6 -16.0 -46.9
5 Andhra Pradesh 7,427 9,897 5,231 4,585 5.3 33.3 -12.3
6 Delhi 5,183 8,467 4,936 2,214 4.6 63.4 -55.2
7 Uttar Pradesh 4,295 7,571 5,284 2,586 4.1 76.3 -51.1
8 West Bengal 5,679 5,583 3,554 1,808 3.0 -1.7 -49.1
9 Haryana 4,414 4,792 2,478 2,481 2.6 8.6 0.1
10 Kerala 2,364 4,753 2,544 2,778 2.6 101.0 9.2
11 Orissa 3,024 3,351 2,189 1,220 1.8 10.8 -44.3
12 Rajasthan 3,276 3,313 1,815 1,365 1.8 1.1 -24.8
13 Punjab 2,598 3,016 1,628 1,175 1.6 16.1 -27.9
14 Madhya Pradesh 2,915 2,946 1,596 904 1.6 1.1 -43.4
15 Goa 1,387 1,781 640 554 1.0 28.4 -13.5
India’s total exports 163,132 185,295 108,907 76,589 100.0 13.6 -29.7
Source : DGCI&S

SEZs these 65 are information technology(IT)/information

7.70 The Special Economic Zones (SEZs) Policy
supported by the SEZ Act 2005 and SEZ Rules 2006
intends to make SEZs an engine for economic growth
supported by quality infrastructure, complemented
by an attractive fiscal package, both at the Central
and State levels and with the single-window clearance
mechanism. The process of globalization has
enhanced the relevance of SEZs, which have
become an important component in the export-led
industrialization strategy, playing a crucial role in
promoting the manufacturing sector, including
providing an enabling investment climate for SMEs
and offer platform for attracting export-oriented FDI.
The spin-off effects of SEZs, particularly the new
generation ones, are creation of employment,
development of infrastructure and additional economic
activity in the hinterland.
7.71 In a short span of about three years since the
SEZs Act and Rules were notified in February 2006,
formal approvals have been granted for setting up of
571 SEZs out of which 346 have been notified. A
total of 105 SEZs are exporting at present. Out of
technology enabled services (ITES), 15 multi-product
and 25 other sector-specific SEZs. The total number
of units in these SEZs is 2761.
7.72 Out of the total employment of 4,90,358
persons in SEZs, an incremental employment of
3,55,654 persons was generated after February 2006
when the SEZ Act came into force. At least double
this number obtain indirect employment outside the
SEZs as a result of the operations of SEZ units.
This is in addition to the employment created by the
developer for infrastructure activities. Physical exports
from the SEZs have increased by 50 per cent to Rs
99,689 crore in 2008-09 with a CAGR of 48.4 per
cent during 2003-04 to 2008-09 compared to the
CAGR of 23.4 per cent for total merchandise exports
of the country for the same period. Exports during
the first three quarters of the current year have been
to the tune of Rs. 1,51,785 crores.
7.73 Even during the current economic meltdown,
SEZs have registered impressive growth in exports
(Table 7.17), besides investment and employment
generation.
172 Economic Survey 2009-10

Box 7.6 : Progressive reduction of peak customs duty

India has been progressively lowering peak customs duty. Contrary to popular belief, the fall in peak duty has neither led to
a fall in revenue collections, nor a wiping out of the domestic manufacturing sector. In fact, peak duty falls have been
accompanied by rise in customs duty collections. The trend follows the Laffer curve effect which indicates that lowering of
taxes produces higher economic activity and higher revenue realization (Table 1)

Table 1. Peak duty reductions, customs duty collection and import values

Year Peak duties Customs duty Imports Customs duty as a

(per cent) collection (Rs cr.) percentage of imports
(Rs cr.)
1999-00 40 47,091 2,15,237 21.88
2000-01 38.5 49,066 2,30,873 21.25
2001-02 35 42,256 2,45,200 17.23
2002-03 30 44,610 2,97,206 15
2003-04 25 48,857 3,59,108 13.6
2004-05 20 55,470 5,01,065 11.08
2005-06 15 63,656 6,60,409 9.64
2006-07 12 81,015 8,40,506 9.64
2007-08 10 97,691 10,12,312 9.65
2008-09 10 1,01,710 13,74,436 7.4
Source: DGCI&S, Kolkata, Receipt Budget of Union of India and Budget Speeches of Finance Minister.

However, as a result of progressive reduction in customs duty rates and exemptions on various counts, customs duties as
a proportion of imports have been falling quite rapidly, which is in fact a positive sign of liberalization. The customs duty
was only 7.40 per cent of imports in 2008-09 compared to 21.88 per cent in 1999-2000. Given the situation created by the
global economic crisis when countries were frantically looking for avenues to export their products, a pause button was
pressed to this progressive reduction of peak duties, resulting in peak duties remaining at 10 per cent in 2008-09.
A small forward movement in our tariff reforms related to lowering of peak duties even during these difficult times when
revenue concerns are important, could help our manufacturing sector and also improve the options for our trade negotiations.
This can be done with considerable ease as 77.5 per cent of our imports in value terms had duties of 7.5 per cent and less,
though the share was only 39.4 per cent in terms of tariff lines in 2008-09 (Table 2). The shares are similar even if only non-
agricultural items are considered.

Table 2 : Tariffs, imports and notional duties in 2008-09

Capital goods Intermediate goods Consumer goods Total Share Total Share
Basic No. of Imports Notional No. of Imports Notional No. of Imports Notional no. of of notional of
Duty tariff duty tariff duty tariff duty tariff tariff duty Imports
lines lines lines lines lines
(Rs cr) (Rs cr) (Rs cr) (Rs cr) (Rs cr) (Rs cr) (%) (Rs cr) (%)

7.5% or 1079 1,64,198 38358 3353 8,96,459 89046 40 3944 886 4472 39 1,28,290 78
Less 10% 334 33745 10082 3429 2,14,816 64181 1522 21728 6492 5,285 47 80755 20
Above 10% 15 31 9 738 24591 5842 846 14924 9292 1599 14 15143 3
Total 1428 1,97,974 48449 7520 11,35,866 1,59,069 2408 40596 16670 11356 100 2,24,188 100
Source: Customs data base, Department of Economic Affairs, Ministry of Finance & Academy of Business Studies, United Nations
and DGCI&S

Further, exemptions result in a fall in revenue by around 55 per cent of notional collections. If these are also factored into the
calculations for items with 10 per cent duty or less, the actual duties will be still less. Thus, while practically our peak duties
are below 10 per cent in terms of number of tariff lines and in the 7.5 per cent and below categories in value terms, we are not
able to use these arguments in our favour in multilateral and bilateral negotiations because of the 10 per cent peak duty tag.
Leaving aside consumer goods for the present, if most items under capital goods which enjoy a concessional rate of 0-3 per
cent duty under the EPCG scheme and some items under intermediate goods which are inputs for exports and industrial
activity are moved from the 10 per cent duty category to 7.5 per cent duty, our peak duties could be 7.5 per cent even in terms
of number of tariff lines.

Table 7.17 : Exports from special economic zones
Year
from SEZs (Rs crore)
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10 (up to 31.12.2009)
Tariff Reforms
7.74 Tariff policy has occupied the centre stage of
trade policy for quite some time in India. Following
the opening up of the economy, India’s customs tariff
regime also underwent drastic changes. Though the
tariff policy in 2008-09 was more focused on tackling
inflation caused by supply-side constraints, some
forward movement could also be seen towards the
objective of making India’s tariff structure comparable
to international standards, particularly to that of its
immediate competitors. The FTA of India with
Association of South East Asian Nations (ASEAN)
countries is a move in this direction.
7.75 Bold reforms were taken by India in 1991
following the balance-of-payments crisis. Further tariff
reforms at present, in the aftermath of the global
economic crisis, could involve continuation of the
twin strategy of (i) progressively lowering the peak
customs duty rate (Box 7.6) and (ii) reducing end-
use exemptions to check revenue loss due to duty
foregone and streamlining export promotion
schemes (Box 7.7). Stimulus packages for exports
except during crisis should be in the form of duty
cuts for capital goods and intermediate goods imports
needed for exports instead of doles in different forms.
Besides plugging leakages, this could also help in
lowering our duties to international levels.
Contingency trade policy and non- tariff
measures
7.76 Contingency trade policy and non-tariff
measures (NTMs) which continued to act as
significant barriers to exports from developing
countries, but with somewhat reduced intensity in
recent years, have started a comeback with the
accentuation of the global economic crisis, resulting
in protectionist tendencies amongst various
countries.
International Trade 173
Value of exports Growth rate(per cent)
(over the previous year)
13,854 39
18,314 32
22,840 25
34,615 52
66,638 93
99,689 50
1,51,785 -
7.77 Anti-dumping investigations of all countries
after reaching a peak in 2001 had started falling,
numbering163 in 2007. However, in 2008, they have
again started rising with 208 anti-dumping initiations.
In line with the world trend, India’s anti-dumping
initiations increased in 2008 to 54 from 47 in 2007
(Table 7.18). During 2009-10( up to December
31,2009) , the Directorate General of Antidumping &
Allied Duties (DGAD) has initiated 11 fresh anti-
dumping investigations. The products involved are
synchronous digital hierarchy(SDH) transmission
equipment, recordable digital versatile disc(DVD),
circular weaving machines, barium carbonate,
coumarin, pencillin-G potassium and 6-APA, phenol,
1,1,1,2-tetrafluoroethane or R-134 of all types,
acetone, PVC paste resin, and sodium tripoly
phosphate. The countries involved in these
investigations are China, Israel, Malaysia, Thailand,
Vietnam, Mexico, Japan, South Korea, Russia and
Taiwan. During the financial year 2009-10, the DGAD
has not initiated any fresh countervailing duty (anti-
subsidy) investigation.
7.78 The bail-out packages of some countries have
also introduced new protectionist measures.
Economic Survey 2008-09 had given a select list of
such trade restrictions and distortionary measures
introduced after the global financial crisis. The most
trade-distorting measures are those that have
clauses related to providing preference for domestic
purchases. For example, the US passed a $ 787
billion stimulus package known as the American
Recovery and Reinvestment Act in February 2009
which excludes procurement of iron, steel and
manufactured goods used in construction projects
from countries like India which are not members of
the Agreement on Government Procurement (GPA)
unless the procurement increases the overall cost
of the project by 25 per cent. Price preferences for
174 Economic Survey 2009-10

Box 7 .7 : Customs duty exemptions and export promotion schemes

The Budget 2009-10, while succinctly bringing out the estimates of revenue loss, observed that the amount of revenue
foregone continues to increase year after year. As a percentage of aggregate tax collection, revenue foregone remains high and
shows an increasing trend. The effect is severe specially in the financial year 2008-09 which is bearing the strain of the
reduction in excise duties in the stimulus package. In 2007-08, only 51.1 per cent of the notional customs duties was collected
and collection percentage has worsened to 44.6 per cent in 2008-09. Thus ,while imports have gone up by 35.8 per cent in
2008-09, collections have barely risen, largely due to exemptions, which has resulted in 55 per cent of notional duties being
foregone. Within customs duty, revenue foregone on account of export promotion of Rs 49,053 crore in 2008-09 is an
important head of revenue loss, while revenue leakage due to end-use exemptions other than exports is up by 125.6 per cent
to reach a staggering Rs 77,380 crore. Substantial revenue is foregone on account of the different export promotion schemes
(Table 1). In 2009-10, revenue foregone could continue to be significant at more than Rs 50,000 crore due to enlargement of
the scope of schemes in the Foreign Trade Policy 2009-14 (FPS/FMS/VKGUY) and improvement in the export promotion
rates in the DEPB coupled with the bottoming out of the export fall.
Table 1 : Revenue foregone on account of export promotion schemes (Rs crore)
Sl.No Name of the scheme 2007-08 2008-09
1. Advance Licence Scheme 17,654 12,389
2. EOU/EHTP/STP 18,978 13,401
3. SEZ 1,804 2,324
4. EPCG 10,521 7,833
5. DEPB Scheme 5,341 7,092
6. DFRC 607 111
7. Duty Free Import Authorisation Scheme 1,359 1,268
8. Duty Free Entitlement Credit Certificate 740 418
9. Target Plus Scheme 923 1,220
10. VKGUY 538 2,059
11. Focus Market Scheme 41 408
12. Served from India Scheme (SFIS) 642 531
Total 59,149 49,053
Source: Receipts Budget 2009-10 of Union of India.

While some exemptions are needed particularly at this juncture to promote exports, there is scope for reducing the duty
foregone by rationalization and convergence of these schemes. One such example is related to the EPCG scheme.
At present, basic duty for capital goods in the general case is 7.5 per cent. In 2007-08, more than 20 per cent of machinery
imports were on EPCG account. This has come down to 12.9 per cent in 2008-09 due to significant reduction in the
differential between normal and EPCG duty. As a result, revenue forgone was Rs10, 521 crore in 2007-08 and Rs7,833 crore
in 2008-09. The EPCG duties at present are Nil for export-oriented, labour-intensive sectors and 3 per cent for others. With
import duties of general capital goods being reduced consistently, the differential with total EPCG has come down from 35.4
per cent to 21.5 per cent during the last five years (Table 2).
Table 2 : Duty foregone and imports under EPCG
Year Capital Total EPCG Duty Revenue Estimated Machinery Share of
goods duty duties foregone foregone EPCG and parts EPCG in
duties (DoR2 imports imports in machinery
(basic- estimate) on the Ch. 84, 85 of import (%)
excise-4% (Rs cr) basis of customs
SAD)1 revenue tariff
foregone (Rs cr)
(Rs cr)
2005-06 15- 16-4 40.369 5 35.369 5,332 15,075 1,14,286 13.2
2006-07 12.5-16-4 37.250 5 32.250 9,152 28,378 1,50,152 18.9
2007-08 7.5- 16-4 31.011 5 26.011 10,521 40,448 1,82,603 22.2
2008-09 7.5- 14-4 28.639 3 25.639 7,833 30,551 2,36,216 12.9
2009-10 7.5 -8-4 21.523 0*/3 21. 5*/ NA NA NA NA
18.5
*Concession for export-oriented, labour-intensive sectors. Covers engineering and electronic products, basic chemicals and
pharmaceuticals, apparels and textiles, plastics, handicrafts, chemicals and allied products, leather and leather products.
1
SAD= Special Additional Duty of 4 per cent for VAT. 2
Department of Revenue
The time is possibly ripe for another reduction of import duties for all capital goods preferably to the 3 per cent duty fixed
under the general EPCG with a simultaneous withdrawal of EPCG scheme. This will help in avoiding revenue leakages and
serve as a major step forward in rationalizing our export promotion schemes besides giving an upfront push to the import
of capital goods for modernization of the manufacturing and services sector in general and export manufacturing in
particular. The Laffer Curve effect could also help in lessening revenue impact as volumes could double in three to four years.
The above is just one example and there is a lot of scope for reforms in the other schemes as well.
 International Trade 175
Table 7.18 : Investigations initiated by top ten users of anti-dumping measures 1995-2008
Country 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 1995-
2008
India 6 41 79 81 46 21 28 35 47 54 564
United States 14 47 75 35 37 26 12 8 28 16 418
European Community 33 32 28 20 7 30 25 35 9 19 391
Argentina 27 43 27 14 1 12 12 11 8 19 241
South Africa 16 21 6 4 8 6 23 3 5 1 206
Australia 5 15 23 16 8 9 7 10 2 6 197
Brazil 5 11 17 8 4 8 6 12 13 23 170
Canada 11 21 25 5 15 11 1 7 1 3 145
China PR 0 6 14 30 22 27 24 10 4 14 151
Turkey 0 7 15 18 11 25 12 8 6 22 137
All Countries 157 292 366 312 232 214 200 202 163 208 3,427
Source: WTO

local companies exist in the measures of other
developed country markets as well.
7.79 With non-tariff measures (NTMs) coming in
new forms and with greater vigour, the need was felt
to check such tendencies, lest they proved
counterproductive if retaliatory measures are taken
by other countries. Leaders in fora like the G-20,
World Economic Forum and the WTO expressed
their commitment towards tackling the protectionist
measures and ensuring an early conclusion of the
Doha Round. The WTO set up a monitoring
mechanism for the trade policy measures that
members adopted during the financial crisis.
However, intentions should translate into actions and
protectionist tendencies should be nipped in the bud.
The developed countries who have been the
champions of liberalization and globalization should
take the lead in pressing the stop button on rising
protectionism.
WTO NEGOTIATIONS AND INDIA
7.80 The Doha Round of trade negotiations at the
WTO has been under way since 2001. The
negotiations cover several areas such as agriculture,
market access for non-agricultural products, trade-
related intellectual property rights, rules (covering
anti-dumping and subsidies) and trade facilitation.
The conduct, conclusion and entry into force of the
outcome of the negotiations are parts of a single
undertaking, that is “nothing is agreed until
everything is agreed”.
7.81 While the years 2007 and 2008 saw intensive
discussions in the WTO and progress achieved on
several complex subjects, the negotiations were
slow to resume following the December 2008 break
at the WTO. Based on discussions during the Mini-
Ministerial Meeting held in July 2008, the Chairs of
the Negotiating Groups on Agriculture and Non
Agricultural Market Access (NAMA) brought out fresh
drafts of modalities for Agriculture and NAMA on
December 6, 2008. However, discussions on these
texts began only in September 2009 partly due to
national elections in the US and India and partly due
to a general standstill in Geneva and a reluctance to
negotiate seriously with a view to narrowing
differences.
7.82 Going by the political commitments
expressed by WTO members in international fora,
India took the initiative and hosted a Ministerial
Conference in New Delhi from September 3-4, 2009
which was the first occasion since July 2008 for
ministers representing practically all shades of
opinion and interests in the WTO to come together.
There was unanimous affirmation of the need to
expeditiously conclude the Doha Round, particularly
in the present economic situation, and for
development remaining at the heart of the Doha
Round.
7.83 The Seventh WTO Ministerial meeting which
was the first full Ministerial meeting of the WTO in
the aftermath of the global economic meltdown was
held in Geneva from November 30-December 3, 2009.
While the Conference was not intended as a
negotiating forum, it provided a platform for different
groups and caucuses to assess the direction of the
negotiations. India and her coalition partners
reiterated their commitment to upholding the
176 Economic Survey 2009-10
development dimension, the centrality of the
multilateral process and the need to safeguard
livelihood concerns, particularly of the poor,
subsistence farmers in their countries.
7.84 The major issues in the current negotiations
in the WTO are related to Agriculture and NAMA
discussions which resumed on the basis of the draft
modalities on Agriculture and NAMA issued by the
Chairs of the respective Negotiating Groups on
December 6, 2008. As per the draft agriculture
modalities, developed countries would have to reduce
their bound tariffs in equal annual instalments over
five years with an overall minimum average cut of 54
per cent. Developing countries would have to reduce
their bound tariffs with maximum overall average cut
of 36 per cent over a larger implementation period of
ten years. Both developed and developing members
would have the flexibility to designate an appropriate
number of tariff lines as sensitive products, on which
they would undertake lower tariff cuts. The revised
draft modalities propose a special product (SP)
entitlement of 12 per cent of agricultural tariff lines.
The average tariff cut on SPs is proposed as 11 per
cent, including 5 per cent of total tariff lines at zero
cuts. This is a special and differential treatment for
developing countries. In the case of NAMA
negotiations, the tariff reductions are proposed
through a non-linear Swiss formula with a three-tiered
coefficient of 20, 22 and 25 for formula reductions
linked to specific flexibilities for protecting sensitive
NAMA tariff lines of developing countries, and a
coefficient of 8 for tariff reduction of developed
countries.
7.85 In services negotiations, the Services Clusters
were held in March–April 2009, June 2009, October,
2009 and November, 2009 in which India participated
actively. Other than multilateral and plurilateral
discussions, bilateral discussions were also held
with important trading partners, wherein India
conveyed its disappointment over their ambiguous
and inadequate signals in the key areas of our
interest which were conveyed earlier during the
signalling conference of July 2008. India is actively
participating in the working party discussions on
Domestic Regulations (WPDR) as disciplining of DRs
is an area of its interest.
7.86 In the current negotiations on rules, taking
place in the Negotiating Group on Rules (NGR), India
is seeking strengthened anti-dumping rules so as to
prohibit the use of zeroing in dumping margin
calculation, strengthening of the rules for conduct of
sunset reviews and mandatory application of lesser
duty. In the area of subsidies, India is opposed to
enlargement of the scope of prohibited subsidies in
the Agreement on Subsidies and Countervailing
Measures (ASCM) and /or limiting of the existing
flexibilities for developing countries. In the
negotiations on new disciplines on fisheries
subsidies, India is seeking effective special and
differential treatment (S&D) for developing countries,
particularly in the light of employment and livelihood
concerns of small, artisanal fishing communities and
for retaining sufficient “policy space” so as to enable
it to develop its infrastructure.
Bilateral and Regional Cooperation
7.87 Multilateral negotiations at the WTO continue
to be at the centre of India’s trade negotiations.
However, given the long and protracted nature of these
negotiations and recognizing the fact that regional
cooperation would continue to feature for a long time
in world trade, India has been active in regional and
bilateral trading arrangements in recent years. RTAs,
which help in expanding India’s export market are
considered as “building blocks” towards the overall
objective of trade liberalization and multilateral
negotiations.
7.88 Some of the recent developments in the
current year related to bilateral and regional trade
and cooperation are the following:
z Indian-ASEAN CECA: A Framework Agreement
on Comprehensive Economic Cooperation
between ASEAN and India was signed by the
Prime Minster of India and the Heads of Nations/
Governments of ASEAN members during the
Second ASEAN-India Summit on October 8,
2003 in Bali, Indonesia. The Agreement on Trade
in Goods was signed on August 13, 2009. The
India-ASEAN Trade in Goods Agreement has
come into effect on January 1,2010. The
Agreement provides for elimination of basic
customs duty on 80 per cent of the tariff lines
accounting for 75 per cent of the trade in a
gradual manner. Negotiations towards trade in
services and investment are expected to
conclude by August 2010.
z India-South Korea Comprehensive
Economic Partnership Agreement (CEPA):
The Agreement was signed on August 7, 2009.
It is India’s first FTA with an OECD country. CEPA
covers trade in goods, investments and services
and bilateral cooperation in areas of common
interest. Under CEPA, tariffs will be reduced or

eliminated on 93 per cent of Korea’s tariff lines
and 85 per cent of India’s tariff lines. The
Agreement will facilitate trade in services through
additional commitments made by both countries
to ease movement of independent professional
and contractual service suppliers.
z India-Japan CEPA: Agreements in goods,
services and investment are under negotiation.
Twelve meetings of the Joint Task Force have
so far been held. The 12th meeting of the JTF
was held during September 29 - October 1, 2009
in Tokyo.
z India-EU Trade and Investment Agreement:
With the EU, a broad- based bilateral Trade &
Investment Agreement is being negotiated.
Negotiations cover trade in goods, services and
investment, sanitary and phytosanitary
measures, technical barriers to trade, rules of
origin, trade facilitation and customs cooperation,
competition, trade defence mechanism,
Government procurement, dispute settlements,
Intellectual Property Rights (IPR) and
Geographical Indications (GIs). Eight rounds of
negotiations have so far alternately been held at
Brussels and New Delhi respectively; the eighth
round was held during January 25-29, 2010 in
New Delhi.
z India-European Free Trade Association
(EFTA): A broad based bilateral trade and
investment agreement is being negotiated with
EFTA Countires. First round of negotiations took
place in New Delhi in October 2008. Fourth round
of negotiations took place in New Delhi in
September 2009.
CHALLENGES AND OUTLOOK
7.89 The outlook for India’s trade sector in 2010
has brightened with prospects of recovery in world
output and trade volumes. The World Bank has
forecast real GDP growth rates of 2.7 per cent and
7.5 per cent for the world and India respectively for
2010 and growth in world trade volume of 4.3 per
cent and 6.2 per cent in 2010 and 2011 respectively.
The International Monetary Fund (IMF) projections
are a tad better than the World Bank estimates,
with projections of output growth for the world and
India at 3.9 per cent and 7.7per cent respectively.
The world trade volume growth projections are also
higher at 5.8 per cent and 6.3 per cent in 2010 and
2011 respectively. This is a remarkable improvement
compared to the fall in world trade volumes by 12.3
International Trade 177
per cent in 2009. While the gap between the projected
output growth for advanced economies (at 2.1 per
cent and 2.4 per cent for 2010 and 2011 respectively)
and emerging and developing economies (at 6.0 and
6.3 per cent in 2010 and 2011 respectively) is rather
high, it is substantially narrower in projections of
import volume of goods and services of advanced
economies (at 5.5 per cent both for 2010 and 2011)
and emerging and developing economies (at 6.5 and
7.7 per cent in 2010 and 2011 respectively).
7.90 The Baltic Dry Index which fell to a low of 774
in December 2008 has recovered since then, with a
continuous upward trend, though with sudden ups
and downs reaching 3887 in November 2009 and
falling marginally to 3118 in January 2010. The
extraordinary financial stimulus by different countries,
a turn in the inventory cycle and the lead by
developing and emerging economies, particularly
India and China, with strong fundamentals have all
contributed to the recovery, which is now considered
to pick up, albeit at a slow pace. The latest import
growth figures (December 2009) of some trading
partners of India though operating from a lower base,
are also encouraging, with growth of China’s imports
from the world and India at 55.6 per cent and 71 per
cent respectively. Growth in Hong Kong’s imports
from the world has turned positive at 19.3 per cent
and from India, highly positive at 58.5 per cent.
Japan’s import growth rate from the world is less
negative at (-) 4.1 percent, while growth in its imports
from India has turned positive at 3 per cent. Even in
the case of the USA, which is still registering negative
import growth, the extent of negative growth has
become less, with imports from the world and India
growing at (-)3.1 and (-) 10 per cent respectively in
November 2009.
7.91 The downside risks for world and Indian trade
lie in the fact that though the fall has been arrested,
both output and trade recoveries are still fragile given
the fact that the recovery has been pumped up by
the stimulus given by different countries including
India, the effects of which may dry up if natural
recovery doesn’t follow. There is also the fact that
the early signs of pick up in output, industrial and
trade growth in India and other countries, are due to
the low base and are even lower than the absolute
values of the pre-crisis period. The high
unemployment rates in some developed countries
forcing even world leaders like the USA to resort to
protectionist measures, as in the case of the recent
tax breaks for companies giving jobs in the US, could
give wrong signals.
178 Economic Survey 2009-10
7.92 India which has admirably weathered the
present economic crisis, however, need not be unduly
worried. Instead it could lead from the front by taking
bold steps towards reforms as it did in 1991 on the
back of the balance-of- payments crisis, and thus
force the wavering leaders of liberalization and
globalization not to backtrack.
7.93 In the Indian case, while in the short-term relief
and stimulus measures have worked, some
fundamental policy changes are needed. For the
merchandise sector these include furthering tariff
reforms by lowering the peak duties from the present
10 per cent to 7.5 per cent (which has already been
attained in value terms though not in terms of number
of tariff lines) by tweaking the rates in the dominant
intermediate goods category of imports besides
capital goods; weeding out unnecessary customs
duty exemptions and streamlining export promotion
schemes to reduce duty foregone which could
include reduction of tariffs on all capital goods to a
uniform 3 per cent while simultaneously withdrawing
the EPCG Scheme; further reduction in excise duties
to make exports and industry competitive; giving
special attention to export infrastructure along with
rationalization of port service charges based on
services rendered by ports in tune with our competing
countries; rationalizing the tax structure including
specific duties in a calibrated manner taking into
account the specific duty levels in our trading partner
countries; fine tuning the trade strategy by targeting
exports of dynamic products to developed markets
and employment-intensive non-dynamic products to
developing country markets; and continuing with our
proactive role in multilateral trade negotiations while
taking care of livelihood concerns and the needs of
the domestic sector.
7.94 In the case of the services sector, a more
conducive environment for trade can be created by
liberalizing FDI in services like health insurance, rural
banking and higher education as FDI inflows and
trade in services have a close relationship given the
nature of intra-firm trade of multinational parent firms
with affiliates; making FDI policy available in a user-
friendly manner on the official website; rationalizing
taxes in services like shipping and telecom along
with facilitation measures like single returns for
service tax and excise tax administered by the same
department; continuing with the present initiative on
totalization agreements; streamlining many of our
domestic regulations like licensing requirements and
procedures, technical standards and regulatory
transparency which can help in the growth and export
of services; continuing with our focus on services in
multilateral and bilateral negotiations; and negotiating
for streamlining of domestic regulations in our major
trading partner countries which can increase our
market access. These, along with systematic
marketing of services, collection and dissemination
of market information by setting up a portal for
services and streamlining the services data system,
could help the services sector in making further
strides.
Agriculture and Food
Management
8
CHAPTER

G ood monsoon between 2005-06 and 2008-09 and the efforts of our farmers led to
consistent increase in food production during the period and a record production of
233.88 million tonnes of foodgrains in 2008-09. Notwithstanding the fact that the
south-west monsoon was the most deficient since 1972, by 23 per cent compared to
the long period average (LPA), the overall agricultural gross domestic product (GDP)
is estimated to have fallen by only 0.2 per cent in 2009-10 (advance estimates) as
against the previous years growth rate of 1.6 per cent. Foodgrain area sown in
kharif season declined by 6.5 per cent compared to last year and food production is
expected to be short by 16 per cent compared to the fourth advance estimates of
2008-09. Rising food prices, spurred by expectations of shortfall in food production,
have brought the issues of food security, food stocks management and need for
improving food production and productivity to the forefront of national strategy.

8.2 Agriculture including crop and animal security. Agriculture provides significant support for
husbandry, fisheries, forestry and agro processing economic growth and social transformation of the
provides the underpinnings of our food and livelihood country. As one of the world’s largest agrarian

Table 8.1 : Agriculture sector: Key indicators at constant prices (2004-05) in per cent
Item 2007-08 2008-09
1 Growth in GDP in Agriculture & Allied Sectors 4.7 1.6
Agriculture 5.0 1.1
Forestry and Logging 2.2 2.9
Fishing 6.0 6.3
2 Share in GDP - Agriculture and Allied Sectors 16.4 15.7
Agriculture 13.9 13.2
Forestry and Logging 1.7 1.7
Fishing 0.8 0.8
3 Share of Agriculture & Allied Sectors in total GCF. 7.01 9.05
Agriculture 6.43 8.39
Forestry and Logging 0.07 0.09
Fishing 0.51 0.58
4 Share of Agricultural Imports in Total Imports at Current Prices 2.95 2.74
Share of Agricultural Exports in Total Exports at Current Prices 12.05 10.23
5 Employment in the agriculture Sector as Share of
Total Employment in 2004-05 as per CDS 52.1
Source : Central Statistical Organization (CSO) and Department of Agriculture and Cooperation.
Notes : GCF—gross capital formation; CDS—current daily status.
180 Economic Survey 2009-10

economies, the agriculture sector (including allied
activities) in India accounted for 15.7 per cent of the
GDP (at constant 2004-05 prices), in 2008-09,
compared to 18.9 per cent in 2004-05, and
contributed approximately 10.2 per cent of total
exports during 2008-09. Notwithstanding the fact that
the share of this sector in the GDP has been
declining over the years, its role remains critical as
it provides employment to around 52 per cent of the
workforce. The rates of growth and share of agriculture
and allied activities in the GDP of the country are
given in Table 8.1.
that it has consistently declined in real terms (at
1999-2000 prices) from the Sixth Plan to the Ninth
Plan (Sixth Plan [1980-85]—Rs 64,012 crore,
Seventh Plan [1985-90]—Rs 52,108 crore, Eighth
Plan [1992-97]—Rs 45,565 crore and Ninth Plan
[1997-2002]—Rs 42,226 crore). However, this trend
was reversed in the Tenth Plan (2002-07) and public
investment in agriculture registered an increase of
Rs 25, 034 crore and stood at Rs 67,260 crore, which
is a positive and welcome trend. Investment in
agriculture and allied sector since 2004-05 is given
in Table 8.2.

8.4 The GCF in agriculture and allied sectors as

GROSS CAPITAL FORMATION IN
AGRICULTURE AND ALLIED SECTORS
8.3 The public investment in agriculture in real
terms has witnessed steady decline from the Sixth
Five Year Plan to the Tenth Plan. Trends in public
investment in agriculture and allied sectors reveal
a proportion of total GDP stood at 2.66 per cent in
2004-05 and improved to 3.34 per cent in 2008-09.
Similarly, the GCF in agriculture & allied sectors
relative to GDP in this sector has also shown an
improvement from 14.07 per cent in 2004-05 to 21.31
per cent in 2008-09 (Table 8.3).

Table 8.2 : Public and Private Investment in Agriculture & Allied Sector at 2004-05 Prices
Year Investment in agriculture & allied Share in total
sectors (Rs crore) investment (per cent)

Total Public Private Public Private

2004-05 78,848 161,83 62,665 20.5 79.5

2005-06 93,121 199,09 73,211 21.4 78.6
2006-07 94,400 22,978 71,422 24.3 75.7
2007-08 1,10,006 23,039 86,967 20.9 79.1
2008-09 1,38,597 24,452 1,14,145 17.6 82.4

Source : CSO.

Table 8.3 : Gross capital formation in agriculture in Rs crore at 2004-05 prices

Year GDP Agriculture & allied GCF/GDP in GCF in
activities agriculture & agriculture as
GCF GDP allied per cent of
activities total

2004-05 29,67,599 78,848 5,60,308 14.07 2.66

2005-06 32,49,130 93,121 5,89,697 15.79 2.87
2006-07 35,64,627 94,400 6,11,409 15.44 2.65
2007-08 38,93,457 1,10,006 6,40,315 17.18 2.83
2008-09 41,54,973 1,38,597 6,50,461 21.31 3.34
Source : CSO.
 Agriculture and Food Management 181
Table 8.4 : Foodgrain production (million tonnes)
2007-08 2008-09
Crop Final Targets Fourth Percentage Percentage
advance increase (+) increase (+)
estimates decrease(-) decrease (-)
over final vis-à-vis target
2007-08 for 2008-09

1 Rice 96.69 97.0 99.15 2.5 2.2

2 Wheat 78.57 78.5 80.58 2.6 2.6
3 Coarse Cereals 40.76 42.0 39.48 -3.1 -6.0
4 Cereals 216.02 217.5 219.21 1.5 0.8
5 Total Pulses 14.76 15.5 14.66 -0.7 -5.4
6 Total Foodgrains 230.78 233.0 233.88 1.3 0.4
Source : Department of Agriculture & Cooperation.

Table 8.5 : Production of commercial crops

Crop Units 2007-08 2008-09
Final Targets Fourth Per cent Per cent
advance increase increase
estimates over vis-a vis
2007-08 target
Total Nine Oilseeds Lakh tonnes 297.55 317.50 281.57 -5.4 -11.3
Sugarcane Lakh tonnes 3,481.88 3,400.00 2,739.31 -21.3 -19.4
Cotton # Lakh bales 258.84 260.00 231.56 -10.5 -10.9
Jute & Mesta## Lakh bales 112.11 110.00 104.07 -7.2 -5.4
Source : Department of Agriculture & Cooperation. # bales of 170 kgs each ## bales of 180 kgs.

CROP PRODUCTION 2008-09 estimates (kharif only) for 2009-10, production of

8.5 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 (Table 8.4).
However, the production of major commercial crops
(oilseeds, sugarcane, cotton, jute and mesta)
declined in 2008-09 compared to 2007-08 levels
(Table 8.5)
CROP PRODUCTION 2009-10
8.6 Deficiency in rainfall in the south-west
monsoon season during 2009, particularly in July
and August, severely affected kharif crops, especially
paddy. The recovery of monsoon in September and
post-monsoon (October-December) cumulative
rainfall of 8 per cent above normal protected the kharif
crops to some extent and improved the prospects of
rabi crops in 2009-10. As per the first advance
foodgrains is estimated at 98.83 million tonnes which
is lower than the target of 125.15 million tonnes set
for the year as also lower than the fourth advance
estimates (kharif only) of 117.70 million tonnes for
2008-09.
Rice
8.7 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.
Coarse Cereals
8.8 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.
Cereals
8.9 The overall production of kharif cereals in 2009-
10 is expected to decline by 18.51 million tonnes
over 2008-09.
182 Economic Survey 2009-10

Pulses Table 8.6 : Compound growth rates of

8.10 Total production of kharif pulses is estimated area, production and yield
at 4.42 million tonnes in 2009-10, which is 8 per (as % per annum with Base T.E 1981-82=100)
cent lower than the production during 2008-09 and Growth 1949-50 to 1967-68 to
32 per cent lower than the targeted production for rates 1964-65 2008-09*
2009-10. Rice
Area 1.21 0.50
Oilseeds Production 3.50 2.46
8.11 Total kharif production of the nine oilseeds is Yield 2.25 1.99
estimated at 152.33 lakh tonnes in 2009-10, which Wheat
is about 15 per cent lower than the kharif production Area 2.69 1.20
in 2008-09. Production 3.98 3.69
Yield 1.27 2.46
Sugarcane Coarse Cereals
8.12 Sugarcane production in 2009-10 is estimated Area 0.90 -1.41
at 249.48 million tonnes, which is lower than the Production 2.25 0.67
production of 273.93 million tonnes during 2008-09. Yield 1.23 1.99
This represents a decline of 9 per cent over the Pulses
previous year and 27 per cent vis-à-vis the targeted Area 1.72 0.01
production for 2009-10. Production 1.41 0.75
Yield -0.18 0.72
Cotton Sugarcane
8.13 Cotton production in 2009-10 is estimated at Area 3.28 1.69
236.57 lakh bales (of 170 kg each), which is higher Production 4.26 2.64
than the fourth advance estimates of 231.56 lakh Yield 0.95 0.94
bales in 2008-09 by 2.2 per cent. Cotton
Area 2.47 0.42
Jute and Mesta Production 4.55 3.06
8.14 The production of jute and mesta is estimated Yield 2.04 2.63
at 102.43 lakh bales (of 180 kg each) in 2009-10. Nine Oilseeds
This is lower than the targeted production of 112.00 Area 2.53 1.44
lakh bales and also lower than the 104.07 lakh bales Production 3.12 3.16
produced in 2008-09. Yield 0.00 1.69
Source : Department of Agriculture & Co-operation.

GROWTH RATES OF AREA,
PRODUCTION AND YIELD
8.15 Growth in production of agricultural crops
depends upon acreage and yield. Limitations of
expansion in agricultural land suggest multiple
cropping as a means to increase the gross cropped
area. It is clear that the main source of long-term
output growth can only be improvement in yields.
Trends in indices of area, production and yield of
different crops till 2008-09 (Base triennium ending
1981-82=100) are given in Table 8.6. Trends in area
and production are given in Figure 8.1.
Rice
8.16 The compound growth index of rice yield has
shown a growth of 1.9 per cent per annum during
2001-08 compared to the 1990s leading to an
Note: *Growth rates are based on fourth advance
estimates for 2008-09.
increase in growth in production. However, the index
of area under rice shows negative growth during the
above period.
Wheat
8.17 The area under wheat that was around 25
million ha in 2002-03 increased to 26.4 million ha in
2005-06 and further to 28 million ha in 2008-09. The
compound growth indices of area, production and
yield during 1991-2000 and 2001-08 have shown
perceptible decline.
Coarse Cereals
8.18 Growth in index of area during 2001-08
improved compared to the 1990s. The growth index
 Production (Million Tonnes) Production (Million Tonnes) Production (Million Tonnes) Production (Million Tonnes)

25
27
29
31
33
35
37
39
41
65
70
75
80
85
90
95
100
105
65
70
75
80
85
160
170
180
190
200
210
220
230
240
Figure 8.1

2000-01 2000-01 2000-01 2000-01

8.1D
8.1C
8.1A

8.1B
2001-02 2001-02 2001-02
2001-02

Rice
Wheat
2002-03 2002-03 2002-03
2002-03
Food Grains

Coarse Cereals
2003-04 2003-04 2003-04

2003-04

2004-05 2004-05 2004-05

Year
Year
Year
Year

2004-05

2005-06 2005-06 2005-06

Area and production of principal crops

2005-06
2006-07 2006-07 2006-07

2006-07
2007-08 2007-08 2007-08

2007-08 2008-09 2008-09 2008-09

27
28
29
30
31
39
40
41
42
43
44
45
46
47
25
26
27
28
29
111
113
115
117
119
121
123
125
127

Area (Million Hectares) Area (Million Hectares) Area (Million Hectares) Area (Million Hectares)
Agriculture and Food Management

Area
Area
Area
Area

Production
Production
Production
Production
183
 Production (Lakh Bales Production (Lakh Tonnes) Production (Lakh Tonnes) Production (Million Tonnes)
184

of 170 Kg each)

75
100
125
150
175
200
225
250
275
2000
2250
2500
2750
3000
3250
3500
3750
4000
140
160
180
200
220
240
260
280
300
11
12
13
14
15
Figure 8.1

2000-01 2000-01 2000-01 2000-01

8.1F

8.1G
8.1E

8.1H
2001-02 2001-02 2001-02 2001-02

Cotton
Pulses

2002-03 2002-03 2002-03 2002-03

Sugarcane
Economic Survey 2009-10

Nine Oilseeds
2003-04 2003-04 2003-04 2003-04

2004-05 2004-05 2004-05 2004-05

Year
Year
Year
Year

2005-06 2005-06 2005-06 2005-06

Area and production of principal crops

2006-07 2006-07 2006-07 2006-07

2007-08 2007-08 2007-08 2007-08

2008-09 2008-09 2008-09 2008-09

21
22
23
24
25
26
27
28
29
20
21
22
23
24

7.5
8.0
8.5
9.0
9.5
3.7
3.9
4.1
4.3
4.5
2.7
4.9
5.1
5.3

Area (Million Hectares) Area (Million Hectares) Area (Million Hectares) Area (Million Hectares)

Area
Area
Area
Area

Production
Production
Production
Production
 Agriculture and Food Management 185
of yield increased significantly, leading to an increase pesticides, micronutrients and irrigation. Each of
in growth in production. these plays a role in determining yield level and in
turn augmentation in the level of production.
Pulses
8.19 Gram and tur are the major contributors to Seeds
total pulses production in the country. During 2000-
8.25 Seeds, which are considered the carriers of
01 to 2008-09, there has been improvement in the
new technology for crop production and higher crop
growth indices of area and yield in tur and index of
yields, are a critical input for sustained growth of
area in gram resulting in increase in the growth of
agriculture. In India more than four-fifths of the farmers
production.
rely on farm-saved seeds leading to a low seed
Sugarcane replacement rate. The Indian Seed Programme
includes the participation of Central and State
8.20 The compound growth rate index of area under
Governments, the Indian Council of Agricultural
sugarcane increased significantly during 2001-08.
Research (ICAR), State Agricultural Universities, the
However, the growth index of yield moderated but
cooperative and private sectors. There are 15 State
remained positive.
Seed Corporations besides two national-level
Cotton corporations, namely National Seeds Corporation
and State Farms Corporation of India. Year-wise
8.21 The yield of cotton went up from 307 kg/ha in
details of production of breeder and foundation seeds
2003-04 to 419 kg/ha in 2008-09 (fourth advance
and distribution of certified seeds are given in Table
estimates). The compound growth rate index of yield
8.7.
increased significantly from - 0.41 per cent during
the1990s to 13.64 per cent during 2001 to 2008.
However, the growth in index of area moderated but Table 8.7 : Production of breeder and
remained positive. The combined effect on the index foundation seeds and distribution of
of production was an increase in growth from 2.29 certified seed
per cent during the 1990s to 15.48 per cent during Production of Production of
2001-08. Year breeder foundation Distribution
seeds seeds of certified/
Oilseeds (quintals) (lakh quality seeds
quintals) (lakh quintals)
8.22 The growth in indices of yield and area under
oilseeds has shown perceptible improvement during 2004-05 66,460 6.9 113.10
2001-08 compared to the 1990s. 2005-06 68,654 7.4 126.74
2006-07 73,829 7.96 155.01
AREA COVERAGE 2009-10 2007-08 91,960 8.22 179.05
8.23 The area coverage of 667.84 lakh ha under 2008-09 1,00,000 9.69 190.00
total foodgrains during kharif 2009-10 compared to (Anticipated) (Anticipated) (Anticipated)
714.02 lakh ha during kharif 2008-09 shows a decline Source : Department of Agriculture & Cooperation.
of 46.18 lakh ha. The area coverage under kharif rice
during 2009-10 is around 361.62 lakh ha, which is
44.85 lakh ha less than the 406.47 lakh ha during 8.26 The Ministry of Agriculture is implementing the
kharif 2008-09. The area coverage under oilseeds Central-sector Development and Strengthening of
during kharif 2009-10 is 175.19 lakh hectares, which Infrastructure Facilities for Production and
is lower by 9.49 lakh ha than kharif 2008-09. The Distribution of Quality Seeds scheme. The aim of
area coverage under sugarcane during the current the scheme is to make quality seeds of various crops
year is 41.78 lakh ha, which is also lower by about available to farmers timely and at affordable price.
2.18 lakh ha than that in the previous year. Under this scheme, the seed component of the
Prime Minister’s Relief Package is being
implemented in 31 suicide-affected districts of
AGRICULTURAL INPUTS Maharashtra, Andhra Pradesh, Karnataka and
8.24 Improvement in yield, which is key to long- Kerala, to supply certified seeds at 50 per cent of
term growth, depends on a host of factors including seed cost. During the year 2008-09, Rs 445.81 crore
technology, use of quality seeds, fertilizers, was released under the Prime Minister’s Relief
186 Economic Survey 2009-10
Package. The scheme is being implemented on all -
India basis from the year 2005-06. The major thrusts
under the scheme are on improving quality of farm-
saved seeds through Seed Village Programmes to
enhance seed replacement rate, boosting seed
production in the private sector and helping public-
sector seed companies to contribute to enhancing
seed production. Some of the remarkable
achievements under the scheme during 2008-09 were
that more than 25,000 seed villages were organized
across the country; certified/quality seed production
increased from 194.31 lakh quintals during 2006-07
to 250.35 lakh quintals during 2008-09; 52 seed
infrastructure development proposals were
sanctioned for boosting seed production in the private
sector; and financial sanctions were given for
establishing tissue culture facilities in Orissa
(banana) and Maharashtra (pomegranate). Further,
Biotech Consortium of India Limited (BCIL) was
engaged as an expert agency to undertake public
awareness programmes in nine BT cotton- growing
States at State capital, district and tehsil levels. The
BCIL has been provided financial assistance of Rs
26.65 lakh during the year 2008-09.
8.27 The Protection of Plant Varieties and Farmers’
Rights (PPV&FR) Authority, established in November
2005 at the National Agricultural Science Complex
(NASC), New Delhi, has been mandated to
implement provisions of the PPV&FR Act 2001.
Fourteen crops, namely rice, wheat, maize,
sorghum, pearl millet, chick pea, pegion pea, green
gram, black gram, lentil, field pea, kidney bean,
cotton and jute were notified for the purpose of
registration under the Act. There are plans to extend
its operations and coverage to forestry and aromatic
and medicinal plants.
8.28 Considering the vital importance of the seeds
sector in promoting agricultural growth, it is proposed
to replace the existing Seeds Act 1966 by suitable
legislation. The new Act is expected to (i) create a
facilitative climate for growth of the seed industry,
(ii) enhance seed replacement rates for various
crops, (iii) boost the export of seeds and encourage
import of useful germ plasm and (iv) create a
conducive atmosphere for application of frontier
sciences in varietal development and for enhanced
investment in research and development (R&D). The
Seeds Bill was introduced in the Rajya Sabha in
2004. It was referred to the Parliamentary Standing
Committee on Agriculture which recommended
several modifications in 2008. These would be taken
up for consideration by Parliament.
Fertilizers
8.29 Chemical fertilizers have played a significant
role in the development of the agricultural sector. The
per hectare consumption of fertilizers in nutrients terms
increased from 105.5 kg in 2005-06 to 128.6 kg in
2008-09. However, improving the marginal productivity
of soil still remains a challenge. This requires increased
NPK application and application of proper nutrients,
based on soil analysis. Fertilizer consumption for the
last five years is given in Table 8.8.
8.30 The Government has taken a number of
measures to improve fertilizer application in the
country. A new scheme, the 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. In order to ensure adequate
availability of fertilizers of standard quality to farmers
and to regulate trade, quality and distribution in the
country, 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. The procedure for incorporation
of new products has been liberalized and simplified
to encourage manufacture and use of fortified
fertilizers. 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. 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.
Table 8.8 : Fertilizer consumption in nutrient
terms during 2005-06 to 2009-10
(in lakh tonnes)
Product 2005 2006 2007 2008 2009-10
-06 -07 -08 -09 (only
kharif*)
Nitrogenous (N) 127.23 137.73 144.19 150.90 74.86
Phosphatic (P) 52.04 55.43 55.15 65.06 41.32
Potassic (K) 24.13 23.35 26.36 33.13 16.07
Total (N+P+K) 203.40 216.51 225.70 249.09 132.25
Per ha Con-
sumption (kg) 105.5 111.80 116.80 128.6 -
Source : Department of Fertilizers.
Note : *Estimated

Irrigation
8.31 Irrigation is one of the most important critical
inputs for enhancing the productivity that is required
at different critical stages of plant growth of various
crops for optimum production. The Government of
India has taken up irrigation potential creation through
public funding and is assisting farmers to create
potential on their own farms. Substantial irrigation
potential has been created through major and medium
irrigation schemes. The total irrigation potential in
the country has increased from 81.1 million ha in
1991-92 to 102.77 million ha by March 2007.
8.32 The Central Government initiated the
Accelerated Irrigation Benefit Programme (AIBP)
from 1996-97 for extending assistance for the
completion of incomplete irrigation schemes . Under
this programme, projects approved by the Planning
Commission are eligible for assistance. Further, the
assistance, which was entirely a loan from the
Centre in the beginning, was modified by inclusion
of a grant component with effect from 2004-05. AIBP
guidelines were further modified in December 2006
to provide enhanced assistance at 90 per cent of
the project cost as grant to special category States,
Drought Prone Area Programme (DPAP) States/tribal
areas/flood-prone areas and Koraput-Balangir-
Kalahandi (KBK) districts of Orissa. Under the AIBP,
Rs 34,783.7823 crore of Central Loan Assistance
(CLA)/grant has been released up to March 31, 2009.
An additional irrigation potential of 54.858 lakh ha
has been created under the AIBP up to March 2009.
As on March 31, 2009, 268 projects have been
covered under the AIBP and 109 completed.
RAINFALL AND RESERVOIR STORAGE
Rainfall
8.33 Rainfall greatly influences crop production and
productivity in a substantial way. More than 75 per
Table 8.9 : South-west monsoon season (June to September 2009) rainfall
Region Actual (mm) LPA(mm)
All-India 689.9
North-west India 392.1
Central India 795.4
Southern Peninsula 692.9
North-east India 1,037.7 1,427.3
Source: Indian Meteorological Department.
Agriculture and Food Management 187
cent of annual rainfall is received during the south-
west monsoon season (June-September). During
winter (January-February) of 2009, the country as a
whole received 46 per cent less rainfall than the LPA.
In the pre-monsoon period of 2009 (March-May),
rainfall was 32 per cent below the LPA. During the
south-west monsoon season of 2009, the country
as a whole received 23 per cent less rainfall than the
LPA. Central India, north-east India, north-west India
and the southern peninsula experienced 20 per cent,
27 per cent, 36 per cent and 4 per cent deficient
rainfall respectively. At district level, 9 per cent of
districts received excess rainfall, 32 per cent normal
rainfall, 51 per cent deficient rainfall and 8 per cent
scanty rainfall. South-west monsoon (June-
September, 2009) rainfall for the country as a whole
and the four broad geographical regions is given in
Table 8.9.
8.34 Out of 36 subdivisions, 23 recorded deficient
rainfall during the south-west monsoon in 2009. Out
of the remaining 13 subdivisions, only three recorded
excess rainfall and the remaining 10 normal rainfall.
Out of 526 meteorological districts for which data
are available, 215 (41 per cent) received excess/
normal rainfall and the remaining 311 (59 per cent)
received deficient/scanty rainfall during the season
(Table 8.10).
8.35 During the post-monsoon season (October-
December) of 2009, the country as a whole has
received 8 per cent above normal rainfall.
Reservoir storage status
8.36 The total designed storage capacity at full
reservoir level (FRL) of 81 major reservoirs in the
country monitored by the Central Water Commission
(CWC) is 151.77 billion cubic metres (BCM). At the
end of monsoon 2009, the total water availability in
these reservoirs was 90.48 BCM which is less than
the water availability of 113.74 BCM at the end of
Actual per Coefficient of variation(CV)
cent of LPA per cent of LPA
892.5 77 10
611.7 64 19
995.1 80 14
722.5 96 15
73 8
188 Economic Survey 2009-10

Table 8.10 : Monsoon performance 2001 to 2009 (June – September)

Year Number of meteorological subdivisions Percentage of Percentage
Normal Excess Deficient/ districts with of LPA
scanty normal/ rainfall
excess for the country
rainfall as a whole
2001 29 1 5 67 92
2002 14 1 21 39 81
2003 26 7 3 77 102
2004 23 0 13 56 86
2005 23 9 4 72 99
2006 20 6 10 60 99
2007 17 13 6 72 105
2008 30 2 4 76 98
2009 10 3 23 41 77
Source : India Meteorological Department.
Note: Excess= +20 per cent or more of LPA; Normal=+19 per cent to –19 per cent of LPA;
Deficient= -20 per cent to –59 per cent of LPA; Scanty= -60 per cent to –99 per cent of LPA.

Table 8.11 : Reservoir storage (at the end of the monsoon season)
Average of last
Item 2009 2008 10 years
Storage % of Storage % of Storage % of
in BCM FRL in BCM FRL in BCM FRL
At the beginning of the monsoon 17.50 12 29.24 19 21.02 14
season(as on June 4, 2009)
At the end of the monsoon season 90.48 60 113.74 75 100.95 67
(as on October 1, 2009)
Increase in Storage 72.98 48 84.50 56 79.93 53
Source : Central Water Commission

the monsoon in 2008 and the 100.95 BCM which is
the average of the last 10 years (Table 8.11).
PRICE POLICY FOR AGRICULTURAL
PRODUCE
8.37 The Government’s price policy for agricultural
commodities seeks to ensure remunerative prices
to the growers for their produce with a view to
encouraging higher investment and production, and
to safeguard the interests of consumers by making
supplies available at reasonable prices. The price
policy also seeks to evolve a balanced and integrated
price structure in the perspective of the overall needs
of the economy. Towards this end, the Government
announces minimum support prices (MSPs) each
season for major agricultural commodities and
organizes purchase operations through public and
cooperative agencies. The designated Central nodal
agencies intervene in the market to undertake
procurement operations with the objective of ensuring
that market prices do not fall below the MSPs fixed
by the Government.
8.38 The Government decides the support prices
for various agricultural commodities after taking into
account the recommendations of the Commission
for Agricultural Costs and Prices (CACP), the views
of State Governments and Central Ministries as well
as such other relevant factors as considered
important for fixation of support prices. The
Government has fixed the MSPs of 2009-10 kharif
and rabi crops. The MSPs for paddy (common) and
paddy (Grade A) have been raised by Rs 100 per
quintal and fixed at Rs 950 per quintal and Rs 980
per quintal respectively. An incentive bonus of Rs 50
per quintal is also payable over and above the MSP
of paddy. The MSP of arhar (tur) has been raised
over the 2008-09 level by Rs 300 per quintal and
fixed at Rs 2,300 per quintal while that of moong
 Agriculture and Food Management 189
Table 8.12 : Minimum support prices
(Rs. per quintal)
Commodity MSP 2009-10 (crop year) Commodity MSP 2009-10 (crop year)
Kharif crops Rabi crops

Paddy (common) 950 + Rs. 50 per Wheat 1,100

quintal bonus
Paddy (Gr.A) 980 + Rs. 50 per Gram 1,760
quintal bonus
Jowar (Malindi) 860 Masur (lentil) 1,870
Maize 840 Rapeseed / mustard 1,830
Arhar (Tur) 2,300 Barley 750
Moong 2,760 Other crops
Cotton (F-414/H-777/J34) 2,500a Sugarcane 129.84b
Groundnut in shell 2,100
Source: Department of Agriculture & Cooperation.
Notes: a staple length (mm) of 24.5-25.5 and Micronaire value of 4.3-5.1;
b Fair and Remunerative Price.

has been raised by Rs 240 per quintal and fixed at
Rs 2,760 per quintal. The MSP of sesamum has
been fixed at Rs 2,850 per quintal, raising it by
Rs 100 per quintal. The MSPs of other kharif crops
have been retained at their 2008-09 levels. The MSP
of wheat has been raised to Rs 1,100 per quintal
from Rs 1,080 per quintal and of barley to Rs 750
per quintal from Rs 680 per quintal. The MSPs of
gram and safflower have been raised by Rs 30 per
quintal each. The MSPs of masur and rapeseed/
mustard have been retained at their previous year’s
levels of Rs 1,870 per quintal and Rs1,830 per quintal
respectively (Table 8.12).
Price Support Scheme (PSS)
8.39 The Department of Agriculture & Cooperation
is implementing the Price Support Scheme (PSS)
for procurement of oilseeds and pulses through the
National Agricultural Cooperative Marketing
Federation of India Limited (NAFED), which is the
Central nodal agency, at the MSP declared by the
Government. NAFED is also the Central agency for
procurement of cotton under the PSS in addition to
the Cotton Corporation of India (CCI). NAFED
undertakes procurement of oilseeds, pulses and
cotton under the PSS as and when prices fall below
the MSP. Procurement under the PSS is continued
till prices stabilize at or above the MSP
8.40 During 2009-10 (up to January 4, 2010) NAFED
has procured 64,802 metric tonnes of various oilseeds
costing Rs 278.07 crore under the PSS (Table 8.13).
Market Intervention Scheme (MIS)
8.41 The Department of Agriculture & Cooperation
implements the MIS on the request of State/Union

Table 8.13 : Procurement made by NAFED under the PSS during 2009-10
(up to January 4, 2010)
Sl. Commodity Crop season MSP Quantity procured Value
No. (Rs per quintal) (in metric tonnes) (in Rs lakh)

1. Ball Copra Season -2009 4,700 1,250 638.38

2. Milling Copra Season -2009 4,450 47,916 23,200.92
3. AP Copra Season -2009 3,900 510 219.30
4. Cotton Kharif-2009-10 2,850 & 3,000 1,408 405.37
5. Sunflower Seed Kharif -2009-10 2,215 13,718 3,343.08
TOTAL 64,802 27,807.05
Source: Department of Agriculture & Cooperation.
190 Economic Survey 2009-10
Territory (UT) Governments for procurement of
agricultural and horticultural commodities that are
generally perishable in nature and not covered under
the PSS. The MIS is implemented in order to protect
the growers of these commodities from having to
make distress sales. In the event of a bumper crop
and glut in the market, prices tend to fall below
economic levels/cost of production. Procurement
under the MIS is made by NAFED as the Central
agency and by State-designated agencies.
8.42 During 2009-10, the rates of most of the
horticultural crops ruled to the benefit of growers.
Thus only a couple of proposals were received, one
from the Government of Karnataka for procurement
of arecanut and another from the Government of
Mizoram for procurement of passion fruit.
PROGRESS OF AGRICULTURE-SECTOR
SCHEMES/PROGRAMMES
8.43 Agriculture being a state subject, State
Governments have an important role and
responsibility for increasing agriculture production,
enhancing productivity and exploring the vast
untapped potential of the sector. Simultaneously,
the Central Government must supplement the efforts
of State Governments and a number of Centrally
sponsored and Central-sector schemes are being
implemented for the enhancement of agricultural
production and productivity in the country, and to
increase the income of the farming community.
(i) Macro Management
8.44 The Macro Management of Agriculture
Scheme (MMA) was formulated in 2000-01, by
bringing together under one umbrella 27 Centrally
sponsored schemes relating to cooperatives, crop
production programmes, watershed development
programmes, horticulture, fertilizer, mechanization
and seeds. The Scheme has been revised during
2008-09 to improve its efficacy in supplementing/
complementing the efforts of the States towards
enhancement of agricultural production and
productivity. The role of the Scheme has been
redefined to avoid overlapping and duplication of
efforts and to make it more relevant to the present
agricultural scenario in the States in order to achieve
the basic objective of food security and to improve
the livelihood system for rural masses. The Revised
MMA comprises 10 sub-schemes relating to crop
production and natural resource management.
Some of the salient features of the revised Scheme
are:
z the practice of allocating funds to States/UTs on
historical basis has been replaced by new
allocation criteria based on gross cropped area
and area under small and marginal holdings;
z assistance is provided to the States/UTs as 100
per cent grant;
z the subsidy structure has been rationalized to
make the pattern of subsidy uniform under all the
schemes implemented by the Department of
Agriculture & Cooperation;
z the revised subsidy norms indicate the maximum
permissible limit of assistance. States may either
retain existing norms, or increase them to a
reasonable level provided that the norms do not
exceed the revised upper limits specified;
z two new components have been added, namely
(a) pulses and oilseeds crop production
programmes for areas not covered under the
Integrated Scheme of Oilseeds, Pulses, Oil palm
and Maize (ISOPOM) and (b) Reclamation of
Acidic Soil along with the existing component of
Reclamation of Alkali Soil;
z the permissible ceiling for new initiatives has been
increased from the existing 10 per cent to 20 per
cent of the allocation;
z at least 33 per cent of the funds is required to be
earmarked for small, marginal and women farmers;
z active participation of all tiers of the Panchayati
Raj institutions (PRIs) would have to be ensured
in the implementation of the Revised MMA
including review, monitoring and evaluation at
district/sub-district level.
(ii) National Food Security Mission (NFSM)
8.45 With a view to enhancing the production of
rice, wheat and pulses by 10 million tonnes, 8 million
tonnes and 2 million tonnes respectively by the end
of the Eleventh Plan, the Centrally sponsored NFSM
has been launched from the rabi 2007-08 season.
The three major components of the Mission are
NFSM-rice, NFSM-wheat and NFSM-pulses. The
Mission aims to increase production through area
expansion and productivity enhancement; restore soil
fertility and productivity; create employment
opportunities; and enhance the farm-level economy
to restore confidence of farmers. The NFSM is
presently being implemented in 312 identified
districts of 17 States of the country.

8.46 Focused and target-oriented technological
intervention under the NFSM has made significant
impact since its inception, reflected in the increase
in production of rice and wheat in 2008-09.
(iii) Rashtriya Krishi Vikas Yojana (RKVY)
8.47 The RKVY, a flagship scheme of the
Government in the agriculture and allied sectors was
launched in August 2007 to reorient current
agricultural development strategies to meet the needs
of farmers and rejuvenate the agricultural sector so
as to achieve 4 per cent annual growth during the
Eleventh Five Year Plan. The scheme has an
envisaged outlay of Rs 25,000 crore for the Plan
period in the form of Additional Central Assistance
(ACA). Funds to the tune of Rs 4,133.69 crore were
released to the States/UTs during 2007-08 and 2008-
09. For the current year, a sum of Rs 4,100.00 crore
has been allocated of which Rs 3,243.76 crore has
been released to the States by December 31, 2009.
Up to 83 per cent and 85.95 per cent of the
allocations for 2007-08 and 2008-09 respectively have
been utilized by the end of November 2009.
8.48 During 2008-09, the areas of focus in the
agriculture sector were seeds, fertilizers, IPM testing
laboratories, horticulture, farm mechanization,
extension, crops, marketing and cooperatives. A
welcome feature observed during 2008–09 was that
States have stepped up activities in the animal
husbandry, dairy and fisheries sectors. Further, about
25 per cent of the approved funds was earmarked for
projects related to these allied sectors. Besides
these, projects related to micro irrigation, agricultural
research, watershed and others were also approved.
8.49 Apart from the RKVY, there are many other
programmes and policies responsible for growth of
agriculture and allied sectors in the States; however,
the RKVY is expected to play a major role. The RKVY
also incentivizes States to allocate more for
agriculture and allied sectors in their plans. The
States have indeed stepped up allocation to
agriculture and allied sectors. Allocation to
agriculture and allied sectors was 5.11 per cent of
total State Plan Expenditure in 2006-07. This has
gone up to 5.84 per cent in 2008-09 (revised
estimates[RE]/Approved).
(iv) ISOPOM
8.50 The Ministry of Agriculture has restructured
oilseeds, pulses, oil palm and maize development
programmes into one Centrally Sponsored Integrated
Agriculture and Food Management 191
Scheme of Oilseeds, Pulses, Oil Palm and Maize
which is being implemented in 14 major States for
oilseeds and pulses, 15 States for maize and 8 States
for oil palm. About 75-80 per cent area of pulses is
already in the NFSM-Pulses districts under 14
States.
8.51 The Oil Palm Development Programme under
ISOPOM is being implemented in the States of
Andhra Pradesh, Karnataka, Tamil Nadu, Gujarat,
Goa, Orissa, Kerala, Tripura, Assam and Mizoram.
The year-wise targets and achievements for the period
2007-08, 2008-09 and 2009-10 in respect of area
coverage under oil palm through implementation of
the Oil Palm Development Programme are given in
Table 8.14.
Table 8.14 : Targets and achievements in area
coverage under oil palm through
implementation of the Oil Palm Development
Programme
Year Target (ha) Achievement (ha)
2007-08 29,580 21,330
2008-09 31,500 26,178
2009-10 16,711 9,594
(up to October 2009)
Source: Department of Agriculture & Cooperation.
8.52 The area under maize cultivation is 81.80 lakh
ha with production of 192.80 lakh tonnes in 2008-
09. About 90 per cent of the maize cultivated in kharif
is rainfed. Maize is cultivated mainly for food, fodder,
feed and industrial use. Under ISOPOM, the Maize
Development Programme is being implemented in
15 States, namely Andhra Pradesh, Bihar,
Chhatisgarh, Himachal Pradesh, Jammu &Kashmir,
Gujarat, Karnataka, Madhya Pradesh, Maharashtra,
Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar
Pradesh and West Bengal.
(v) National Rainfed Area Authority (NRAA)
8.53 The Government of India has also constituted
the NRAA to give focused attention to the problem
of rainfed areas of the country. The Authority is an
advisory, policymaking and monitoring body charged
with examining guidelines in various existing
schemes and in the formulation of new schemes
including all externally aided projects in this area.
Its mandate is wider than mere water conservation
and covers all aspects of sustainable and holistic
192 Economic Survey 2009-10
development of rainfed areas, including appropriate
farming and livelihood systems approaches. It would
also focus on issues pertaining to landless and
marginal farmers, since they constitute the large
majority of inhabitants of rainfed areas. The NRAA
has formulated common guidelines for the Watershed
Development Project and is in consultation with all
the States for its implementation as per instructions
contained in the guidelines.
(vi) Drought Management
8.54 During the year 2009-10, drought/scarcity/
drought-like situation has been declared in 334
districts by 14 State Governments. The States have
ready availability of funds under the Calamity Relief
Fund (CRF) for taking immediate necessary
measures in the wake of natural calamities including
drought. For natural calamities of severe nature, the
State Governments can seek additional assistance
from the National Calamity Contingency Fund
(NCCF), by submitting a detailed Memorandum with
relevant details. Several steps were taken to mitigate
the hardship being faced by the States due to the
drought situation. Some of the important measures
were:
z States were requested to prepare alternate plans
for unsown/germination-failed areas with short-
duration/alternate crops;
z The Diesel Subsidy Scheme was launched to
provide supplementary protective irrigation to
save the standing crops (50 per cent of the cost
of the subsidy with cap of Rs7.50/litre given by
the States was borne by the Central
Government);
z Use of Truthfully Labelled (TL) seeds, relaxation
of age for seed varieties and distribution of mini
kits were allowed under the NFSM, RKVY;
z Area-specific approach was adopted to achieve
higher production through provisioning of inputs
like fertilizers, credit and pest control measures
in areas with higher rainfall;
z Agricultural advisories for appropriate crop
programmes were telecast/broadcast through
the media for the benefit of farmers. Scientists
from ICAR institutions, Krishi Vigyan Kendras
(KVKs) as well as experts of the National Rainfed
Area Authority (NRAA) helped the States in their
efforts to counter the impact of deficit rainfall/
drought on agriculture;
z Zonal conferences and a Rabi Campaign
Programme with the State Governments were held
to enable formulation of an appropriate action plan
for the rabi season;
z Funds were made available under Centrally
sponsored programmes like the RKVY, NFSM,
NHM, MMA and ISOPOM to enable taking up of
an agricultural reconstruction programme.
ALLIED SECTORS
Horticulture
8.55 India is a major producer of fruits and
vegetables in the world. For the holistic development
of the horticulture sector, a Centrally sponsored
scheme called the National Horticulture Mission
(NHM) was launched in 2005-06. The objectives of
the Mission are to enhance horticulture production
and improve nutritional security and income support
to farm households and others through area-based
regionally differentiated strategies. All States and two
Union Territories (Andaman & Nicobar Islands and
Lakshadweep) are covered under the Mission except
the eight north-eastern States including Sikkim and
the States of Jammu & Kashmir, Himachal Pradesh
and Uttarakhand which are covered under the
Technology Mission for Integrated Development of
Horticulture in the North Eastern States (TMNE). At
present, 344 districts have been included under the
NHM. Crops such as fruits, spices, flowers, medicinal
and aromatic plants, plantation crops of cashew and
cocoa are included for area expansion, whereas
vegetables are covered through seed production,
protected cultivation, integrated nutrient
management/ integrated pest management (INM/
IPM) and organic farming. Under the scheme, 1,710
new nurseries have been set up, an additional area
of 8.26 lakh ha has been brought under various
horticultural crops and an area of 1.2 lakh ha of old
and senile plantations has been rejuvenated. Further,
organic farming and Integrated Pest Management
programmes have been taken up in 0.76 lakh ha
and 4.0 lakh ha respectively. Under the post harvest
management component, 898 pack houses, 46 cold
storages, 14 refrigerated vans, 7 wholesale markets
and 45 rural markets have been set up. The impact
of the Mission can be seen in the increasing area
and production of fruits and vegetables.
8.56 Under the Technology Mission for Integrated
Development of Horticulture in the North Eastern
Region during 2008-09, an additional area of 1,48,071
lakh ha has been brought under different horticultural

crops. Further, infrastructure facilities for improving
production and productivity of crops such as model
nurseries, community tanks, tube wells,
greenhouses, model floriculture centres, mushroom
units, vermi-compost units, training of farmers/
trainers, training of women and market infrastructure
and processing units, which are project based, have
also been created. Apart from introduction of improved
production technology in traditional crops, a
significant contribution of the Mission has been in
the promotion of commercial cultivation of potential
crops, namely citrus, fruits, banana, pineapple,
strawberry, kiwi, apple, passion fruits; anthuriums,
roses, liliums, orchids and other cut flowers; and
high value vegetable crops. The most remarkable
development under the scheme has been the
expansion of area under specific crops in the States
and in clusters which will facilitate easy marketing
access in the future.
8.57 A proposal for implementation of a pilot project
for Replanting and Rejuvenation of Coconut Gardens
in Thiruvananthapuram, Kollam and Thrissur districts
of Kerala and the Union Territory of Andaman &
Nicobar Islands has been approved.
Micro Irrigation
8.58 A Centrally sponsored scheme on micro
irrigation (MI) was launched in January 2006 for
promoting water-use efficiency by adopting drip and
sprinkler irrigation. All States and Union Territories
and all horticultural as well as agricultural crops are
covered under the scheme. The National Committee
on Plasticulture Applications in Horticulture (NCPAH)
provides the required technical guidance in
association with Precision Farming Development
Centres (PFDCs) at 22 locations. The PRIs are
involved in selecting the beneficiaries. Since its
inception, about 10 lakh ha has been covered under
drip and sprinkler irrigation and a sum of Rs 1425.23
crore has been released as Government of India
share (40 per cent of the total cost) in the scheme.
National Bamboo Mission (NBM)
8.59 The NBM is a Centrally sponsored scheme
with 100 per cent Central assistance. The scheme
commenced in 2006-07 and aims at holistic
development of the bamboo sector in India. The thrust
of the Mission is area-based regionally differentiated
strategy for forest and non-forest areas. So far,
1,05,508 ha has been covered under bamboo
plantation, 30,167 ha of existing stocks has been
treated for productivity improvement, 1,104 nurseries
Agriculture and Food Management 193
have been established for supply of quality planting
material and 29,831 farmers/entrepreneurs/field
functionaries have been trained to raise quality
bamboo plantations and in marketing of bamboo
produce. So far, the NBM has been concentrating
on plantation and related activities; there are plans
to extend the Mission to the development of handicraft
and marketing of bamboo. The Mission intends to
establish 195 bamboo bazaars and 10 retail outlets
(showrooms) in different metropolitan cities by the
end of 2010-11, to promote marketing of bamboo
and its products.
Rubber
8.60 India is the fourth largest producer of natural
rubber (NR) with an 8.9 per cent share in world
production in 2008. The smallholding sector
accounted for 89 per cent of rubber planted area and
93 per cent of NR production. Despite not having
regions geographically best suited to growing NR,
India continued to record the highest productivity in
the world with an average yield of 1,867 kg/ha.
Productivity is further being improved through the
Rubber Plantation Development Schemes in the
Eleventh Five year Plan. The Schemes provide
subsidy on planting, supply of critical inputs with
price concession, assistance for soil and water
conservation and generation and distribution of
quality planting materials.
8.61 In 2008-09, the estimated export of NR was
46,926 tonnes against an import of 77,616 tonnes.
The export of NR is promoted through Export
Promotion Schemes, which include participation in
international trade fairs, assistance to exporters to
participate in trade fairs and, organizing buyer-seller
meets.
Coffee
8.62 Among plantation crops, coffee has made
significant contribution to the Indian economy during
the last 50 years. Indian coffee has created a niche
for itself in the international market, particularly Indian
Robusta, which is highly sought after for its blending
quality. Arabica coffee from India is also well received
in the international market.
8.63 In India, coffee is cultivated in an area of
around 3.94 lakh ha. The post-monsoon crop
estimate for the 2009-10 season is estimated at
2.90 lakh tonnes comprising 0.95 lakh tonnes of
Arabica and 1.95 lakh tonnes of Robusta. The
current year’s production is about 10.6 per cent
more than the previous year’s.
194 Economic Survey 2009-10
ANIMAL HUSBANDRY, DAIRYING AND
FISHERIES
8.64 The livestock and fisheries sector contributed
over 4.07 per cent of the total GDP during 2008-09
and about 26.84 per cent value of output from total
agriculture and allied activities. The Eleventh Five
Year Plan envisages an overall growth of 6-7 per
cent per annum for the sector. In 2008-09, this
sector contributed 108.5 million tonnes of milk, 55.6
billion eggs, 42.7 million kg wool and 3.8 million
tonnes of meat. The 17th Livestock Census (2003)
has placed the total livestock population at 485
million and total of poultry birds at 489 million. The
18th Livestock Census has been conducted
throughout the country with the reference date of
October 15, 2007, results of which are awaited.
8.65 India ranks first in world milk production, its
production having increased from 17 million tonnes
in 1950-51 to 108.5 million tonnes by 2008-09. The
per capita availability of milk has increased from 112
grams per day in 1968-69 to 258 grams per day in
2008-09, but is still low compared to the world
average of 265 grams per day (Table 8.15). About
80 per cent of milk produced in the country is
handled in the unorganized sector and the
remaining 20 per cent is equally shared by
cooperatives and private dairies. Over 1.33 lakh
village-level dairy cooperative societies, spread over
265 districts in the country, collect about 25.1 million
litres of milk per day and market about 20 million
litres. The efforts of the Government in the dairy
sector are concentrated in promotion of dairy
activities in non-Operation Flood areas with
emphasis on building cooperative infrastructure,
revitalization of sick dairy cooperatives and
federations and creation of infrastructure in the
States.
Table 8.15 : Production and per capita
availability of milk
Year Per capita Milk
(grams/day) production (MT)
1990-91 176 53.9
2000-01 220 80.6
2005-06 241 97.1
2006-07 246 100.9
2007-08 252 104.8
2008-09 258 108.5
Source: Department of Animal Husbandry and
Dairying.
8.66 A major programme for genetic improvement
of cattle and buffaloes named the National Project
for Cattle and Buffalo Breeding (NPCBB) was
launched in October 2000 to be implemented over a
period of 10 years in two phases of five years each
with an allocation of Rs 402 crore and Rs 775.9 crore
respectively. The NPCBB envisages genetic
upgradation and development of indigenous breeds
on priority basis. At present, 28 states and one UT
are participating in the project. Financial assistance
to the tune of Rs 485.73 crore was released to these
states up to 2008-09. During the current financial
year, Rs 93.31 crore has been released under the
scheme to the implementing agencies till December
2009.
Livestock insurance
8.67 A Centrally sponsored scheme for livestock
insurance is being implemented in all the States with
the twin objectives of providing a protection
mechanism to farmers and cattle rearers against
loss of their animals due to death and to demonstrate
the benefit of livestock insurance to the people. The
scheme benefits farmers (large, small and marginal)
and cattle rearers having indigenous/crossbred milch
cattle and buffaloes. In 2009-10, Rs 23.28 crore has
been released up to December 2009 and 13.16 lakh
animals have been insured up to 2008-2009. The
scheme has been extended from 100 districts to
300 districts from December 2009, covering all States.
Poultry
8.68 Poultry continues to play an important role in
providing livelihood support and food security,
especially to the rural population. India produces
more than 55.6 billion eggs per year, with per capita
availability of 47 eggs per annum. As per the estimate
provided by the Food and Agriculture Organization
(FAO) for 2008, the annual chicken meat production
in India is around 2.49 million tonnes. The value of
exports was around Rs 422 crore during 2008-09.
Eggs and poultry are among the cheaper source of
animal protein. During 2009-10, a new Centrally
sponsored Poultry Development Scheme with an
outlay of Rs 150 crore was launched. The scheme,
through its Rural Backyard Poultry Development
component is expected to cover below poverty line
(BPL) sections of the society to help them gain
supplementary income and nutritional support. In
order to encourage entrepreneurship skills of
individuals, a Poultry Venture Capital Fund is also
being implemented covering various poultry activities.

Livestock health
8.69 Animal wealth in India has increased manifold
and animal husbandry practices have also changed
to a great extent. With increased trade activity, the
chances of ingress of exotic diseases into the
country have also increased. With improvement in
the quality of livestock through launching of extensive
cross- breeding programmes, the susceptibility of
this livestock to various diseases, including exotic
diseases, has increased. To ensure maintenance of
disease-free status and compliance with the
standards laid down by the World Animal Health
Organization, major animal health schemes and
programmes have been initiated. Further, for control
of major livestock and poultry diseases, the
Government of India provides financial assistance to
States/UTs in their efforts to prevent, control and
contain animal diseases and also to strengthen
veterinary services including reporting of animal
diseases. All avian influenza outbreaks reported were
effectively controlled and the country was free from
avian influenza in October 2009. Control and
containment operations for the recent outbreak
reported on January 14, 2010 in Khargram block of
West Bengal are in full swing.
Fisheries
8.70 Fish production increased from 7.1 million
tonnes in 2007-08 to 7.6 million tonnes in 2008-09.
Fishing, aquaculture and allied activities are reported
to have provided livelihood to over 14 million persons
in 2006-07 apart from being a major foreign exchange
earner (Table 8.16).
Feed and fodder
8.71 Adequate availability of feed and fodder for
livestock is very vital for increasing milk production
Agriculture and Food Management 195
and sustaining the ongoing genetic improvement
programme. It is estimated that there is green fodder
shortage of about 34 per cent in the country. To
increase the availability of fodder, the Department of
Animal Husbandry & Dairying is implementing a
Centrally sponsored Fodder Development Scheme
throughout the country to supplement the efforts of
the States. Financial assistance to the tune of
Rs 719.76 lakh (up to December 2009) has been
provided to the States during 2009-10. A Central
Minikit Testing Programme is also being implemented
under which minikits of latest high-yielding fodder
varieties are distributed free of cost to farmers for
their popularization. During the current year (2009-
10) 9.23 lakh minikits have been allotted to the States
for distribution to farmers.
CREDIT AND INSURANCE
Agricultural Credit
8.72 In order to provide adequate and timely credit
support from the banking system to farmers for their
cultivation needs, including purchase of all inputs,
in a flexible and cost-effective manner, the Kisan
Credit Card Scheme (KCC) was introduced in August
1998. About 878.30 lakh KCCs have been issued up
to November 2009. The Scheme includes a
reasonable component of consumption credit and
investment credit within the overall credit limit
sanctioned.
8.73 From kharif 2006-07, farmers have been
receiving crop loans up to a principal amount of Rs 3
lakh, at 7 per cent rate of interest. Additional
subvention of 1 per cent will be paid from the current
year, as incentive to those farmers who repay short-
term crop loans on schedule resulting in bringing
down the rate of interest to 6 per cent per annum.

Table 8.16 : Production and export of fish

Fish production (million tonnes) Export of marine products
Year Marine Inland Total Qty Value
(‘000 tonnes) (Rs crore)
1990-91 2.3 1.5 3.8 140 893
2000-01 2.8 2.8 5.6 503 6,288
2003-04 3.0 3.4 6.4 412 6,087
2004-05 2.8 3.5 6.3 482 6,460
2005-06 2.8 3.8 6.6 551 7,019
2006-07 3.0 3.8 6.8 612 8,363
2007-08 2.9 4.2 7.1 541 7,620
2008-09 2.9 4.7 7.6 603 8,608
Source: Department of Animal Husbandry & Dairying.
196 Economic Survey 2009-10
8.74 In January 2006, the Government announced
a package for revival of short-term Rural Cooperative
Credit involving financial assistance of Rs 13,596
crore. The National Agriculture and Rural
Development Bank (NABARD) has been designated
as the implementing agency for the purpose. States
are required to sign memorandums of understanding
(MoUs) with the Government of India and NABARD,
committing to implementing the legal, institutional
and other reforms as envisaged in the revival package.
So far twenty-five States have executed MoUs with
the Government of India and NABARD. This covers
96 per cent of the primary agricultural credit societies
(PACS) and 96 per cent of the Central cooperative
banks (CCBs) in the country. As on November 2009,
Rs 7,051.75 crore has been released by NABARD
as the Government of India share for recapitalization
of 37,303 PACS.
8.75 Government is implementing a rehabilitation
package for 31 suicide-prone districts in the States
of Andhra Pradesh, Karnataka, Kerala and
Maharashtra involving financial outlay of Rs 16978.69
crore. An amount of Rs16,953.04 crore has been
released under this package till September 2009.
For the state of Kerala, the Government is
implementing separate packages for the development
of the Kuttanad Wetland Eco-System and mitigation
of agrarian distress in Idukki district with an outlay
of Rs1,840.75 crore and Rs.764.45 crore respectively.
8.76 A debt waiver and debt relief scheme for
farmers announced by the Government in the Union
Budget 2008-09 is under implementation. Direct
agricultural loans disbursed by scheduled
commercial banks, regional rural banks and
cooperative credit institutions up to March 31, 2007,
overdue as on December 31, 2007 and which
remained unpaid until February 29, 2008, are eligible
for debt waiver or debt relief as the case may be.
About 3.68 crore farmers have benefited from the
scheme involving debt waiver and debt relief of Rs
65,318.33 crore.
Agricultural Insurance
8.77 The frequency and severity of droughts, floods,
cyclones and erratic climatic changes accentuate
uncertainty and risk in agricultural production and
livestock breeding in India. The National Agricultural
Insurance Scheme (NAIS) is being implemented
since rabi 1999-2000, as part of the strategy for risk
management in agriculture with the intention of
providing financial support to farmers in the event of
crop failure as a result of natural calamities, pests
and diseases. The scheme is open to all the farmers-
loanee and non-loanee-irrespective of their size of
holding. Loanee farmers are covered on compulsory
basis in a notified area for notified crops. For non-
loanee farmers, participation in the scheme is on
voluntary basis. The scheme envisages coverage of
all food crops, oilseeds and annual commercial/
horticultural crops, in respect of which past yield
data are available for adequate number of years. The
scheme is being implemented by 25 States and two
Union Territories. During the period from rabi 1999-
2000 to rabi 2008-09, 1,347 lakh farmers over an
area of 2,109 lakh ha have been covered, insuring a
sum of Rs 1,48,250 crore.
8.78 The pilot Weather Based Crop Insurance
Scheme (WBCIS) is being implemented in 13 States
to provide insurance protection to farmers against
adverse weather incidences which are deemed to
adversely impact crop production. During five crop
seasons (from kharif 2007 to kharif 2009), about 21.77
lakh farmers have been covered under the pilot
scheme and claims to the tune of about Rs 388
crore have been paid against a premium of about Rs
444 crore.
8.79 The Coconut Palm Insurance Scheme (CPIS)
has been launched on pilot basis during 2009-10 in
selected areas of Andhra Pradesh, Goa, Karnataka,
Kerala, Maharashtra, Orissa and Tamil Nadu. The
pilot scheme will continue during 2010-11. To benefit
from the scheme, a farmer should have at least 10
healthy nut-bearing palms in the age group 4 to 60
years in contiguous area/plots and to have been
enrolled by the State Agriculture/Horticulture
Department or Coconut Development Board (CDB)
or any other such agency under a rehabilitation/
development/expansion scheme. The Agriculture
Insurance Company of India (AIC) which is
implementing the scheme is responsible for making
payment of all claims within a specified period. The
CDB administers the scheme.
MARKETING AND EXTENSION
Agricultural Marketing
8.80 Organized marketing of agricultural
commodities has been promoted in the country
through a network of regulated markets. Most of the
State and Union Territory Governments have enacted
legislations (Agriculture Produce Marketing
Committee Act) to provide for regulation of agricultural
produce markets. There are 7,139 regulated markets
in the country as on March 31, 2009. The country

Table 8.17 : Progress of reforms in agricultural markets (APMC Act) as on 31.12.2009
Sl. No. Stage of reforms
1. States/ UTs where reforms to the APMC Act
have been undertaken as suggested.
2. States/ UTs where APMC Act has been
partially reformed) by amending the APMC
Act/ resolution
3. States/ UTs where there is no APMC Act and
hence not requiring reforms
4. States/ UTs where APMC Act already provides
for the reforms
5. States/ UTs where administrative action has
been initiated for reforms
Note: * APMC Act has been repealed with effect from September 1, 2006.
has 20,868 rural periodical markets, about 15 per
cent of which function under the ambit of regulation.
The advent of regulated markets has helped mitigate
the market handicaps of producers/sellers at the
wholesale assembling level. But rural periodic
markets in general and tribal markets in particular
have remained outside the developmental ambit of
the APMC Act.
8.81 The Ministry of Agriculture has formulated a
Model Law on agricultural marketing for guidance of
and adoption by State Governments. The legislation
provides for establishment of private markets/yards,
direct purchase centres, consumers’/farmers’
markets for direct sale and promotion of public-private
partnership in the management and development of
agricultural markets in the country. Provision has
also been made in the law for constitution of State
Agricultural Produce Marketing Standards Bureaus
for promotion of grading, standardization and quality
certification of agricultural produce. This would
facilitate pledge financing, direct purchasing, forward/
futures trading and exports. Sixteen States/UTs have
amended their APMC Acts and the remaining States
are in the process of doing so (Table 8.17). APMC
Model Rules based on the Model Law are under
formulation in consultation with States.
Agriculture and Food Management 197
Name of State/ Union territory
Andhra Pradesh, Arunachal Pradesh, Assam,
Chattisgarh, Goa, Gujarat, Himachal Pradesh,
Jharkhand, Karnataka, Madhya Pradesh, Maharashtra,
Nagaland, Orissa, Rajasthan, Sikkim, Tripura
a) Direct Marketing:
NCT of Delhi
b) Contract Farming:
Haryana, Punjab and Chandigarh
c) Private Markets:
Punjab and Chandigarh
Kerala, Manipur, Bihar*, Andaman & Nicobar Islands,
Dadra & Nagar Haveli, Daman & Diu and
Lakshadweep
Tamil Nadu
Mizoram, Meghalaya, Haryana, Jammu&Kashmir,
Uttarkhand, West Bengal, NCT of Delhi and Pondicherry
Extension reforms
8.82 The Government supports transfer of
agricultural technologies and information to the
farming community through various initiatives. The
Support to State Extension Programmes for the
Extension Reforms scheme launched in 2005-06,
aims to make the extension system farmer driven
and farmer accountable by way of new institutional
arrangements for technology dissemination in the
form of an Agricultural Technology Management
Agency (ATMA) at district level. The ATMA has active
participation of farmers/farmer groups, non-
governmental organizations (NGOs), KVKs, PRIs
and other stakeholders operating at district level and
below. Up to January 2010, 595 districts-level ATMAs
have been established. Gender concerns are being
mainstreamed by mandating that 30 per cent of
resources on programmes and activities are
allocated for women farmers and extension
functionaries. Since inception, out of a total of 10.19
crore farmer beneficiaries, 25.80 lakh women farmers
(25.34 per cent) have participated in various
extension activities under the scheme. Further, the
Mass Media Support to Agriculture scheme is
focusing on the use of Doordarshan infrastructure
for providing agriculture-related information and
198 Economic Survey 2009-10

knowledge to the farming community. The other FOOD MANAGEMENT

component of the mass media initiative is use of 96
FM transmitters of All India Radio (AIR) to broadcast
area-specific agricultural programmes with 30-
minute radio transmission in the evening, six days a
week. The Kisan Call Centres scheme provides the
farming community agricultural information through
toll-free telephone lines. A country-wide common
eleven digit number “1800-180-1551” has been
allocated for the Kisan Call Centres . The Agri-clinic
and Agri-business Centres Scheme launched in 2002
provides extension services to farmers through
agriculture graduates on payment basis by setting
up of economically viable self-employment ventures.
NABARD monitors the credit support to Agri-clinics
through commercial banks. Provision of a credit-
linked back-ended subsidy at 25 per cent of the
capital cost of the project funded through bank loan
as well as full interest subsidy on the bank credit for
the first two years has recently been approved under
the scheme. The subsidy would be 33.33 per cent
in respect of candidates belonging to Scheduled
Castes (SC), Scheduled Tribes (ST), women and
other disadvantaged sections and those from the
north-eastern and hill States. Under the scheme,
19,854 unemployed agriculture graduates have been
trained up to December 2009.
8.83 The main objectives of food management are
procurement of foodgrains from farmers at
remunerative prices, distribution of foodgrains to
consumers, particularly the vulnerable sections of
society, at affordable prices and maintenance of food
buffers for food security and price stability. The
instruments used are the MSP and central issue
price (CIP). The nodal agency which undertakes
procurement, distribution and storage of foodgrains
is the Food Cororation of India (FCI). Procurement
at MSP is open-ended, while distribution is governed
by the scale of allocation and its offtake by the
beneficiaries. The offtake of foodgrains is primarily
under the targeted public distribution system(TPDS)
and for other welfare schemes of the Government of
India. Offtake of foodgrains under the TPDS has been
increasing in the last five years and has gone up
from 29.7 million tonnes in 2004-05 to 34.8 million
tonnes in 2008-09 (Table 8.18).
Procurement of foodgrains
8.84 Overall procurement of rice and wheat which
was 35.8 million tonnes in 2006-07, increased
marginally to 37.6 million tonnes in 2007-08. However,
increased MSP along with various other steps taken
by the Government has resulted in record wheat
procurement of 22.69 million tonnes in 2008-09 and

Table 8.18 : Procurement and offtake of wheat and rice (million tonnes)
2004-05 2005-06 2006-07 2007-08 2008-09 April- Dec.
2008-09 2009-10
Procurement of Wheat and Rice under the Central Pool
Rice 24.0 26.7 26.3 26.3 32.8 22.1 22.9
Wheat 16.8 14.8 9.2 11.1 22.7 22.7 25.4
Total 41.6 42.4 35.8 37.6 55.5 44.8 48.3
Offtake of Wheat and Rice for the TPDS
Rice 16.6 19.2 21.2 22.6 22.2 14.9 18.1
Wheat 13.1 12.2 10.4 10.9 12.6 8.1 14.4
Total (A) 29.7 31.4 31.6 33.5 34.8 23.0 32.4
BPL (Rice+Wheat) 17.5 15.6 14.2 15.1 15.7 10.5 12.4
APL (Rice+Wheat) 6.7 8.3 8.7 9.0 9.6 6.1 12.5
AAY (Rice+Wheat) 5.5 7.4 8.7 9.4 9.5 6.4 7.4
Offtake of Wheat and Rice for Other Schemes
Welfare Scheme (B) 10.6 9.7 5.1 3.9 3.4 2.0 2.9
Open sales/ Exports (C) 1.2 1.1 0.0 0.02 1.2 0.1 0.5
Total (A+B+C) 41.5 42.1 36.7 37.4 39.5 25.1 35.8
Source: Department of Food and Public Distribution.
 Agriculture and Food Management 199
Table 8.19 : Procurement of rice (marketing year-wise)
Qty (lakh tonnes) Percentage share
State/UT 2006-07 2007-08 2008-09 2006-07 2007-08 2008-09
A & N Islands - - - - 0.00 -
Andhra Pradesh 53.28 74.17 90.61 21.22 26.03 26.90
Assam - - 0.03 - 0.00 0.01
Bihar 4.76 5.12 10.83 1.90 1.80 3.22
Chandigarh 0.1 0.09 0.10 0.04 0.03 0.03
Chhattisgarh 28.65 27.43 28.48 11.41 9.63 8.46
Delhi - - - - - -
Gujarat - 0.19 - - 0.07 -
Haryana 17.77 15.72 14.25 7.08 5.52 4.23
Himachal Pradesh - - - - - -
J&K - - 0.06 - - 0.02
Jharkhand 0.05 0.19 1.35 0.02 0.07 0.4
Karnataka 0.22 0.18 1.07 0.09 0.06 0.32
Kerala 1.51 1.68 2.37 0.60 0.59 0.7
Madhya Pradesh 0.74 0.69 2.45 0.29 0.24 0.73
Maharashtra 0.97 1.6 2.61 0.39 0.56 0.77
Nagaland - - - - - -
Orissa 20.02 23.38 27.90 7.97 8.21 8.28
Pondicherry 0.07 0.06 0.07 0.03 0.02 0.02
Punjab 78.29 79.08 85.53 31.18 27.76 25.39
Rajasthan 0.1 0.19 0.11 0.04 0.07 0.03
Tamil Nadu 10.77 9.68 11.99 4.29 3.40 3.56
Uttar Pradesh 25.59 28.91 36.87 10.19 10.15 10.95
Uttaranchal 1.76 1.47 3.49 0.70 0.52 1.04
West Bengal 6.42 15.08 16.67 2.56 5.29 4.95
Total 251.07 284.91 336.84 100 100 100
Source: Department of Food & Public Distribution

25.38 million tonnes in 2009-10 (April to December).
As regards rice, the procurement in 2008-09 was
32.8 million tonnes and 22.9 million tonnes in 2009-
10 (April – December). The record procurement of
rice and wheat during 2007-08, 2008-09 and 2009-
10 (April December) has resulted in comfortable food-
stock availability to meet the TPDS needs and buffer
stocks norms.
8.85 As in earlier years, procurement of foodgrains
by the FCI continues to be higher in the States of
Punjab, Haryana, Uttar Pradesh and Andhra
Pradesh. These four States accounted for nearly 69.7
per cent of the rice procured for the Central Pool in
2006-07, 69.46 per cent in 2007-08 and 67.47 per
cent in 2008-09 (Table 8.19).
8.86 Punjab and Haryana which accounted for 91.1
per cent of procurement of wheat for the Central Pool
in 2007-08, accounted for 66.88 per cent in 2008-09
and 69.53 per cent in 2009-10, indicating an increased
share in procurement by other states (Table 8.20).
8.87 The overall procurement of coarse grains in
the kharif marketing season (KMS) 2008-09 has
increased to 13.75 lakh tonnes due to a substantial
increase in MSPs of coarse grains in KMS 2008-09
(Table 8.21).
Decentralized Procurement Scheme (DCP)
8.88 A number of states have opted for
implementation of the (DCP) introduced in 1997,
under which foodgrains are procured and distributed
by the State Governments themselves. Under this
scheme, the designated States procure, store and
issue foodgrains under the TPDS and welfare
schemes of the Government of India. The difference
between the economic cost fixed for the State and
the CIPis passed on to the State Government as
subsidy. The decentralized system of procurement
has the objectives of covering more farmers under
MSP operations, improving efficiency of the PDS,
providing foodgrains varieties more suited to local
tastes and reducing transportation costs. Food
200 Economic Survey 2009-10

Table 8.20 : Procurement of wheat (marketing year-wise)

State/UT Qty (lakh tonnes) Percentage share
2007-08 2008-09 2009-10 2007-08 2008-09 2009-10
Bihar 0.08 5 4.97 0.07 2.20 1.96
Haryana 33.5 52.31 69.24 30.11 23.06 27.28
Himachal Pradesh - - 0.01 - - -
Madhya Pradesh 0.57 24.1 19.68 0.51 10.63 7.75
Punjab 67.81 99.39 107.25 60.94 43.82 42.25
Rajasthan 3.83 9.35 11.52 3.44 4.12 4.54
Uttaranchal 0.02 0.85 1.45 0.02 0.37 0.57
Uttar Pradesh 5.46 31.37 38.82 4.91 13.83 15.29
Chandigarh - 0.1 0.12 - 0.00 0.05
Delhi - 0.07 - - 0.00 -
Gujarat - 4.15 0.57 - 1.83 0.22
Maharashtra - 0.1 - - 0.04 -
Jharkhand - 0.02 - - 0.01 -
J&K - 0.01 - - - -
Total 111.27 226.82 253.82 100 100.00 100.00
Source: Department of Food & Public Distribution.

Table 8.21 : Details of coarse grain subsidy released to various States under DCP
procurement during last four years and operations from 2007-08 is given in Table 8.22.
the current KMS 8.89 In the case of rice, States under DCP
(lakh tonnes) operations have shown a healthy trend of increasing
Year Procurement procurement. In KMS 2007-08, rice procurement in
DCP States was 107.83 lakh tonnes as against 94.7
2005-06 11.50
lakh tonnes in KMS 2006-07. In KMS 2008-09, rice
2006-07 0.002
procurement by DCP States was 128.84 lakh tonnes
2007-08 2.03 (Table 8.23).
2008-09 13.75
2009-10 (till Dec. 2009) 0.80 8.90 In the case of wheat, however, the procurement
in DCP States, particularly Uttar Pradesh and
Source : Department of Food & Public Distribution.
Madhya Pradesh, was rather low in rabi marketing

Table 8.22 : Food subsidy released to various States under DCP operations from 2007-08
(Rupees crore)
State/UT 2007-08 2008-09 2009-10*
Madhya Pradesh 41.596 1,101.810 882.620
Uttar Pradesh 1,625.618 2,875.640 3,978.170
West Bengal 269.020 657.400 901.210
Chhattisgarh 621.000 842.830 655.610
Uttaranchal 68.650 98.050 180.400
Tamil Nadu 272.210 592.240 524.420
Orissa 503.480 724.820 727.800
Kerala 97.840 31.190 224.270
Karnataka 0.590 0.000 0.000
Total 3,500.00 6,923.98 8,074.50*
Source: Department of Food & Public Distribution.
* as on December 29, 2009.
 Agriculture and Food Management 201
Table 8.23 : Procurement of rice in DCP States (in lakh tonnes)
State KMS KMS KMS KMS KMS KMS KMS
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Chhattisgarh 12.9 23.7 28.4 32.7 28.6 27.43 28.48
Karnataka - - 0.2 0.5 0.2 0.18 1.07
Kerala - - 0.3 0.9 1.5 1.70 2.37
Orissa 8.9 13.7 15.9 17.9 19.9 23.38 27.90
Tamil Nadu 1.1 2.1 6.5 9.3 10.8 9.68 11.99
Uttar Pradesh 13.6 25.5 29.7 31.5 25.5 28.91 36.87
Uttranchal 2.3 3.2 3.2 3.4 1.8 1.47 3.49
West Bengal 1.3 9.3 9.4 12.8 6.4 15.08 16.67
A&N Islands - Neg. Neg. - - 0.0 0
Total 40.1 77.5 93.6 109.0 94.7 107.83 128.84
Source: Department of Food & Public Distribution.
Neg. : below 500 tonnes.

seasons (RMS) 2006-07 and 2007-08, primarily due
to aggressive purchases by private companies on
expectation of higher market prices, lower rates of
taxes and levies compared to Punjab and Haryana
and proximity to markets in southern and western
states of the country. However, there was record
procurement of wheat in RMSs 2008-09 and 2009-
10 (Table 8.24).
Buffer stock
8.91 The stock of foodgrains in the Central Pool
at 15.7 million tonnes as on April 1, 2006 was
marginally lower than the minimum buffer norm of
16.2 million tonnes. This increased to 17.9 million
tonnes on April 1, 2007. The stock position as on
April 1, 2008 was 19.6 million tonnes. The stock
position of foodgrains as on April 1, 2009 was 35.0
million tonnes comprising 21.6 million tonnes of rice
and 13.4 million tonnes of wheat against the buffer
norm of 12.2 million tonnes and 4.0 million tonnes
respectively. The stock position of foodgrains as on
January 2010 is 47.4 million tonnes comprising 24.3
million tonnes of rice and 23.1 million tonnes of
wheat against buffer norms of 11.8 million tonnes
and 8.2 million tonnes respectively. This is adequate
to meet the requirements under the TPDS and
welfare schemes during the current financial year
(Table 8.25).
Economic cost of foodgrains to the FCI
8.92 The economic cost of foodgrains consists of
three components, namely MSP (and bonus) as the
price paid to farmers, procurement incidentals and
the cost of distribution. The economic cost for both
wheat and rice witnessed a significant increase
during the last three years due to increase in MSPs.
The economic costs of wheat and rice for 2009-10
(budget estimates[BE]) are estimated at Rs1,504.39
per quintal and Rs1,893.71 per quintal respectively
(Table 8.26). The FCI is reimbursed the difference
between the economic cost of foodgrains and the
issue price in the form of food subsidy. It has been
pointed out that the high incidence of taxes and levies
of over 10 per cent ad valorem on the procurement of
foodgrains in the major processing States of Punjab,
Haryana and Andhra Pradesh increases the

Table 8.24 : Procurement of wheat in DCP States (in lakh tonnes)

State RMS RMS RMS RMS RMS RMS RMS RMS
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Uttar Pradesh 21.1 12.1 17.4 5.6 0.5 5.5 31.37 38.82
Madhya Pradesh 4.3 1.9 3.5 4.8 Neg. 0.6 24.09 19.68
Uttarakhand 1.8 0.7 0.6 0.4 Neg. Neg. 0.85 1.45
Gujarat 0.0 0.0 0.0 0.0 0.0 0.0 4.15 0.57
Total 27.2 14.7 21.5 10.8 0.5 6.1 60.46 60.52
Source: Department of Food & Public Distribution.
Neg. : below 500 tonnes.
202 Economic Survey 2009-10

Table 8.25 : Stock position of wheat and rice in the Central pool vis-à-vis minimum buffer
norms
(in lakh tonnes)
WHEAT RICE TO TA L
AS ON Minimum Actual Minimum Actual Minimum Actual
buffer stock buffer stock buffer stock
norms norms norms

January 2004 84 126.87 84 117.27 168 244.14

April 40 69.31 118 130.69 158 200.00
July 143 191.52 100 107.63 243 299.15
October 116 142.23 65 60.92 181 203.15
January 2005 84 89.31 84 127.63 168 216.94
April 40 40.66 122 133.41 162 174.07
July 171 144.54 98 100.71 269 245.25
October 110 102.90 52 48.49 162 151.39
January 2006 82 61.88 118 126.41 200 188.29
April 40 20.09 122 136.75 162 156 .84
July 171 82.07 98 111.43 269 193.50
October 110 64 .12 52 59.70 162 123.82
January 2007 82 54.28 118 119.77 200 174.05
April 40 47.03 122 131.72 162 178.75
July 171 129.26 98 109.77 269 239.04
October 110 101.21 52 54.89 162 156.10
January 2008 82 77.12 118 114.75 200 191.87
April 40 58.03 122 138.35 162 196.38
July 171 249.12 98 112.49 269 361.61
October 110 220.25 52 78.63 162 298.88
January 2009 82 182.12 118 175.76 200 357.88
April 40 134.29 122 216.04 162 350.33
July 171 329.22 98 196.16 269 525.38
October 110 284.57 52 153.49 162 438.06
January 2010 82 230.92 118 243.53 200 474.45

Source: Department of Food & Public Distribution.

economic costs, which have a direct bearing on
market prices. Further, expenditure incurred by the
FCI on payment of Dami/Arthia charges, as per
statutory notifications issued by some States, notably
Punjab, Haryana, Uttar Pradesh and Rajasthan, also
gets reflected in the economic costs.
Offtake of foodgrains from the Central Pool
8.93 The offtake of foodgrains is primarily under the
TPDS and other welfare schemes of Government of
India. Under the TPDS, allocation is made on a scale
of issue which is 35 kg per family for BPL and
AAY(Antayodaya Anna Yojana) categories and the
allocation is variable based on foodgrains availability
for the above poverty line (APL) category. Offtake of
foodgrains under the TPDS has been increasing in
the last five years and has gone up from 29.7 million
tonnes in 2004-05 to 34.8 million tonnes in 2008-09.
Food subsidy
8.94 Provision of minimum nutritional support to
the poor through subsidized foodgrains and ensuring
price stability in different States are the twin
objectives of the food security system. In fulfilling
its obligation towards distributive justice, the
Government incurs food subsidy. While the
economic cost of wheat and rice has gone up
continuously, the issue price has been kept
unchanged since July 1, 2002. The Government,
therefore, continues to provide large amount of
subsidy on foodgrains for distribution under the
TPDS, other nutrition-based welfare schemes and
open market operations (Tables 8.27 and 8.28).
 Agriculture and Food Management 203
Table 8.26 : Economic cost of rice and wheat
(Rs/quintal)

Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Rice
Procurement 61.67 30.68 58.48 21.25 193.66 191.81 268.02 289.00
Incidentals
Distribution Cost 157.72 214.52 256.51 281.37 289.58 331.81 294.67 245.66
Economic Cost$ 1,165.03 1,236.09 1,303.59 1,350.67 1,391.18 1,563.70 1,789.78 1,893.71

Per Cent Increase over Previous Year

Procurement -7.69 -50.25 90.61 -63.66 * 9.30 2.06 7.83
Incidentals
Distribution Cost 31.85 36.01 19.57 9.69 6.83 9.39 5.16 -16.63
Economic Cost 6.14 6.10 5.46 3.61 4.51 11.32 8.12 5.81
Wheat
Procurement 137.63 138.20 182.74 163.67 180.15 163.47 198.87 212.84
Incidentals
Distribution Cost 145.51 169.69 222.80 226.96 269.36 282.76 228.54 182.95
$$
Economic Cost 884.00 918.69 1,019.01 1,031.51 1,177.78 1,353.24 1,392.68 1,402.51

Per Cent Increase over Previous Year

Procurement 2.19 0.41 32.23 -10.44 9.60 -1.98 16.40 7.02
Incidentals
Distribution Cost 14.88 16.63 31.30 1.87 23.45 1.28 3.25 -19.94
Economic Cost 3.64 3.92 10.92 1.23 17.73 11.06 8.17 0.70

Notes: $ Weighted average of common and grade ‘A’ rice taken together
$$ Due to increase in MSP from Rs1,000 per quintal to Rs1,080per quintal, the economic cost was
revised to Rs1,504.39 per quintal. As per quick estimates made by FCI on May 18, 2009.
* For rice, from 2006-07, in the procurement incidentals weightage of levy rice incidentals is also
being taken.

Table 8.27 : Trends in MSP and CIP

(Rs/quintal)
Marketing CIP
season MSP Wheat Rice
Wheat Paddy APL BPL AAY APL BPL AAY
2002-03 620 a 530 a 610 415 200 795 565 300
2003-04 630 550 610 415 200 795 565 300
2004-05 640 560 610 415 200 795 565 300
2005-06 650 b 570 610 415 200 795 565 300
2006-07 750 d 580 c 610 415 200 795 565 300
2007-08 1,000 645 e 610 415 200 795 565 300
2008-09 1,080 850 f 610 415 200 795 565 300
2009-10 1,100 950 g 610 415 200 795 565 300
Source: Ministry of Agriculture.
Notes: a One-time special drought relief of Rs20 per quintal was given in the case of paddy over and above the existing MSP and
Rs10 per quintal for wheat.
b An incentive bonus of Rs50 per quintal over the MSP given for wheat procured in RMS 2006-07 during the period 20.3.06 to
30.6.06.
c An incentive bonus of Rs40 per quintal over the MSP allowed for paddy procured in KMS 2006-07 till 31.3.2007. Applicability
of bonus was extended up to 30.9.2007 for the states of Andhra Pradesh, Tamil Nadu, Orissa, West Bengal and Chhattisgarh.
For Bihar and Kerala, it was extended up to 31.5.2007.
d An incentive bonus of Rs 100 per quintal over the MSP given for wheat procured in RMS 2007-08.
e An incentive bonus of Rs 100 per quintal over the MSP allowed for paddy/rice procured in the entire KMS 2007-08.
f An incentive bonus of Rs50 per quintal allowed over the MSP of paddy for KMS 2008-09.
g An incentive bonus of Rs50 per quintal allowed over the MSP of paddy for KMS 2009-10.
204 Economic Survey 2009-10

Table 8.28 : Quantum of food subsidies Sugar

released by Government 8.97 Sugar production in India is cyclical in nature.
Year Food subsidy* Annual growth High production of sugar in the 2006-07 and 2007-
08 sugar seasons (October- September) was
(Rs crore) (per cent)
followed by low production in the 2008-09 sugar
1999-2000 9,200.00 5.75 season. The production in the current sugar season
2000-01 12,010.00 30.54 2009-10 is also expected to be low as compared to
2001-02 17,494.00 45.66 sugar seasons 2006-07 and 2007-08. The estimated
production of sugar seasons 2006-07 and 2007-08
2002-03 24,176.45 38.20
was 282 lakh tonnes and 263 lakh tonnes
2003-04 25,160.00 4.07 respectively, whereas the production of sugar in the
2004-05 25,746.45 2.33 2008-09 sugar season is estimated at 146.8 lakh
tonnes. Thus the production of sugar in the 2008-09
2005-06 23,071.00 -10.39
sugar season declined by about 116.2 lakh tonnes,
2006-07 23,827.59 3.28 which put pressure on prices.
2007-08 31,259.68 31.19
8.98 The estimated sugarcane production as per
2008-09 43,668.08 39.69 the first advance estimates 2009-10 is 2,494.81 lakh
2009-10 46,906.68 7.42 tonnes against a production of 2,739.31 lakh tonnes
as per the fourth advance estimates 2008-09. There
* Figures up to December 29,2009.
is, therefore, decline in the production of sugarcane
Department of Food & Public Distribution.
of about 9 per cent in the current year compared to
last year. The production of sugar in the 2009-10
sugar season is estimated to be about 160 lakh
tonnes. The Government has accordingly taken a
Allocation under the TPDS
number of measures to augment domestic stocks
8.95 Allocations of foodgrains for BPL and AAY of sugar and also to moderate prices. This, inter
categories are made at the rate of 35 kg per family alia, includes allowing sugar mills to import duty-
per month for all accepted 6.52 crore families in the free raw sugar on ton to ton basis under the advance
country. The total BPL and AAY allocations made authorization scheme with effect from February 17,
during 2009-10 were 276.77 lakh tonnes comprising 2009, which effectively implies meeting their export
181.05 lakh tonnes of rice and 95.72 lakh tonnes of obligation two-three years later; allowing import of
wheat. Allocations under the APL category are made raw sugar at zero duty under open general licence
depending upon the availability of stocks of foodgrains (OGL) by sugar mills up to December 31, 2010;
in the Central Pool and past offtake. Presently, these allowing import of white/refined sugar by STC/MMTC/
allocations range between 10 kg and 35 kg per family PEC and NAFED up to 1 million tonnes under OGL
per month in different States/UTs. During 2009-10, at zero duty up to March 31,2010. Furthermore, the
197.17 lakh tonnes of foodgrains has been allocated duty-free import of white/refined sugar under OGL
to States/UTs under the APL category as against has been opened to other Central/ State government
112 lakh tonnes during 2008-09. agencies and to private trade in addition to existing
designated agencies and levy obligation in respect
Open Market Sale Scheme of all imported raw sugar and white/ refined sugar
has been removed.
8.96 In order to check inflationary trends in the food
economy, the Government took a decision in August 8.99 Apart from measures taken to augment
2008 to release wheat into the open market under supplies, stockholding and turnover limits have been
the Open Market Sales Scheme (Domestic). These imposed in March 2009 in order to moderate prices
releases have been made through (a) allocation to of sugar. Further, even khandsari sugar units have
State/UT Governments for distribution to retail been brought under the ambit of stockholding and
consumers; and (b) sale to bulk consumers by the turnover limits. Stockholding limits of not holding
FCI through open tenders. The release of wheat under stocks exceeding fifteen days of the requirement on
the OMSS has helped stabilize wholesale prices of large consumers of sugar who are using or consuming
wheat. more than 10 quintals of sugar per month have been

imposed. Futures trade in sugar in domestic
exchanges has also been suspended in May 2009
till September 2010.
8.100 The concept of satutory minimum price in
the case of sugarcane has been replaced by fair
and remunerative price (FRP) which is to be uniformly
applicable to all States to provide reasonable margins
to sugarcane farmers on account of “risk” and “profit”.
The amendments to the Sugarcane (Control) Order
1966, have come into force from October 22, 2009.
For the 2009-10 sugar season, the Central
Government has fixed an FRP of Rs129.84 per quintal
linked to a basic recovery rate of 9.5 per cent subject
to a premium of Rs1.37 for every 0.1 percentage
increase in recovery above that level.
Edible Oils
8.101 Estimated production of oilseeds and net
availability of edible oils from all domestic sources
are given in Table 8.29. In order to increase the
availability and control prices of edible oils,
Government has reduced the custom duties on crude
and refined edible oils to “nil” and 7.5 per cent
respectively since April1, 2008. It has been decided
that this duty structure would continue till September
30, 2010. Export of all major edible oils from the
country has been banned since March 17, 2008 up
to 30.9.2010 (except coconut oil through Cochin Port
and certain oils with minor forest origins). The tariff
values on edible oils have been frozen in 2006. The
Government had launched a scheme for “distribution
of subsidized edible oils” in 2008-09 to provide relief
to consumers from rising prices of edible oils. Under
this scheme, imported edible oils were distributed
through State Governments/UTs at the rate of 1 kg
per ration card per month. The scheme continues in
the current year (2009-10) with a subsidy of Rs 15
Table 8.29 : Production of oilseeds and net availability of edible oils
Oil year Production Net availability
(Nov.-Oct.) of Oilseeds* of edible oils
from all
domestic
sources**
2007-08 297.56 86.54
2008-09 281.57 85.98
2009-10 (Estimated) 255.09 82.00
Source : * Ministry of Agriculture;
** Directorate of Vanaspati, Vegetable Oils & Fat (Nov.-Oct.);
# DGCI&S, Kolkata (Financial Year).
Agriculture and Food Management 205
per kg on imported oil up to 10 lakh tonnes and has
been extended till October 31, 2010.
COMMODITY FUTURES MARKET
Commodity futures market
8.102 Commodities traded on the commodity
futures market during 2009 included a variety of
agricultural commodities, bullion, crude oil, energy
and metal products. Several new commodities were
introduced for futures trading in 2009, such as
almond, imported thermal coal, carbon credits and
platinum. The commodity futures market facilitates
the price discovery process and provides price risk
management. Its effectiveness depends on the wider
participation of all the stakeholders. The average daily
value of trades in the commodity exchanges
improved from Rs 16,400 crore during 2008 to
Rs 23,200 crore in 2009. Agricultural commodities,
bullion and energy accounted for a large share of
the commodities traded in the commodities futures
market. The total value of trades in the commodity
futures market rose from Rs 50.34 lakh crore in 2008
to Rs 70.90 lakh crore during 2009. The Multi
Commodity Exchange, Mumbai, recorded the
highest turnover in terms of value of trade during 2009,
followed by the National Commodity & Derivatives
Exchange Ltd. (NCDEX) and National Multi
Commodity Exchange of India Ltd. (NMCE)
respectively (Table 8.30).
8.103 During the year 2009-10(up to December
2009), value of trade in agricultural commodities was
about 16.33 per cent. Agricultural commodities,
however, accounted for 38 per cent of the total volume
of trade. In value terms, bullion accounted for the
maximum share of commodity groups followed by
energy and metals (Table 8.31).
(in lakh tonnes)
Import of Total availability/ Total estimated
edible oils consumption of requirement/
edible oils (from demand for
domestic & edible
imports sources) oil
49.03# 135.57 127.57
67.20# 153.18 132.80
101.00** 183.00 138.18
206 Economic Survey 2009-10

Table 8.30 : Turnover on commodity futures with commodity exchanges to promote participation
markets of farmers. The FMC also undertook several
(Rs crore)
regulatory initiatives to prevent market manipulation
and ensure market integrity, financial integrity and
Name of the Calendar year customer protection. Major policy developments
exchange 2007 2008 2009 initiated by the FMC included the issuance of
Multi Commodity 27,30,415 42,84,653 59,56,656
guidelines for bringing members of the commodity
Exchange, Mumbai exchanges under the purview of the Money
Laundering Act and guidelines for divestment of the
National Commodity 7,74,965 6,28,074 8,05,720
and Derivatives equity by the existing national exchanges after five
Exchange, Mumbai years of their operation. A price dissemination project
National Multi 25,056 37,272 1,95,907
was initiated by the FMC, under which spot and future
Commodity Exchange prices of agricultural commodities would be made
Ahmedabad available to farmers on real-time basis on electronic
price ticker boards placed at Agriculture Produce
Others 1,24,051 83,885 1,32,173
Marketing Committee.
Total 36,54,487 50,33,884 70,90,456
Restoration of futures trade – chana, soy oil,
rubber, potato and wheat
8.104 The Forward Markets Commission (FMC),
the regulator for commodity futures trading under 8.105 The year 2009 began on an optimistic note
the provisions of the Forward Contracts (Regulation) for the commodity futures market with the revocation
Act,1952 continued its efforts to broad-base the of suspension of futures trading in four of the eight
market. The participation of physical market commodities, namely chana, soy oil, rubber and
participants, especially farmers, as hedgers, to potato, in December 2008. This was followed by the
counterbalance the speculative element in price revocation of suspension of trading in wheat in May
discovery and increasing the awareness level of 2009. However, futures trading in sugar has been
farmers and other market participants was suspended till September 30, 2010. Agriculture
emphasized. The Commission undertook various commodity futures staged a remarkable recovery
regulatory measures to facilitate hedgers’ after steady decline over the last two years, recording
participation and promote delivery in agricultural a trading value of Rs 10.88 lakh crore in 2009,
commodities, such as introduction of Exchange of signifying growth of 48 per cent over the previous
Futures for Physicals (EFP) and Alternate Futures year. During the year, a new National Commodity
Settlement Mechanism, allowing higher position Exchange called Indian Commodity Exchange (ICEX)
limits to NAFED to facilitate hedging and delivery by became operational. Besides, a scheme of
them and introduction of early delivery system in upgradation of Ahmedabad Commodity Exchange
select commodities. In addition, efforts were made to National Commodity Exchange status has been
to develop an “aggregation” model in collaboration approved.

Table 8.31 : Trade in commodity futures market

(volume in lakh tonnes and value in Rs crore)

2007-08 2008-09 2009-10

Name of the commodity Volume Value Volume Value Volume Value

Agricultural Commodities 3,139.03 9,41,283.33 2,309.35 6,27,303.14 2,910.05 9,02,209.31

Bullion 3.46 17,25,952.45 4.19 29,73,674.60 3.36 22,10,133.08
Metals 448.46 8,97,714.34 436.17 6,18,775.61 644.89 11,78,237.54
Energy 1,976.22 5,00,942.14 3,938.17 10,26,442.05 4,088.36 12,32,612.60
Other 6.25 97.22 175.62 2,760.78 2.12 3,103.36
Total 5,573.41 40,65,989.47 6,863.49 52,48,956.18 7,648.79 55,26,295.90

DEVELOPMENT OF ELECTRONIC SPOT
EXCHANGES
8.106 The Government has allowed the National
Commodity Exchanges to set up three spot
exchanges in the country, namely the National Spot
Exchange Ltd. (NSEL), NCDEX spot Exchange Ltd.
(NSPOT) and National Agriculture Produce
Marketing Company of India Ltd. (NAPMC). During
2009, there was significant expansion of spot
exchanges’ trading facilities in India. These spot
exchanges have created an avenue for direct market
linkage among farmers, processors, exporters and
end users with a view to reducing the cost of
intermediation and enhancing price realization by
farmers. They will also provide the most efficient spot
price inputs to the futures exchanges. The spot
exchanges will encompass the entire spectrum of
commodities across the country and will bring home
the advantages of an electronic spot trading platform
to all market participants in the agricultural and non-
agricultural segments. On the agricultural side, the
exchanges would enable farmers to trade seamlessly
on the platform by providing real-time access to price
information and a simplified delivery process, thereby
ensuring the best possible price. On the buy side,
all users of the commodities in the commodity value
chain would have simultaneous access to the
exchanges and be able to procure at the best
possible price. Therefore the efficiency levels attained
as a result of such seamless spot transactions would
result in major benefits for both producers and
consumers. These Spot Exchanges will also provide
a platform for trading of Warehouse Receipts.
CHALLENGES AND OUTLOOK
8.107 The country has been able to manage one
of the most deficient monsoons with concerted efforts
of the State Governments and the Centre. Several
incentives and concessions allowed to farmers by
the States and the Central Government resulted in
minimizing the loss in kharif production and
maximizing rabi production. Part of the loss in kharif
production is expected to be made up in the rabi
season. The sector, however, faces various
challenges which need to be addressed sooner than
later.
8.108 Although the yield per hectare of foodgrains
has shown some improvement in recent years it is
not significant enough to cater to the needs of the
rising population particularly when income levels are
also rising. Since farm productivity is not showing
desirable growth there is urgent need to focus on
research as well as better agricultural practices to
Agriculture and Food Management 207
ensure that productivity levels are increased in the
shortest time possible. Special attention may be
required for States with relatively low productivity.
8.109 Production and productivity in pulses and
oilseeds are of growing concern. A sizeable proportion
of these items is met through imports. The scope
for import of pulses is limited due to the limited
number of countries producing it. Due to this supply-
demand gap domestic prices fluctuate with
availability and prices in the international market apart
from the impact of domestic production trends.
8.110 Consistent decline in the share of private-
sector investment in the agriculture sector is a matter
of concern. This trend needs to be reversed through
creation of a favourable policy environment and
availability of credit at reasonable rates on time for
the private sector to invest in agriculture.
8.111 There has been substantial increase in MSPs
of various crops over the last few years. This is
considered necessary to incentivize the farmers to
increase production and productivity. At the same
time, the MSP signals the floor price for the produce
which, in turn, has the potential of increasing the
prices. Addressing the welfare of agricultural
producers and consumers simultaneously poses a
challenge. Further, inability of a large number of small
and marginal farmers to directly access the agri-
market puts a question mark on increases in MSP
actually benefiting such farmers.
8.112 Record procurement of rice and wheat in the
last few years has helped to build up the buffer stock
and strategic reserve of wheat and rice. There is,
however, a huge cost involved in the process which
is met through budgetary sources in the form of food
subsidy. This puts a lot of stress on the fiscal system.
The issue of efficient food stocks management and
offloading of stocks in time needs urgent attention.
8.113 Studies indicate adverse impact of climate
change on agriculture. Crop improvement and
research to develop drought-resistant, high-yielding
varieties of seeds assumes importance with a view
to combating adverse impact of drought on food
production and to ensure food security.
8.114 To sum up, we need to address the
challenges of the agriculture sector through
comprehensive and coordinated efforts. Renewed
attention needs to be paid to improving farm
production and productivity, better utilization of
agricultural inputs, proper marketing infrastructure
and support, stepping up investment in agriculture
with due emphasis on environmental concerns and
efficient food management.
Industry 9
CHAPTER

Industry, especially manufacturing, was one of the key drivers of the transformation
in the growth trajectory of the Indian economy witnessed during the post-2000 period.
However, a cyclical slowdown began in the industrial sector in 2007-08 and was
compounded by the twin global shocks in 2008-09. The effects lingered on briefly in
the current fiscal, but growth rebound is now amply evident. Gross domestic product
(GDP) growth has clearly revived in the second quarter of the current year and the
industrial sector has emerged as one of the prime movers of the process.

9.2 The recovery in the industrial sector is clearly
discernible as corroborated by both the data on
national accounts and the index of industrial
production (IIP). The downward trend observed in
the rate of growth of the IIP that spanned almost
eight quarters (beginning the first quarter of 2007-
08 and continuing through to the last quarter of 2008-
09) stands reversed as gleaned from the latest data
for the current fiscal. After reaching a trough of 0.6
per cent during the second half of 2008-09, growth
in the IIP revived to a level of 7.7 per cent during
April-November 2009-10.
9.3 The broad-based nature of the recovery was
evident in the pick-up in growth of almost all major
components of the IIP (Table 9.1). With the exception

Table 9.1 : Growth in the IIP and its major components

(per cent)
Period Mining Manufacturing Electricity IIP

2006-07 5.4 12.5 7.2 11.6

Q1 2007-08 2.7 11.1 8.3 10.3
Q2 2007-08 7.4 8.9 7.1 8.7
Q3 2007-08 5.5 8.9 4.6 8.3
Q4 2007-08 5.2 7.3 5.5 7.0
Q1 2008-09 4.0 5.8 2.0 5.3
Q2 2008-09 3.8 4.9 3.2 4.7
Q3 2008-09 2.0 0.5 2.9 0.8
Q4 2008-09 0.9 0.3 3.0 0.5
Q1 2009-10 6.8 3.4 6.0 3.8
Q2 2009-10 9.0 9.3 7.5 9.1
Oct-Nov. 09 9.5 11.9 4.0 11.0

Source : Central Statistical Organisation (CSO).

 Industry 209
Figure 9.1 Growth (per cent) in the IIP and its major components
25
21.7
20 Growth in
Apr-Nov 08

15
Growth in
Per cent

11.4 Apr-Nov 09
10 8.3 8.4
7.7 7.0 7.3 7.6
6.1 6.1
4.2 5.1
5 3.4 3.6 4.1
2.8
1.1
0
-0.7

-5
Mining Electricity Capital goods Durables IIP
Manufacturing Basic goods Intermediates Non-durables

of consumer non-durables, while all the use-based 9.4 The continuing downward movement in capital
industrial groups subsumed under the IIP have goods and consumer non-durables, and to an extent
recovered from slump, it was the consistently basic goods, suggests that their current rate of
increasing growth in consumer durables and growth is significantly below the pre-2007-08 levels
intermediate goods that drove the industrial revival and that fuller recovery requires a broader anchor
(Figure 9.1). (Figure 9.2).

Figure 9.2A Growth in IIP and its use-based categories (in per cent): Basic goods
12
10 Growth in
8 basic
Per cent

goods
6
4 Trend line
2
0
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Oct-Nov

2006-07 2007-08 2008-09 2009-10

Year

Figure 9.2B Growth in IIP and its use-based categories (in per cent): Capital goods
30
25 Growth in
20 capital
Per cent

goods
15
10 Trend line
5
0
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Oct-Nov

2006-07 2007-08 2008-09 2009-10

Year
210 Economic Survey 2009-10

Figure 9.2C Growth in IIP and its use-based categories (in per cent): Intermediate goods
20
15 Growth in
intermediate
Per cent

10
goods
5
0 Trend line
-5
-10
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Oct-Nov
2006-07 2007-08 2008-09 2009-10
Year

Figure 9.2D Growth in IIP and its use-based categories (in per cent): Durables
30
25 Growth in
20 durables
15
Per cent

10 Trend line
5
0
-5
-10
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Oct-Nov
2006-07 2007-08 2008-09 2009-10
Year

Figure 9.2E Growth in IIP and its use-based categories (in per cent): Non-durables
20
15 Growth in
10 non-
Per cent

durables
5
0 Trend line
-5
-10
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Oct-Nov

2006-07 2007-08 2008-09 2009-10

Year

Figure 9.2F Growth in IIP and its use-based categories (in per cent): IIP
14
12 Growth
10 in IIP
8
Per cent

6 Trend line
4
2
0
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Oct-Nov

2006-07 2007-08 2008-09 2009-10

Year

DEVELOPMENTS THAT IMPACTED THE
SLOWDOWN AND RECOVERY
The slowdown
9.5 A brief recap of the process of slowdown in the
IIP since 2007-08 would be useful in appreciating
the current process of recovery. The decline in
industrial growth, as measured by the IIP, started in
the first quarter of 2007-08 and continued through
the first half of 2008-09 at a gradual pace. Persistent
rise in the price of crude during January 2006-July
2008 and the rise in price of other intermediates
(global commodity price shock), particularly metals
and ores, from the latter half of 2006-07 to the second
half of 2008-09, had their effect on the cost side of
the manufacturing sector. A comparison of the major
components of expenditure for a sample of
manufacturing companies suggests that even by the
second half of 2007-08, the cost structure had
worsened. This got accentuated in the first two
quarters of 2008-09 (Table 9.2).
9.6 The deepening of the global financial crisis
immediately following the commodity price shock
made it increasingly difficult for companies to raise
resources in 2008-09. On the external front, there
Industry 211
was a sharp decline in the flow of funds from
American/ global depository receipts (ADRs/GDRs)
and external commercial borrowings; but the inflows
of foreign direct investment (FDI) continued.
Domestically, the mobilization of resources by the
private sector through the capital market, especially
the equity route, saw a precipitous decline during
2008-09. However, bank credit to the industrial sector
recorded impressive growth during 2008-09 and in
some ways filled the gap due to the sudden shrinkage
of other sources.
9.7 The drying up of trade credit, especially of
foreign banks, since mid-September 2008 and the
sharp depreciation in the nominal exchange rate of
the rupee within a short span of time made it difficult
for manufacturers to hedge their positions and
finance their ongoing operations. The shrinkage in
export demand that started from September 2008
further affected the export-intensive industries. The
sharp reversal in commodity prices from the third
quarter of 2008 adversely affected such units in terms
of build-up of inventories. The decline in construction
and real estate activities affected the segments of
manufacturing linked to them. These developments
ultimately impacted the growth of profits of the
manufacturing sector. From the abridged results of

Table 9.2 : Year-on-Year Growth in Sales and Expenditure of listed public limited manufacturing
companies in the private sector
Items 2007-08 2008-09 2009-10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3(P)

No. of Companies 1,811 1,716 1,780 1,803 1,926 1,837 1,849 1,901 1,752 1,752 1857

Growth rates (in per cent)

Sales 17.0 12.7 15.4 18.7 30.1 32.1 6.3 0.1 -2.9 -0.3 28.7

Change in Stock-in-trade -18.2 -13.2 -0.8 151.6 131.9 230.1 @ @ -70.0 -1.3 $

Expenditure 16.0 12.0 15.9 21.0 34.3 38.8 9.3 -2.9 -6.6 -3.3 26.6

Raw Material 17.9 10.1 15.3 20.3 38.1 44.0 4.0 -9.6 -14.5 -4.7 35.5

Staff Cost 19.0 16.8 18.3 16.6 19.3 17.0 12.4 7.9 10.1 9.4 12.0

Power & Fuel 9.6 6.6 13.7 25.8 28.8 37.8 21.7 3.1 -1.4 -5.4 1.6

Interest Costs 7.8 15.1 35.6 30.8 52.0 69.9 60.5 43.3 10.1 -1.2 -4.8

Profit after tax (PAT) 27.6 19.1 30.2 15.7 6.9 -4.2 -66.4 -28.3 2.7 16.9 177.7

Ratios (in per cent)

PAT to Sales 10.5 10.6 11.4 9.5 8.7 7.6 3.6 6.7 9.4 9.0 8.0

Source : Reserve Bank of India Studies on Corporate Performance based on a abridged results of select
companies in the private corporate sector.
Note: P : Data for Q3 : 2009-10 is provisional; @ Numerator is negative; $ : Denominator is negative
212 Economic Survey 2009-10
Table 9.3 : Inflation (in per cent) in use-based industrial groups (WPI based; year-on-year)
2006-07
Basic Goods 5.8
Capital Goods 8.8
Intermediate Goods 5.5
Durables 2.0
Non-durables 3.7
Source : Department of Industrial Policy & Promotion.
a sample of manufacturing companies, it is seen
that while profitability (PAT / sales) was under strain
since the fourth quarter of 2007-08, it came down
sharply in the third quarter of 2008-09 accompanied
by a sharp dip in growth in sales (Table 9.2).
The recovery
9.8 Reflecting the continuance of the developments,
the manufacturing sector remained subdued in the
first two months of the current fiscal, which reduced
the level of growth of the IIP in the first quarter to 3.8
per cent. However, there were visible signs of the
reversal of the downward trend in growth in IIP growth
for the month of June 2009. Thereafter, the IIP
marched ahead, registering growth close to 10 per
cent during July - November 2009 (Table 9.1).
9.9 The growth in sales revenues of companies,
which remained quite impressive at around 30 per
cent during the first half (H1) of 2008-09, slowed down
during H1 2009-10 largely due to lower price
realisation (Table 9.2). Though year-on-year nominal
sales growth remained subdued between quarters
ending March 2009 and September 2009, the growth
in sales and stock in trade adjusted for prices
reflected improvement in production which was also
coroborated by the rise in IIP. The momentum in
demand was also reflected in the sequential growth
in sales revenues. The latest quarter ended
December 2009 witnessed noticeable acceleration
in sales, mostly driven by increase in volumes;
supported also by low base of corresponding quarter
last year. Increase in sales revenue together with
significantly lower input costs, lower rise in interest
outflow, lower foreign exchange-related losses and
good growth in non-core other income boosted net
profits (Table 9.2). Expenditure on raw materials that
fell during first two quarters of 2009-10 mainly on
account of lower commodity prices showed
noticeable increase as prices, firmed up again in
the third quarter. The measure of inflation in use-
based industrial groups (a ‘rough’ measure because
of lack of one-to-one correspondence between the
2007-08 2008-09 2008 2009
(April-Dec.) (April-Dec.)
2.7 9.0 11.9 -6.0
8.6 5.2 6.4 -2.3
3.3 10.3 14.0 -4.7
4.3 3.2 3.5 1.6
1.9 7.2 7.2 9.8
IIP and wholesale price index [WPI]) showed that
the prices of items that are employed at different
stages of manufacturing have declined during April-
December 2009 (Table 9.3). In contrast, the prices
of non-durable items of consumption remained firm
during the period.
9.10 Stocks in trade that were accumulated during
the first half of 2008-09 were depleted during the
latter half indicating adjustments of inventory levels
to changes in business demand. Stock in trade
picked up slowly in the current period indicating revival
in the cycle (Table 9.2).
9.11 Mobilization of investible resources became
easier during H1 2009-10. Despite significant
deceleration in bank credit in the current year,
buoyant sources like rights and public issues,
qualified institutional placements, private placement
of corporate debt, mutual funds and commercial
papers as well as a steady flow of external funds
through FDI, ADRs/GDRs and external commercial
borrowings indicate that mobilizing resources for
managing the recovery may not be an issue.
Growth in major industrial groups
9.12 The major industrial groups like automobiles,
rubber and plastic products, wool and silk textiles,
wood products, chemicals and miscellaneous
manufacturing staged a strong recovery during April-
November 2009, while machinery and textile products
reinforced their growth (Table 9.4). Led by cement,
non-metallic mineral products also staged a recovery,
albeit a modest one. After posting a growth of around
14 per cent annually in the eight-year period ending
2008-09, beverages and tobacco products
experienced a slump in the current year. Product
groups like paper, leather, food and jute textiles did
not evince any visible recovery. Cotton textiles and
metal products have also been experiencing
lacklustre growth since 2007-08. Overall, the
picture is a mixed one in the analysis of major
industrial groups.
 Industry 213
Table 9.4 : Growth by industrial groups (Figures in per cent based on the IIP; 1993-94=100)
2007-08 2008-09 H1 2008-09 H2 2008-09 2009-10
(April-Nov.)
Overall Manufacturing 9.0 2.8 5.3 0.4 7.7
High growth in 2009-10 (April-November)
Transport Equipment 2.9 2.5 12.2 -6.1 13.9
Rubber, Petroleum & Plastic 8.9 -1.5 -4.0 0.9 13.5
Wool, Silk & Man-made Textiles 4.8 0.0 -0.9 0.9 13.0
Miscellaneous Manufacturing 19.8 0.4 -1.1 1.7 12.3
Machinery & Equipment 10.4 8.8 10.1 7.6 12.1
Wood Products 40.5 -9.6 -6.1 -13.2 10.5
Chemicals 10.6 4.1 6.1 2.1 10.0
Textile Products 3.7 5.8 5.2 6.3 9.9
Lower growth in 2009-10 (April-November)
Non-metallic Mineral Products 5.7 1.2 0.6 1.8 6.4
Basic Metals 12.1 4.0 6.7 1.4 4.8
Metal Products -5.6 -4.0 1.9 -9.4 4.0
Cotton Textiles 4.3 -1.9 0.1 -3.9 3.2
Paper Products 2.7 1.8 4.6 -0.8 2.1
Leather Products 11.7 -6.9 -1.8 -11.8 0.9
Decline in 2009-10 (April-November)
Beverages, Tobacco 12.0 16.2 20.3 12.3 -2.2
Food Products 7.0 -9.7 -1.0 -15.1 -7.2
Jute Textiles 33.1 -10.0 -5.4 -14.6 -16.2
Source : CSO.

9.13 The chemical group and machinery and of the group in manufacturing, the accumulated index
equipment (with high weights) together contributed of production and current growth). The distinct
53 per cent of the manufacturing growth in April- changes from the previous to current year (April-
November 2009 (Figure 9.3). These two product November) are the sharp decline in growth
groups, together with transport equipment and rubber, contribution of the beverages and tobacco group and
plastic, petroleum and coal products, explained more the significant improvement in contribution of rubber,
than three-fourths of the manufacturing growth during plastic, petroleum and coal products.
the period (contribution of a particular group to total 9.14 An analysis of the trends in the use-based
manufacturing growth is determined by the weight industrial groups (Figure 9.1) and sectoral categories

Figure 9.3 Contributions of product groups to manufacturing growth (in per cent)
40
35 Apr-Nov
30 2008
25
20
Per cent

Apr-Nov
15 2009

10
5
0
-5
-10
wool, silk, etc textiles

Rubber, plastic, petro & coal

Food Products

Beverages, tobacco

Jute textiles

Leather products

Paper products

Metal products

Cotton textiles

Wood products

Textile products

Non-met min products

Miscellaneous

Basic metals

Transport equipment

Chemicals

Machinery & equipment

214 Economic Survey 2009-10

subsumed under the National Industrial Classification
(Table 9.4) in tandem makes the industrial scenario
somewhat clearer. Among the use-based industrial
groups, basic goods (with a weight of 35.6 per cent
in the IIP) are composed mainly of basic chemicals,
basic metals, cement, electricity and minerals.
Electricity and mining account for about 58 per cent
of the weight of basic goods captured by the IIP and
the growth of basic goods during April-December
2009 largely reflected the growth in the two sectors.
While other important basic goods like cement and
fertilizers recorded reasonable growth, different
components of the iron and steel industry showed a
mixed picture.
9.15 The strong growth in the machinery and
equipment group fed into the growth in capital goods,
while some automobile components like commercial
vehicles exhibited slack in growth. Despite the
lacklustre production performance of petroleum
products (except natural gas) and textile
intermediates, intermediate goods registered robust
growth in H1 2009-10, aided by the strong growth in
important items like PVC pipes, commercial
plywood, chemical intermediates like paints, granite
and stone chips filament yarn, polyster fibre, viscose
staple fibre and a wide range of other items.
9.16 Growth in consumer durables has been broad-
based, the robust production performance of
automobiles being quite significant. On the other
hand, the low growth in food products, beverages
and tobacco products and cloth and footwear acted
as a dampener on the growth in consumer non-
durables. Paradoxically, disaggregated growth in
consumer non-durables indicates that the scenario
is not as bleak as exhibited by the group as a whole.
The strong contractionary movement in some
important items like sugar, milk powder, beverages
and some pharmaceuticals has had exaggerated
impact, leading to negative growth in consumer non-
durables during H1 2009-10; otherwise, the majority
of the non-durable items of consumption have shown
positive growth during the period.
INDUSTRIAL GROWTH BY SECTORS
Food products
9.17 As per the IIP, food products experienced a
decline in production of 7.2 per cent in April-
November 2009 on an year-on-year basis. This came
on the back of negligible growth during the same
period in the previous year. The main growth
dampener in food products was sugar production,
which declined by 59.6 per cent in the current year
(April-November), following an already significant
decline during 2008-09. The other important items
that slowed down growth included milk powder,
malted food and chocolates and sugar confectionary.
Among the important items that exhibited double-digit
growth were wheat flour/maida, salt, and edible oils
like coconut, rice bran, cotton seed, and mustard/
rapeseed. Production of sunflower oil, soya bean oil,
edible hydrogenated oil and groundnut oil declined.
Beverages and tobacco products
9.18 Beverages and tobacco products declined by
about 2.0 per cent during April-November 2009, as
per the IIP data. This group had grown by 17.7 per

Figure 9.4 Movement in the index of production of food products and beverages and
tobacco products (Index 1993-94=100)
600

500 578.5 562.4 Food

products
498.0
Index 1993-94=100

400 444.5
400.3 Beverages
345.9 & tobacco
300 312.1 products
287.6

200 200.4 224.8

185.2 198.2
168.7 167.9 167.3 170.6 178.9
154.5 152.0 139.0
100

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Nov
2009
Year
 Industry 215
cent during the corresponding period in the previous Table 9.5 : Production of fabrics/cloth
year. While food products showed slow growth in (million sq. m)
the post-2000 period (compound annual growth of
Sector 2006-07 2007-08 2008-09 2009-10
1.8 per cent during 2001-02 to 2008-09), the (P) (Apr.-Nov.)
beverages and tobacco product group achieved rapid (P)
growth (compound annual growth of 14.2 per cent Mill 1,746 1,781 1,796 1,192
during 2001-02 to 2008-09). Hence the slowdown (5.4) (2.0) (0.8) (-0.1)
shown by these two groups in April-November 2009, Handloom 6,536 6,947 6,677 4,513
compared to the same period in 2008, needs to be (7.0) (6.3) (-3.9) (1.7)
viewed differently (Figure 9.4). Power Loom 32,879 34,725 33,648 25,157
(7.4) (5.6) (-3.1) (12.5)
9.19 Production of rectified spirit and country liquor Hosiery 11,504 11,804 12,077 9,047
declined while that of beer grew by 14 per cent in (10.4) (2.6) (2.3) (12.8)
2009-10 (April-November). The growth in Indian-made Others* 724 768 768 320
country liquor was only 3.1 per cent during the period. (-5.9) (6.1) (0.0) (0.0)
Cigarette production has not shown any significant Total Cloth 53,389 56,025 54,966 40,229
growth since 2007-08. Production (7.7) (4.9) (-1.9) (10.8)

Textiles Source : O/o Textile Commissioner, Mumbai.

9.20 As per the IIP data, the textile group consisting
of cotton, wool, silk and man-made and jute textiles
and textile products, grew by 7.5 per cent during
April-November 2009, compared to 1.0 per cent
during April-November 2008. While wool, silk and
man-made textiles grew by 13 per cent during 2009-
10 (April-November) shrugging off the weak
performance in the corresponding period last year,
cotton textiles barely managed a recovery with
3.2 per cent growth. Textile products achieved growth
close to 6.0 per cent in 2008-09 and topped it with
9.9 per cent growth during April-November 2009.
However, jute textiles which had slid by 3.9 per cent
in 2008-09, declined again by 16.2 per cent in 2009-
10 (April-November).
Notes : (P) Provisional;
* Production up to August 2009; Figures in
parentheses are growth in per cent, year-
on-year
9.21 Overall, the production of textile fabrics
increased by 10.7 per cent during April-November
2009-10 (provisional). The highest growth was
observed in the hosiery sector (12.8 per cent) followed
by power looms (12.5 per cent), while the handloom
and mill sectors could not revive from the previous
year’s slump (Table 9.5). The share of the power-
looms sector in total fabric production stood at 62.5
per cent during April-November 2009—with its share
gradually increasing over the years, the production
of fabric is increasingly driven by power looms.

Table 9.6 : Export of textiles

(US$ million)
Items 2006-07 2007-08 2008-09 Apr.-Sept. Growth
(P) 2009 (P) Apr.-Sept.
2009 (per cent)
Ready-made Garments 8,282.3 9,069.8 10,242.8 4,528.8 -10.3
Cotton Textiles 5,564.2 6,858.6 4,741.6 1,788.9 -35.1
Wool & Woollen Textiles 423.8 443.1 478.2 240.6 -8.7
Man-made Textiles 2,398.9 3,177.1 3,280.5 1,889.8 -2.4
Silk 706.0 657.7 675.5 280.7 -24.7
Handicrafts* 1,364.9 1,452.3 1,074.0 401.8 -33.6
Coir & Coir Manufactures 145.8 160.3 148.0 78.3 -2.7
Jute Goods 260.2 327.9 299.1 109.9 -40.8
Handloom Products 0.0 0.0 0.0 112.3 0.0
Grand Total 19,146.1 22,146.8 20,939.8 9,431.1 -15.5
Source : Directorate General of Commercial Intelligence and Statistics (DGCI&S) Kolkata.
Notes : * include only textile-based handicrafts such as, handmade carpets excluding silk; silk carpets;
handicrafts excluding handmade carpets);
P : Provisional
216 Economic Survey 2009-10
9.22 Though the textile sector seemed to have
gathered momentum consequent on the termination
of the quota regime in December 2004, the
performance of Indian textiles continues to lag
substantially behind that of China in terms of rate of
growth of exports and share in world textile exports.
In US dollar terms, textile exports grew by 15.7 per
cent during 2007-08 but declined by 5.5 per cent
during 2008-09. During April-September 2009,
exports of textiles and clothing were at US$ 9.43
billion, recording an 15.5 per cent decline in growth
vis-à-vis exports of US$ 11.15 billion in April-
September 2008 (Table 9.6).
9.23 The Technology Upgradation Fund Scheme
(TUFS) and Scheme for Integrated Textile Parks
(SITP) are two flagship schemes of the Ministry of
Textiles. TUFS, implemented with a view to
facilitating modernization and upgradation of the
textile industry by providing credit at reduced rates,
has been fine-tuned to induce investments in targeted
segments. Under the scheme, Rs 78,307 crore was
sanctioned against the project cost of Rs 1,79,856
crore and loans worth Rs 66,284 crore were
disbursed to 25,777 applicants up to June 30, 2009
(provisional). Under the SITP, 40 integrated textiles
parks of international standards, covering the
weaving, knitting, processing and garmenting sectors
with project proposals worth Rs 4,141.39 crore (of
which assistance from the Government is Rs
1,422.43 crore), have been sanctioned. So far, five
textile parks have been inaugurated.
Wood and wood products
9.24 Wood and wood products, as per the IIP data,
showed 10.5 per cent growth in production during
April-November 2009, compared to a 6 per cent
decline during the same period in the previous year.
Among the two components (included in the IIP),
Figure 9.5 Movement in the index of production of wood products (Index 1993-94=100)
140
Index 1993-94=100
120
104.3
100 92.8
76.5
80
60
40
20
0
2000-01 2001-02 2002-03
particle board grew by 7.1 per cent, while commercial
plywood grew by 46.3 per cent during the period.
Wood and wood products experienced wide-ranging
annual fluctuations in production during the post-
2000 period and managed only a compound annual
growth of 1.3 per cent during 2001-02 to 2008-09
(Fig 9.5).
Paper and paper products
9.25 Paper and paper products grew by only 2.1
per cent during April-November 2009, as per the IIP
data. This followed indifferent growth during 2007-08
as well as 2008-09. While paper and paper board
and corrugated boxes/cartons achieved reasonable
growth during the current year, bleached newsprint
and rayon-grade pulp declined by more than 10 per
cent.
Leather and leather products
9.26 As per the IIP data, leather products, which
include finished leather, leather footwear, shoe
uppers, leather garments and other leather goods,
showed only 0.9 per cent growth in production during
April-November 2009, following a 5 per cent decline
during the same period in the previous year.
Production of leather and fur products almost
stagnated during the post-2000 period (compound
annual growth of 0.5 per cent during 2001-02 to 2008-
09) with the exception of 2007-08, while overall
manufacturing grew at a much faster rate (compound
annual growth of 7.3 per cent during 2001-02 to 2008-
09) (Fig 9.6).
9.27 Finished leather declined by about 13 per
cent, causing much of the slowdown in the sector
during April-November 2009. While footwear items
showed a mixed picture, leather garments grew by
5.7 per cent during the period.
132.2
127.9
115.6
91.0 Wood &
81.7 wood
74.8 70.5 products
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Nov
2009
Year
 Industry 217
Figure 9.6 Movement in the index of production of leather and fur products and the
index of overall manufacturing (Index 1993-94=100)
350
Index 1993-94=100

300 Leather &

fur products
250
200
Manufac-
150 turing
100
50
0

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Nov
2009
Year

Chemicals, petrochemicals, pharmaceuti- Table 9.7 : Production of major chemicals

cals and fertilizers (in 000’ MT)
9.28 The sector includes basic chemicals and its Years Alkali Other Or- Pest- Dyes Total
chem- inor- ganic icides & major
products, petrochemicals, fertilizers, paints, gases icals ganic chem- (Tech.) stuffs chem-
and pharmaceuticals. Major chemicals registered a chemi- icals icals
cals
compounded annual growth of 3.1 per cent during
2002-03 to 2007-08. In the wake of the recent 2006-07 5,269 602 1,545 85 33 7,534
2007-08 5,443 609 1,552 83 44 7,731
economic slowdown, production declined by 5.2 per
2008-09 5,442 513 1,254 85 32 7,326
cent in 2008-09. The growth in major chemicals
2009-10 4,133 382 920 58 30 5,523
stood at (-) 0.91 per cent during April-December 2009
(Apr.-Dec.)
(Table 9.7). Growth -0.72 -5.53 -5.55 -13.19 21.51 -0.91
9.29 Petrochemicals mainly comprise synthetic (per cent)
fibres, polymers, elastomers, synthetic detergents, Source : Department of Chemicals & Petrochemcials.
intermediates and performance plastics, apart from
their intermediates such as synthetic fibre
positive growth of 0.76 per cent; performance plastics
intermediates, olefins and aromatics. Polymers
and synthetic fibres registered impressive growth
accounted for almost 62 per cent of the total
(Table 9.8).
production of major petrochemicals during 2008-09.
The production of petrochemicals grew at 5.8 per 9.30 The share of chemicals and petrochemicals
cent annually during 2002-03 to 2007-08. Registering in total national exports diminished from 11.6 per
the impact of the global meltdown, it declined by 5.5 cent to 9.3 per cent during 2003-04 to 2008-09.
per cent in 2008-09. During April-December 2009, Likewise, imports of this group in total national
major petrochemicals except polymers recorded imports declined from 9.2 per cent to 7.2 per cent
during 2003-04 to 2008-09 (Table 9.9).

Table 9.8 : Production of major petrochemicals

(000’ MT)
Years Synthetic fibers Polymers Elastomers Synthetic Performance Total major
detergent plastics petro-
intermediates chemicals
2005-06 1,906 4,768 110 555 127 7,466
2006-07 2,250 5,183 101 556 133 8,223
2007-08 2,524 5,304 105 585 157 8,675
2008-09 2,343 5,060 96 552 141 8,192
2009-10 (Apr.-Dec.) 1,948 3,549 79 461 129 6,166
Growth (per cent) 13.23 -6.71 9.45 9.57 26.51 0.76
Source : Department of Chemicals & Petro-chemcials.
218 Economic Survey 2009-10

Table 9.9 : Exports and imports–Chemicals industry’s growth has been fuelled by exports which
and petrochemicals registered a growth of 25 per cent in 2008-09 (Figure
9.7). Exports of pharmaceuticals have consistently
(Rs crore)
outstripped imports. India currently exports drug
Items 2006-07 2007-08 2008-09
intermediates, active pharmaceutical ingredients
Exports: (APIs), finished dosage formulations, bio–
(a) Chemicals 39,351 43,482 53,738 pharmaceuticals and clinical services. The top five
(b) Petrochemicals 21,801 22,199 24,226 destinations of Indian pharmaceutical products are
(c) Sub-Total (a+b) 61,152 65,681 77,964 the USA, Germany, Russia, the UK and China. The
domestic pharma sector has also expanded in recent
Imports:
years.
(a) Chemicals 47,914 54,422 74,857
(b) Petrochemicals 16,339 18,677 24,020 9.32 There are five pharmaceutical Central public-
(c) Sub-Total (a+b) 64,253 73,099 98,877 sector/joint-sector undertakings under the
Department of Pharmaceuticals which manufacture
Source : Department of Chemicals & Petro-chemcials.
critical bulk drugs/ formulations. These are Indian
Drugs & Pharmaceuticals Limited, Hindustan
Pharmaceuticals Antibiotics Limited, Bengal Chemicals &
9.31 The Indian pharmaceutical industry has grown Pharmaceuticals Limited, Rajasthan Drugs and
from a humble Rs 1,500 crore turnover in 1980 to Pharmaceuticals Ltd and Karnataka Antibiotics &
approximately Rs 1,00,611 crore in 2009-10 Pharmaceuticals Ltd. The value of their production
(September 2009). The country now ranks third in increased from Rs 340.2 crore in 2006-07 to Rs 641.8
terms of volume of production (10 per cent of global crore in 2008-09 and is projected to reach Rs 875
share) and 14th by value. The Indian pharma crore in 2009-10.

Figure 9.7 Indian Pharmaceutical Market (Rs crore)

90000
80000 Exports
70000
Imports
60000
Rs crore

50000 Total
40000 market size
30000 Domestic
market
20000
10000
0

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Table 9.10 : Production and import of fertilizers

( lakh MT)
Production Imports
Year 2007-08 2008-09 2009-10* 2007-08 2008-09 2009-10**
Urea 198.6 199.2 212.4 69.3 56.7 44.9
DAP 42.1 29.9 43.0 29.9 61.9 55.6
Complex Fertilizers 58.5 68.5 79.2
MOP Nil Nil Nil 44.2 56.7 42.3
Source : Department of Fertilizers
Notes : * estimated; **April-December 2009-10
 Industry 219
Fertilizers Steel
9.33 The availability of raw materials and 9.36 India ranked as the fifth largest producer of
intermediates has been a major bottleneck in the crude steel in the world during January -November
domestic production of fertilizers. As there is no 2009 (World Steel Association). Domestic crude
domestic production of muriate of potash (MOP), its steel production grew at a compounded annual rate
requirement is met fully by import (Table 9.10). About of 7.1 per cent during 2004-05 to 2008-09. The
85 per cent of raw materials in Di ammonium increase in production came on the back of capacity
phosphate (DAP) or finished DAP and complexes expansion, mainly in private-sector plants, and higher
are also being imported. utilization rates. During 2008-09, India added nearly
5.5 million tonnes of capacity in steel production.
Rubber and plastic products
9.37 In 2008-09, the Indian iron and steel industry
9.34 Rubber and plastic products grew by an
was hit hard by the spiralling cost of imported coking
appreciable 25 per cent during April-November 2009
coal/metcoke. The first half of 2008-09 witnessed
as per IIP data. The factor that overwhelmingly rapid rise in production, consumption and prices, in
contributed to this growth was the 54.5 per cent keeping with international trends. In the latter half,
growth in PVC pipes and tubes during the period, in however, the domestic demand for steel was
contrast to a 17 per cent decline during April- adversely impacted by economic slowdown and, in
November 2008. With the automobile sector recording particular, by slackening demand in some of its
strong growth in the current year so far, the tyre leading end-user segments. Domestic steel prices
sector (except bicycle tyres) too performed well on started declining from September 2008 and the pace
the whole. of growth of production slowed down considerably
(Table 9.11).
Non-metallic mineral products
9.35 As per the IIP, this product group grew by 6.4 Table 9.12 : Growth in finished steel
per cent during April-November 2009, as against (alloy + carbon)
negligible growth during the corresponding period in (per cent)
the previous year. Cement led the group with a close 2009-10* Real
to 11 per cent growth. This, along with strong growth Production consum- Imports Exports
in polished granite/stone chips, points towards for sale ption
improving construction activity. Among important
April-June 3.4 5.2 -1.3 -38
items, bottles and bottle glasswares continued the
April–September 3.3 7.0 1.2 -43
decline shown in 2008-09. Production of railway/
concrete sleepers stepped up while that of graphite April-December 3.8 7.7 16.6 -36
electrodes and anodes declined steeply during the Source : Joint Plant Committee.
Note : * provisional.
current year.

Table 9.11 : Production, consumption, import and export of total finished steel and pig iron
(million tonnes)
Item 2005-06 2006-07 2007-08 2008-09 Change (per cent)
over 2007-08

Production for Sale TFS 46.56 52.53 56.07 57.16 1.9

PI 4.69 4.93 5.284 6.21 17.52
Import TFS 4.31 4.93 7.03 5.84 -16.9
PI 0.03 0.03 0.11 0.08 -27.3
Export TFS 4.80 5.24 5.08 4.44 -12.6
PI 0.44 0.71 0.56 0.35 -37.5
Real Consumption1 TFS 41.43 46.78 52.12 52.35 0.4
PI 4.13 4.33 4.62 5.87 27.1
Source : Joint Plant Committee.
Notes : TFS= total finished steel, both alloy and carbon; PI= Pig iron
1= adjusted for stock variation and double counting.
220 Economic Survey 2009-10
9.38 However, recovery gathered strength during
2009-10 and the Indian steel industry appears to
have successfully overcome the effects of the global
economic slowdown (Table 9.12). India and China
are the only countries to have registered a positive
growth during January-November 2009 (World Steel
Association).
9.39 The strong growth in the GDP in the second
quarter of the current fiscal and in the IIP during April-
November 2009 suggests that the demand side of
the steel industry is back on stable footing. Indian
steel outlook for 2010 continues to be positive, since
Indian steel consumption is expected to be rising at
6-9 per cent during the current year, on account of
higher demand from the real estate, construction
and automobile sectors.
Metal products (except machinery)
9.40 The production of this group declined during
2007-08 and 2008-09. During April-November 2009,
production grew by 4 per cent. Important items like
well/offshore platforms, tin metal containers,
agricultural implements and bolts and nuts continued
their declining trend during the current year. Metallic
utensils including pressure cookers, LPG cylinders
and drums and barrels registered robust growth during
April-November 2009.
Machinery and equipment
9.41 Growth of the machinery and equipment
group has been at the core of the growth in capital
goods, as it constitutes around 65 per cent of the
total weight of capital goods in the IIP. Growth in this
group is critical for growth in the overall IIP for the
Figure 9.8 Movement in the index of production of machinery and equipment and the
overall IIP (Index 1993-94=100)
500
450
400
Index 1993-94=100
350
300
250
200
150
100
50
0
2000-01 2001-02 2002-03 2003-04
coming years. The growth in machinery and
equipment has consistently been above the 10 per
cent mark since 2003-04 and it achieved a compound
growth of 14.4 per cent during the quinquennium
ending 2007-08, compared to a corresponding rate
of 8.7 per cent in the overall IIP. The index of
production of machinery and equipment galloped
ahead of the overall IIP after the year 2002-03
(Figure 9.8).
9.42 Though it fell below the 10 per cent mark in
2008-09, growth in the group remained one of the
highest at 8.8 per cent. During 2009-10 (April-
November), this segment gained further strength
with a 12.1 per cent growth. Important items like
industrial machinery, tractors, ball and roller
bearings, power transformers, insulated cables and
wires, boilers, electric generators, turbines, electric
motors, power-driven pumps, material-handling
equipment, cutting tools, conductors, electric fans,
washing machines and TV receivers and picture
tubes buoyed growth in this manufacturing group
during 2009-10 (April-November). On the other hand,
products like diesel engines, telephone instruments
and telecom-munication cables, protection
systems, control panels, cranes, lifts, hydraulic
machines and cylinders, dumpers, furnaces, valves,
cooling towers, refrigerators and air conditioning
plants, air and gas compressors and computer
systems dampened its growth.
Electronics and Information Technology
9.43 The economic recession in leading export
destinations adversely impacted the performance of
Indian IT companies.
Machinery
&
equipment
IIP
2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Nov
2009
Year
 Industry 221
Table 9.13 : Growth in IT-ITeS industries Table 9.14 : Software & services exports
(US$ billion) Year Growth (per cent)
Item 2006-07 2007-08 2008-09 (first half) (second half)
2006-07 37.21 27.56
IT-IT-enabled
Services Revenue 47.8 64.1 70.5 2007-08 26.27 32.94
(including Hardware) (34.1) (9.9) 2008-09 35.35 -1.87
2009-10 -11.5
Software & Services
Industry (excluding 39.3 52.1 58.7 Source : RBI & NASSCOM.
hardware) (32.6) (12.7)
9.45 During 2008, electronics hardware production
Total Software and in India constituted around 1.5 per cent of global
Services Exports 31.1 40.4 46.3
electronics production. The production of electronics
(including ITeS-BPO) (28.9) (14.6)
hardware in the country stood at Rs 94,690 crore in
IT BPO Revenue 2008-09 (Table 9.15), registering a growth of 12.1
from the Domestic 8.2 11.7 12.4 per cent, compared to a growth of 27.8 per cent in
Market (42.7) (5.9) 2007-08; the decline is attributable to the global
economic slowdown.
IT Software and
Services 1.62 2.01 2.20
Employment (million) Micro, small and medium enterprises
Source : Department of Information Technology (DIT);
(MSMEs)
Note: Figures in parentheses represent change in 9.46 MSMEs contribute about 8 per cent of the
per cent. GDP of the country, about 45 per cent of
manufactured output and about 40 per cent of
exports. This, coupled with a high labour to capital
9.44 The increase of 14.6 per cent in software and ratio, high growth and high dispersion makes them
services exports in 2008-09 (Table 9.13) was the net crucial for achieving the objective of inclusive growth.
effect of a growth of 35.3 per cent in the first six As per the Quick Results of the 4th All India Census
months and a decline of 1.9 per cent in the next six of MSMEs (2006-07), there were 26 million MSMEs
months (Table 9.14). The decline continued in the in the country, which provided employment to about
first half of 2009-10 as well. 60 million persons. Of the total, 28 per cent were in

Table 9.15 : Electronics & IT production

(Rs crore)

Items 2005-06 2006-07 2007-08 2008-09*

1. Consumer Electronics 18,000 20,000 22,600 25,990

2. Industrial Electronics 8,800 10,400 11,910 12,740
3. Computers 10,800 12,800 15,870 13,490
4. Comm. & Broadcasting Equipment 7,000 9,500 18,700 26,000
5. Strategic Electronics 3,200 4,500 5,700 6,840
6. Components 8,800 8,800 9,630 9,630
Subtotal 56,600 66,000 84,410 94,690
7. Software for Exports 1,04,100 1,41,000 1,64,400 2,16,300
8. Domestic Software 29,600 37,000 47,010 57,230
Total 1,90,300 2,44,000 2,95,820 3,68,220
Electronics & IT exports
1. Electronics Hardware 9,625 12,500 13,200 19,000
2. Computer Software 1,04,100 1,41,000 1,64,400 2,16,300
Total 1,13,725 1,53,500 1,77,600 2,35,300
Source : DIT Annual Report, 2008-09.
Note : * Estimated
222 Economic Survey 2009-10

Table 9.16 : Performance of CPSEs during 2008-09

(Rs crore)
Sl. Particulars 2008-09 2007-08 Per cent change
No. over previous year

1. Investment(long-term loan + equity) 5,28,951 4,55,367 16.2

2. Capital Employed (net fixed assets +
working capital) 7,93,096 7,23,719 9.6
3. Total Turnover 12,63,405 10,94,484 15.4
4. Profits of Profit-making CPSEs 98,652 91,571 7.7
5. Losses of Loss-making CPSEs 14,424 10,257 40.6
6. Net Worth 5,84,072 5,18,530 12.6
7. Dividend Declared 25,493 28,081 -9.2
8. Corporate Tax 1,51,728 1,65,994 -8.6
9. Interest Paid 40,330 32,200 25.2
10. Contribution to Central Exchequer 1,51,728 1,65,994 -8.6
11. Foreign Exchange Earnings 74,184 67,678 9.6
11.1 Oil Companies 48,422 46,051 5.1
11.2 Other Companies 25,762 21,627 19.1
12. Foreign Exchange Outgo 4,28,821 3,68,228 16.5
12.1 Oil Companies 2,78,989 2,57,723 8.3
12.2 Other Companies 1,49,832 1,10,505 35.6
Source : Department of Public Enterprises.

the manufacturing sector and 72 per cent in the Tourism

service sector. This is the first Census after the
9.49 The global financial crisis affected growth in
enactment of the MSMED Act 2006 and includes,
tourism in 2008-09. The Ministry of Tourism made
for the first time, medium enterprises.
concerted efforts including a series of promotional
initiatives to counter the impact of the slowdown.
Central Public-sector Enterprises (CPSEs)
Foreign tourist arrivals and foreign exchange earnings
9.47 There were altogether 246 CPSEs under the have so far registered positive growth in the year
administrative control of various ministries/ 2009-10 (Table 9.17).
departments as on March 31, 2009. The cumulative
9.50 Initiatives have been taken to develop world
investment (paid-up capital plus long-term loans) in
class tourism infrastructure through Central financial
all the CPSEs together stood at Rs 5,28,951 crore
as in end-March 2009 (Table 9.16). The largest
share in this investment belonged to the service Table 9.17 : Number of foreign and domestic
sector (46.1 per cent) followed by electricity (26.2 tourists
per cent), manufacturing (18.1 per cent) and mining Year Foreign *Foreign *Domestic
(8.8 per cent). A great deal of investment in CPSEs tourist exchange tourist
arrivals earnings visits
is being made through internal resources rather than
(lakh) (million (lakh)**
through investment from outside. US$)

9.48 Of the total, 158 CPSEs made net profit and 2006-07 46.7 (13.8) 9,123 ( 16.2) 4,623.1
54 net loss in 2008-09. The year witnessed severe 2007-08 51.7 (10.7) 11,666 (27.9) 5,265.6
financial under-recoveries by public-sector Oil 2008-09 50.7 (-1.9) 10,543 (-9.6) 5,629.2
Marketing Companies (OMCs) as they had to keep
2009-10 37.2 (1.1) 8,663 (10.9) NA
the prices low on sale of petroleum products in the
(April-Dec.)
domestic market. The foreign exchange outgo
Source : Ministry of Tourism.
exceeded the foreign exchange earnings of CPSEs Note : * Figures in parenthesis are growth rates (per cent).
during 2008-09 (Table 9.16). ** Domestic tourist visits for calendar years.

assistance to States/Union Territories for identified
circuits and destinations. These include mega
projects, human resource development, augmenting
accommodation infrastructure, positioning Indian
tourism products in domestic and overseas markets
and promoting India as a round-the-year tourism
destination through an integrated media strategy
under the “Incredible India” brand. The new initiatives
include development of heliports, cruise, caravan,
wellness and MICE (meetings, incentives,
conferences and exhibitions) tourism. In order to
ensure environmental sustainability and create
employment opportunities, “responsible tourism” is
being pursued by enhancing stakeholder orientation
in rural, eco-adventure, wildlife and wellness tourism.
9.51 The Ministry of Tourism continued its efforts
to reinforce its brand through Incredible India
campaigns. Print media and advertising campaigns
have been undertaken in overseas locations. The
Ministry has also launched the “Visit India 2009”
scheme whereby attractive incentives are being
offered to foreign tourists. Market development
assistance (MDA) being given to tourism service
providers for sales-cum-study tours, participation in
fairs and exhibitions and publicity through printed
materials, has been liberalized. Through social
awareness campaigns, attempt was made to
Industry 223
sensitize stakeholders to the importance of tourism
and protection of heritage sites and through generic
campaigns, awareness about various destinations/
sub-tourism products was generated. For identified
destinations/circuits covered by the Jawaharlal Nehru
Urban Renewal Mission (JNURM) convergence of
resources is being ensured so that tourism-related
infrastructure and urban civic infrastructure
complement each other.
Financing and investment
9.52 Gross capital formation (GCF) in
manufacturing grew at a compound annual rate of
26.2 per cent during 2003-04 to 2007-08. As the
National Accounts data on capital formation are
available only till 2007-08, it is not possible to analyse
the trends beyond that year. However, the increase
in the investment demand is evident from the strong
growth in capital goods recorded during June-
November 2009. In the absence of hard data on
capital formation and capacity addition in industry
for the current period, information on the mobilization
of investible resources by the sector from different
sources would be instructive.
9.53 In recent years, especially from 2004-05, the
Indian private corporate sector has started to raise
external capital (i.e. other than internal resources)

Table 9.18 : Flow of financial resources to commercial sector

Item April-November*
2007-08 2008-09 2008-09 2009-10
Domestic Sources (in Rs crore)
Public Issues and Rights issues (except Banks/FIs) 56,074 16,220 12,686 19,496
Qualified Institutional Placements (QIPs) 25,525 189 75 34,167
Gross Private Placements by NFIs 68,249 77,891 44151 81617#
Net Issuance of CPs Subscribed by Non-banks 10,660 5,590 22,187 51,012#
Bank Credit to Industry (incl. Infra) 1,69,536 1,87,515 1,43,300 99,332
Systemically Important Non-deposit taking NBFCs
(net of Bank Credit) 36,460 76,828 37,744 17,990 ^
Mutual Funds Investments in Debt (Non-Gilt) 88,457 -32,168 19,896 1,01,956#
LIC’s Gross Investment in Corporate Debt,
Infrastructure and Social Sector 24,275 65,815 10,686 18,027 ^

Foreign sources (in US $ million)

FDI 34,835 35,180 24,693 26,506$
ADR/GDR issues (excluding Banks & FIs) 6,645 1,162 1,142 3,152$
External Commercial Borrowings / FCCB 30,293 15,244 6,332 5,168
Source : RBI/SEBI.
Note : * Comparable period for respective items. ^ Data pertain to April-August.
# Data pertain to April-September. $ Data pertain to April-December
Data for 2006-09 and 2009-10 are provisional.
224 Economic Survey 2009-10

mainly to fund its investment and this includes foreign
institutional sources. Data on sources and uses of
funds for a sample of non-financial public limited
companies available till 2006-07 (in a study by the
RBI) shows that the share of external finance was
as much as 64.1 per cent of the total sources. Some
of the predominant sources, other than banks and
financial institutions, include resource mobilization
through the issue of equities and bonds, private
placement, private equity and commercial papers,
and foreign sources like FDI, ADRs/GDRs and
external commercial borrowings (Table 9.18). It is
difficult to compare quantities as sources of
exclusively financing the industrial sector (including
infrastructure), as most of these quantities combine
the total commercial mobilization of resources, of
which industry forms only a part.
9.54 Given the caveat, three tentative conclusions
seem contextually relevant for the current year so
far. First, the growth in bank financing of the industrial
sector decelerated significantly during April-
November 2009-10. Second, the mobilization of
financial resources from the domestic non-bank
sector, including the capital market, has been
significantly higher during the period compared to
the corresponding period in 2008-09. Third, the inflow
of investible resources from external sources was
comparable with higher flows from ADRs/GDRs
and FDI.
Industrial credit
9.55 The growth in credit to industry declined
steeply from 37.0 per cent in November 2008 to 14.2
per cent in November 2009, on an year-on-year basis
(Table 9.19). The sectoral composition of the gross
deployment of bank credit to industry, including
infrastructure, shows widely varying patterns. It is
the infrastructure sector that kept growth in industrial
credit at the level of 14.2 per cent during November
2009 (Table 9.19). Net of infrastructure, the growth
in industrial credit was significantly lower, that is 4.6
per cent in November 2009, compared to 36.5 per
cent during the corresponding period of the previous
year.
9.56 With the organized sector having access to
varieties of financial instruments to raise resources,
the implications of a deceleration in credit growth for
smaller-scale enterprises can be more pronounced.
Industrial credit to micro and small enterprises
(including service-sector enterprises) grew at a higher
rate (19.3 per cent) in November 2009 compared to
the credit growth in the overall industrial sector.
Further, industrial credit to micro and small
enterprises in the manufacturing sector also grew at

Table 9.19 : Industry-wise deployment of gross bank credit

Sector % Growth (y-o-y) Share in outstanding

credit to industry(%)
Nov. 2008 Nov. 2009 Nov. 2008 Nov. 2009
Mining and Quarrying (incl. Coal) 53.0 2.6 1.5 1.3
Food Processing 23.2 5.9 5.0 4.6
Beverage & Tobacco Products 45.2 49.2 0.7 0.9
Textiles 21.2 7.4 10.0 9.4
Leather & Leather Products 12.5 -0.5 0.6 0.5
Wood and Wood Products 47.2 4.1 0.4 0.4
Paper & Paper Products 29.7 11.0 1.5 1.5
Petroleum, Coal Products and Nuclear Fuels 149.2 -22.0 8.6 5.9
Chemicals and Chemical Products 39.2 1.0 7.5 6.6
Rubber, Plastic & their Products 33.4 6.5 1.3 1.2
Cement and Cement Products 80.5 18.3 1.8 1.8
Basic Metals and Metal Products 27.0 18.3 12.3 12.8
All Engineering 26.5 4.7 6.2 5.7
Transport Equipment 42.5 -2.9 3.7 3.1
Construction 59.9 8.9 3.4 3.2
Infrastructure 38.6 47.2 22.5 29.0
Industry Total (Small, Medium & Large) 37.0 14.2 100.0 100.0
Industry Total minus Infrastructure 36.5 4.6 77.5 71.0
Source : RBI.
Notes : Data are provisional and relate only to select banks.
 Industry 225
Table 9.20 : Sectors attracting highest FDI flows
(Rs crore)
Sector April-November Growth
(per cent)
2007-08 2008-09 2009-10 in 2009-10
Services Sector 9,121 1,5919 16,566 4.06
Telecommunications 3,963 9,231 10,811 17.12
Housing & Real Estate 5,161 8,353 10,565 26.48
Construction 3,593 7,490 8,380 11.88
Agriculture Services 426 16 6,327 39,443.8
Power 208 3,420 5,994 75.26
Automobile Industry 1,191 3,401 4,499 32.28
Computer Software & Hardware 4,217 6,670 2,763 -58.58
Electrical Equipment 2,432 900 2,724 202.67
Hotel & Tourism 830 1,427 2,246 57.39
Information & Broadcasting
(including Print Media) 747 1,711 2,015 17.77
Trading 2,108 2,427 1,982 -18.34
Metallurgical Industries 1,909 3,420 1,485 -56.58
Consultancy Services 606 825 1,341 62.55
Sea Transport 363 127 1,293 918.11
Petroleum & Natural Gas 234 947 1,084 14.47
Chemicals (other than Fertilizers) 731 1,991 1,000 -49.77
Grand Total of All FDI Flows
Source : Department of Industrial Policy and Promotion.

19.0 per cent. The corresponding figures during POLICYDEVELOPMENTS AND

November 2008 stood at 20.0 per cent and 21.5 per
cent respectively.
FDI
9.57 FDI inflows to India, which remained robust in
2008-09 despite the slump in global financial flows,
have also continued to flow smoothly during the
current year so far. During April-November 2009-10,
total FDI equity inflows stood at Rs 93,354 crore
(US$ 19,379 million) as against Rs 85,700 crore (US$
19,791 million) during the corresponding period in
2008-09, signifying a growth of 9 per cent in rupee
terms and a decline of 2 per cent in US dollar terms;
the divergent patterns in growth rates being
attributable to exchange rate changes during the
period. During 2008-09, total FDI equity inflows stood
at Rs1,22,919 crore (US$ 27,309 million) as against
Rs 98,664 crore (US$ 24,579 million) during 2007-
08, signifying a growth of 25 per cent in rupee terms
and 11 per cent in US dollar terms (Table 9.20).
9.58 The sectoral shares of FDI inflows have
fluctuated significantly in recent years. Sectors like
agricultural services, sea transport and electrical
equipment have shown a quantum jump in FDI inflows
during 2009-10.
PROGRAMMES
9.59 The developments in terms of policy responses
during 2008-09 were to an extent shaped by the
effects of the global financial crisis on Indian industry.
Measures taken specifically for the industrial sector
included fiscal measures and measures to ensure
availability of credit. Broadly, the effort in this regard
was to mitigate the sharp impact of the global
recession on industry, especially the export-oriented
sectors that were the most directly affected. Apart
from the general stimulus measures announced by
the Government and the RBI for the industrial sector,
the following sector-specific measures and
programmes have been undertaken.
Textiles
9.60 Stimulus measures announced on December
7, 2008 that benefited the textile sector included
general reduction of 4 per cent in Central value added
tax (CENVAT ) rates; abolition of 4 per cent optional
CENVAT on cotton textiles; extension of the benefit
of service tax refund to service provided by clearing
and forwarding agents to exporters; increase in the
threshold limit of refund of service tax paid by
exporters on foreign commission agent service;
226 Economic Survey 2009-10
making available drawback benefit simultaneously
with refund of service tax paid for exports; making
pre- and post-shipment export credit for certain
specific sectors including textiles belonging to the
small and medium sector more attractive with interest
subvention; additional allocation of Rs 1,400 crore
to clear the entire backlog in TUFS; inclusion of all
handicrafts items under the Vishesh Krishi & Gram
Udyog Yojana (VKGUY); and boost to collateral-free
lending.
9.61 The stimulus scheme announced on January
2, 2009 included extension of the Duty Entitlement
Passbook Scheme (DEPB) scheme till December
31, 2009 and restoration of the rates to those
prevailing prior to November 5, 2008 and increase in
the duty drawback rates on certain knitted fabrics
and specified categories of yarn with retrospective
effect from September 1, 2008.
9.62 The Interim Budget 2009-10 announced
measures like reduction in general rate of Central
excise duty from 10 per cent to 8 per cent, which
benefited textile machinery and reduction in rate of
service tax on taxable services from 12 per cent to
10 per cent.
9.63 Highlights of the Trade Facilitation Measures
announced under the Foreign Trade Policy (on
February 26, 2009), inter alia, included provision of
Rs 325 crore under promotional schemes for leather,
textiles, etc., for exports made with effect from April
1, 2009; notification of the benefit of 5 per cent duty
credit script on free on board value of exports under
the Focus Product Scheme (FPS) for exports of
handmade carpets, in lieu of the 3.5 per cent benefit
allowed earlier under the VKGUY; inclusion of
technical textiles under the High-Tech Products
Export Promotion Scheme; announcement of
Bhilwara in Rajasthan as the Town of Export
Excellence for Textiles; enabling recognized
association of units to access funds under the Market
Access Initiative (MAI) scheme for creating focused
technological services; reduction in the threshold limit
for recognition as a premier trading house to Rs 7500
crore from Rs 10,000 crore; proportionate reduction
of the export obligation of a product under the Export
Promotion Capital Goods (EPCG) scheme, in case
of decline in exports of that product by more than 5
per cent; extension of DEPB/duty credit script
utilization for payment of duty on import of restricted
items; simplification of procedure for claiming duty
drawback refund and refund of terminal excise duty;
allowing re-credit of 4 per cent special additional duty,
in case of payment of duty by incentive scheme
scrips such as the VKGUY, Focus Product and
Focus Market; and extension of the export obligation
period against advance authorizations up to 36
months.
9.64 On March 4, 2009, the Government
announced the facility of refund of service tax paid
on all input services to special economic zone (SEZ)
units and developers (which was earlier restricted to
services that were consumed within the zone).
9.65 The incentives introduced under the Foreign
Trade Policy 2009–2014 included extension of
incentive schemes by addition of new products and
markets; addition of 26 new markets under the Focus
Market Scheme (FMS); raising the incentive available
under the FMS from 2.5 per cent to 3.0 per cent;
raising the incentive available under the FPS from
1.25 per cent to 2.0 per cent; expansion of the Market
Linked Focus Product Scheme (MLFPS); extension
of MLFPS benefits to export to additional markets
for certain products; providing higher allocation for
the MDA and MAI schemes; introduction of the
EPCG scheme at zero duty for apparels and textiles
among others; extension of the DEPB scheme till
December 31, 2010; and removal of the requirement
of ‘Handloom Mark’ for availing of benefits under the
FPS.
Chemicals and Petrochemicals
9.66 The Assam Gas Cracker Project, approved
by the Government in April 2006 at a fixed cost of
Rs.5,461 crore, with GAIL (India) Ltd. as the main
promoter, is expected to generate substantial
employment and investments in downstream plastic-
processing industries. The project is scheduled for
commissioning in April 2012. The financial closure
of the project has been successfully completed in
October 2009. The capital subsidy for the project is
being released by the Government in the years from
2007-08 to 2012-13. Of the Rs 429.1 crore cumulative
expenditure on the project till October 2009, Rs 208
crore has been released in 2009-10 (till October
2009).
9.67 India, a signatory to the Chemical Weapons
Convention (CWC), has a fairly large chemical
industry which falls under the ambit of the CWC.
The Department of Chemicals and Petrochemicals
has so far successfully hosted 73 OPCW
(Organization for the Prohibition of Chemical
Weapons) inspections including 13 in 2009-10. Help
desks have been set up at Vadodara, Mumbai and
Chennai for facilitating compliance with CWC
obligations. A sector-specific investment region,

‘Petroleum, Chemicals and Petrochemicals
Investment Region’ (PCPIR) has been set up to
ensure adoption of a holistic approach to promote
the petroleum, chemicals and petrochemicals sectors
in an integrated and environment -friendly manner.
The PCPIR region would be a combination of
production projects, public utilities, logistics,
environmental protection, residential areas and
administrative services. Proposals have been
received from the Governments of Andhra Pradesh,
Gujarat, Karnataka, Orissa, Tamil Nadu and West
Bengal. The Andhra Pradesh, Gujarat and West
Bengal proposals have been approved in February
2009 and Memoranda of Agreement (MoA) signed
between the Central Government and the three State
Governments .
Pharmaceuticals
9.68 In pursuit of excellence in pharmaceutical
education and research, six new National Institutes
of Pharmaceutical Education & Research (NIPERs)
have been set up, in addition to the existing one at
Mohali. These NIPERs will award masters and
doctoral degrees and encourage R&D activities. The
NIPERs have been set up in collaboration with mentor
institutes so that advanced curricula and pedagogical
methodologies are brought into practice for high-end
teaching. Some of the new R&D initiatives in the
sector include the launching of an education
programme for drug regulators and industry and
preparation of a Venture Finance and Incubation
Fund for innovative R&D.
9.69 An Environmental Cell has been created in
the Department of Pharmaceuticals to collect and
disseminate information on pharma-related
environmental matters, identify issues and solutions,
create awareness on environmental issues and
coordinate with other stakeholders.
9.70 The Department of Pharmaceuticals in
collaboration with the Ministry of MSME has
introduced a Scheme for Schedule ‘M’ Compliance
by small-scale industrial (SSI) units in the pharma
sector under the overall umbrella of the Credit Linked
Subsidy Scheme (CLCSS). Under the scheme,
pharma SSI units are eligible for 15 per cent upfront
capital subsidy on institutional finance up to Rs1.00
crore availed of by them for adoption of improved
technology to make themselves Schedule ‘M’
Compliant.
9.71 Other new initiatives that have been taken /
are being contemplated by the Department include
the launching of the access to affordable medicine
Jan Aushadhi Campaign, measures for setting up
Industry 227
world class pharma infrastructure in India through
public-private partnership (PPP) and providing
impetus for manufacturing of new medical devices
and pharma machinery.
Fertilizers
9.72 The government has decided to examine the
feasibility of revival of the Hindustan Fertilizer
Corporation Ltd (HFCL) and Fertilizer Corporation of
India Ltd (FCIL), subject to confirmed availability of
gas. An Empowered Committee of Secretaries,
constituted to look into the various financial models
for revival of the closed units, has recommended the
revenue-sharing model (RSM) with an upfront fee for
the revival of each unit through the Build Own and
Operate (BOO) mode. Action is being taken by the
respective companies for finalization of a fully tied
up revival proposal for each unit. Revival of Madras
Fertilizers Ltd (MFL), Fertilizers & Chemicals
Travancore Ltd (FACT) and Brahmaputra Valley
Fertilizer Corporation Ltd (BVFCL) is also under
consideration.
9.73 The New Pricing Scheme-III (NPS-III) for
indigenous urea seeks to rationalize distribution and
movement of urea and to lay down a definite plan for
conversion of all non-gas-based urea units to gas.
The Government has announced a new investment
policy for urea units to attract investment in the
fertilizer sector that is based on import parity price
benchmarking. Besides, a policy for encouraging
production and availability of fortified and coated
fertilizers was notified.
9.74 To ensure easy availability of fertilizers in all
parts of the country, a uniform freight subsidy policy
was announced under which rail freight will be paid
on actuals and road freight on a normative average
district lead.
9.75 The Revised Concession Scheme for
decontrolled phosphatic and potassic fertilizers was
announced, under which final rates for concession,
to be worked out on a monthly basis, for indigenous
DAP would be the same as those for imported DAP.
Further, mono ammonium phosphate, triple super
phosphate and ammonium sulphate have been
included in the concession scheme. The maximum
retail price has been left open to be decided by the
manufactures with effect from October 1, 2009. An
amount of Rs 2,000/MT has been allowed as
concession on Single Super Phosphate (SSP).
9.76 Possibilities for setting up of joint venture
ammonia/urea projects in countries abroad where
228 Economic Survey 2009-10
adequate gas is available, are being explored. Indian
entities are in dialogue for joint ventures in the field
of phosphatic and potassic fertilizers in countries
such as Jordan, Moracco, Tunisia, Australia, Syria
and Canada.
Steel
9.77 Responding to the changed scenario, the
Government of India removed the export duty on all
steel items, reintroduced import duty of 5 per cent
on steel, restored DEPB benefits, reduced excise
duty to 8 per cent, placed imports of hot-rolled coils
on the “restricted list”, making them available to
direct users only and withdrew the exemption from
countervailing duty on import of thermo-mechanically
treated (TMT)bars and structurals. In recent times,
to ensure adequate domestic availability, export duty
on iron lumps has been increased from 5 per cent to
10 per cent and a 5 per cent export duty has been
imposed on iron ore fines to regulate exports of the
material. Moreover, an Inter-Ministerial Group (IMG)
has been set up to facilitate interaction between
investors and the various agencies in matters of
acquisition of land, mining rights, power and
transportation including the rail, road and port sectors.
Electronics and information technology
9.78 Approved in May 2006, there are 27 Mission
Mode Projects (MMPs) under the National e-
Governance Plan (NeGP) consisting of 9 Central
MMPs, 11 State MMPs and 7 integrated MMPs
(including 8 programme support components) which,
inter alia, achieved the following by December 2009.
Out of the 100,000 broadband Internet-enabled
Common Service Centres (CSCs) planned to be
rolled out in rural areas on PPP basis, 58,954 have
been rolled out. Eleven States/ Union Territories have
completed implementation of the State Wide Area
Networks (SWANs) scheme which is envisaged to
provide secured network from State headquarters up
to block level with a minimum bandwidth capacity of
2 Mbps. Proposals of State Data Centres (SDC) for
31 States/ Union Territories have been approved with
a total outlay of Rs 1,378.50 crore. Twenty States/
Union Territories have completed the institutional
framework for State-level strategic decision making
including setting up of State e-Governance Mission
Teams (SeMT) and deployed SeMT personnel.
9.79 Under the initial phase of the National
Knowledge Network (with scalable multi-gigabit
capabilities to connect 1,000 nodes covering all
universities, research institutions, libraries,
laboratories, hospitals and agricultural institutions
across the country), a core backbone consisting of
15 Points of Presence (PoPs) has been established
with 2.5 Gbp capacity. Fifty-seven institutions of
higher learning and advanced research have been
connected to the network and six virtual classrooms
have been set up at six IITs. Under the National Skill
Development Policy, a target has been laid down to
skill 10 million people by the year 2022 in the area
of IT. The Information Technology Research Academy
programme has been conceived for advancing
capacity and capability building in the area of
information and communication technology and
electronics.
9.80 Through the Nanotechnology Programme, R&D
capacity and infrastructure is being built up at the
Indian Institute of Science Bangalore and IIT Bombay.
Application-oriented projects for specific users/
industries with technology demonstration and
technology transfers are mostly carried out by R&D
societies of the Department of Information
Technology like the Centre for Development of
Advanced Computing (CDAC) and Society for Applied
Microwave Electronic Engineering and Research
(SAMEER) with active collaboration from academics.
C-DAC commissioned a high performance computing
system called PARAM “Yuva”. The “PARAM
Sheersh” Supercomputing Facility at the North
Eastern Hill University (NEHU), Shillong conducts
scientific and engineering research in strategic
areas in the North-East region. The nationwide
grid-computing initiative, Garuda, aggregates
supercomputing and storage resources nationwide,
provides a problem-solving environment, and enables
collaborative R&D for research and user community.
Garuda connects 45 premier institutions across
17 cities.
9.81 The Information Technology (Amendment) Act
2008 has been enforced and rules of important
sections have been notified in October 2009
addressing the needs of national cyber security. The
Act has, inter alia, added provisions to deal with
new forms of cyber crimes like publishing sexually
explicit material in electronic form, video voyeurism
and breach of confidentiality. The Indian Computer
Emergency Response Team (CERT-In) has been
designated as the nodal agency for coordinating
matters related to cyber security and emergency
response. CERT-In has published a crisis
management plan for countering cyber attacks and
cyber terrorism. It has also created a panel of IT

security auditors. The Certifying Authorities (CAs)
licensed by the CCA have issued more than
14,00,000 Digital Signature Certificates. These are
being used in applications such as Real Time Gross
Settlement System & Electronic Fund Transfer,
email, e-procurement, share trading and issue of
import/export licences and filing of company
returns.
MSMEs
9.82 In accordance with the provisions of the
MSMED Act 2006, the MSMED (Furnishing of
Information) Rules, 2009 were notified in October
2009. These provide for furnishing of information
relating to investment in plant and machinery or
equipment by enterprises. Further, the Advisory
Committee, as provided in the MSMED Act has been
reconstituted in September 2009.
9.83 The National Manufacturing Competitiveness
Programme (NMCP) has ten components targeted
at enhancing the entire value chain of the MSME
sector. Of these, five were already under operation,
which included Quality Management Standards
(QMS) and Quality Technology Tools (QTT), building
awareness on Intellectual Property Rights for
MSMEs, Support for Entrepreneurial and Managerial
Development of SMEs through Incubators, Marketing
Support Assistance to MSMEs and Mini-Tool
Rooms. During 2009-10, two more components have
been made operational, namely, the Lean
Manufacturing Competitiveness Scheme for MSMEs
and the Design Clinic Scheme. Of the remaining
three schemes, two–Technology and Quality
Upgradation Support to MSMEs and the Marketing
Assistance and Technology Upgradation Scheme
for MSMEs–have been approved.
9.84 Skill development has been accorded high
priority in line with the overall target set by the Prime
Minister’s National Council on Skill Development.
The agencies under the Ministry of MSME will
conduct skill development programmes for about 3.62
lakh trainees during 2009-10.
9.85 The cluster approach has been adopted as a
key strategy for enhancing the productivity,
competitiveness and capacity building of MSEs and
their collectives. Under the MSE Cluster Development
Programme, 27 new clusters were taken up for
diagnostic study, 27 for soft interventions and 8 were
approved for setting up of common facility centres
(CFCs) during 2009-10. Cumulatively, 441 clusters
in 28 States and 7 UTs have so far been taken up for
Industry 229
diagnostic study, soft interventions and setting up of
CFCs under the programme.
9.86 Under the Credit Guarantee Fund Scheme for
Micro and Small Enterprises, over 1 lakh MSE
proposals for an amount of Rs 4,465 crore have been
approved for extending loans without collateral/third-
party guarantee during April-December 2009,
registering substantial growth over the previous year’s
levels. Cumulatively, about 2.50 lakh MSE proposals
for loans amounting to Rs9,200 crore have
been approved under the scheme till
December 2009.
9.87 Under the Credit Linked Capital Subsidy
Scheme (CLCSS), which aims at facilitating
technology upgradation of the MSE sector, 1,403
MSEs have been assisted and subsidy amounting
to Rs 81.53 crore has been sanctioned during April-
November 2009. Cumulatively, 7,910 MSEs have
been assisted and subsidy amounting to Rs 344.84
crore sanctioned till November 2009.
9.88 A loan agreement for $ 150 million was signed
between the Government of India and the Asian
Development Bank in December 2009 for
implementing the comprehensive Khadi Reform
Programme, under which the khadi and village
industries (KVI) sector is proposed to be revitalized
with enhanced sustainability, income, employment
and artisan welfare.
9.89 Under the Prime Minister’s Employment
Generation Programme (PMEGP) launched in
August 2008, cumulatively 4.56 lakh applications
have been received by various implementing agencies
up to November 2009, of which 1.63 lakh have been
recommended to banks. A total of 50,207 projects
involving margin money of Rs 833.86 crore have been
sanctioned by the banks up to November 2009.
9.90 A new scheme, namely Strengthening of
Infrastructure of Existing Weak Khadi Institutions
and Assistance for Marketing Infrastructure, has been
introduced, envisaging renovation of 30 selected khadi
sales outlets and providing assistance for
strengthening of infrastructure of 100 existing weak
institutions.
9.91 The recent global economic slowdown has
had an adverse impact on the Indian economy,
including the MSME sector. In this context, the
representatives of 19 prominent MSME Associations
met the Prime Minister on August 26, 2009 to
highlight various concerns and issues. The Prime
Minister announced the setting up of a Task Force
230 Economic Survey 2009-10
to reflect on the issues and formulate an agenda for
action within a period of three months after
discussions with all stakeholders. Accordingly, a
Task Force under the chairmanship of the Principal
Secretary to the Prime Minister has been constituted
to address the issues of MSME sector. The Task
Force classified the common issues into following
major thematic areas (namely credit, marketing,
labour, rehabilitation and exit policy, infrastructure,
technology and skill development and taxation) and
constituted separate Sub-Groups for detailed
examination. A separate Sub-Group was constituted
to look into the development of MSMEs in the North-
East and Jammu & Kashmir. The Task Force
submitted its report to Hon'ble Prime Minister on
January 30, 2010. The recommendations of the Task
Force have been made with a view to not only help
the MSMEs in meeting the challenges of global
economic slowdown but will also facilitate their
growth and development.
CPSEs
9.92 The Government has been delegating
enhanced financial and operational powers to the
Navratna, Miniratna and other profit-making CPSEs.
There are 18 Navratna enterprises. Six more CPSEs,
namely the Airport Authority of India Limited, Ennore
Port Ltd, Tehri Hydro Development Corporation,
Security Printing and Minting Corporation Ltd, Satluj
Jal Vidut Nigam Ltd and Indian Railway Catering and
Tourism Corporation Ltd. were granted Miniratna
status during the year, raising the total number of
Miniratna CPSEs to 62.
9.93 Besides endeavouring to professionalize the
Boards of Directors of these enterprises, the
Government has issued guidelines on corporate
governance of CPSEs. The Board for Reconstruction
of Public Sector Enterprises (BRPSE), established
to advise the Government, inter alia, on revival /
restructuring of sick and loss-making CPSEs, made
recommendations on 58 cases until December 31,
2009. The Government has approved proposals for
the revival of 37 CPSEs and closure of two. The total
assistance approved in this regard up to March 31,
2009 was Rs 15,275 crore, which comprised Rs 2,935
crore as cash assistance and Rs 12,340 crore as
non-cash assistance.
9.94 Nearly one-fourth of the employees in CPSEs
are in the managerial and supervisory cadres. The
total number of employees in all CPSEs came down
to 15.35 lakh (excluding casual and contract labour)
as on March 31, 2009 compared to 15.66 lakh as on
March 31, 2008. The average per capita emoluments
in CPSEs stood at about Rs 5,45,500 per annum.
SOME CRITICAL DIMENSIONS OF
INDUSTRIAL DEVELOPMENT
Industrial pollution and environment
9.95 Industries, large, medium and small scale,
have been a significant source of air and water
pollution. Out of 2,715 industries identified under the
17 categories of highly polluting industries, 1,940
have installed pollution control devices to comply
with standards, 479 have been closed and legal
action has been taken against 296 defaulting units.
Necessary measures – both preventive and
promotional – have been taken for control of industrial
pollution. These, inter alia, include notification and
enforcement of emission and effluent standards;
setting up of clean technology mechanisms and
effluent treatment plants; establishment of waste
minimization circles in clusters of small-scale
industries; regulation of location of industries;
implementation of the charter on Corporate
Responsibility for Environmental Protection (CREP)
in the 17 highly polluting categories; introduction of
the voluntary Eco Mark scheme; implementation of
an auto fuel policy that controls vehicular pollution;
use of economic instruments to internalize cost of
pollution; and fiscal incentives for pollution control
equipments.
9.96 Air quality data (annual average) of designated
cities/towns reveal that the levels of sulphur dioxide
were within the National Ambient Air Quality
Standards (NAAQS). The NAAQS of nitrogen oxide
was violated at 14 per cent of monitoring stations in
industrial areas. High levels of respirable suspended
particulate matter were the more prevalent air
pollutant. Similarly, based on the primary water
quality criteria evolved in terms of Bio-Chemical
Oxygen demand (BOD), 150 stretches on 105 rivers
have been identified as polluted.
9.97 Prior environmental clearance of development
projects based on impact assessment is mandatory
for designated sectors/projects. Table 9.21 gives
figures for projects appraised in various sectors during
April-November 2009.
9.98 The recent policy initiatives that have
been taken by the Government to mitigate the
impact of environmental pollution include the
following.
 Industry 231
Table 9.21 : Projects appraised during April-November 2009
Nature of Project Cleared Pending Rejected/ Returned/
withdrawn
EC TOR EC TOR EC TOR
1. Industry 296 284 67 144 28
2. Thermal Power 26 50 29 37 12
3. River Valley and Hydroelectric 09 28 09 13 02
4. Mining (Coal & Non-coal) 97 171 85 68 71
5. Infrastructure and Miscellaneous 68 35 47 05 02
6. Construction & Industrial Estates 46 04 17 03 01
Total 542 572 254 270 116
Source : Ministry of Environment and Forests
EC – Environmental clearance; TOR - Terms of Reference

¾ The Government has recently revised the relief and compensation for damages. The
NAAQS and limits for 12 pollutants have proposal to set up a National Environment
been notified. Area classification based on Protection Authority to strengthen
land use has been done away with so that compliance and enforcement of
there are uniform ambient air quality norms environmental statutes and to improve
for residential and industrial areas. The environmental planning and management is
revised standards are based on global best in a conceptual stage.
practices and local Indian conditions.
Labour relations
¾ Towards a revamped river conservation
strategy, the Government has accorded the 9.99 The current year, reckoned by the number of
Ganga the status of a “national river” and man days lost because of strikes and lockouts, has
has constituted a National Ganga River so far been a good year. The number of man days
Basin Authority (NGRBA) to ensure effective lost because of lockouts has continuously been on
abatement of pollution and conservation of the decline (Table 9.22). In regard to the spatial
the river. The NGRBA has resolved that by dispersion of the incidences of strikes and lockouts,
the year 2020, no untreated municipal it is observed that Gujarat, Andhra Pradesh, Kerala
sewage or industrial effluent will flow into and Rajasthan are the most affected States. Among
the Ganga. sectors, financial intermediaries (excluding insurance
¾ The Environment Impact Assessment (EIA) & pension funds) recorded the maximum number of
Notification 2006 has been amended in strikes and lockouts.
December 2009. The amendments made
inter alia include decision of the State Level Table 9.22 : Strikes and lockouts
Environment Impact Assessment Authority (Man-days lost, in million)
(SEIAA) to be taken by majority; coal-mine
Year Strikes Lockouts
projects with lease area up to 150 ha to be
appraised by the SEIAA; biomass-based Number Man- Number Man-
power plants up to 15 MW and power plants days days
based on non-hazardous municipal solid lost lost
wastes have been exempted from EIA 2004 236 4.83 241 19.04
notification; and information regarding grant 2005 227 10.81 229 18.86
of environmental clearance to be put in the
2006 243 5.32 187 15.01
public domain for Category ‘A’ projects.
2007 210 15.06 179 12.11
¾ A National Green Tribunal has been
proposed for expeditious disposal of cases 2008 (P) 250 7.02 182 10.46
relating to environmental protection and 2009(P) 91 2.05 31 0.84
conservation of forests and other natural (Jan-Nov.)
resources including enforcement of any Source : Labour Bureau, Shimla
legal right relating to environment and giving Note : P - Provisional
232 Economic Survey 2009-10
CHALLENGES AND OUTLOOK
9.100 The cyclical slowdown in the industrial sector
that began in 2007-08 got compounded by the twin
global shocks in 2008-09. The effects lingered on
briefly in the current fiscal; but growth rebound is
amply evident. Given the size of the Indian market
and the unmet demand for industrial products,
coupled with the fact that the overall GDP has started
to exhibit growth momentum, there is reasonable
hope that demand would not by itself be a
constraining factor. Besides, despite the significant
step-up in the Government borrowing programme,
domestic financial market and external resource flows
have given the impression that raising investible
resources would not be a major problem. All these
factors, combined with the inherent strength of
industrial corporates exemplified by the resilience
shown by them against adversities in the recent past
brighten the industrial outlook in the medium term.
9.101 The emerging investment picture is yet to
become clear. Growth in the production of capital
goods is improving, but different components of the
“capital goods” group have shown a mixed picture
during the current year so far. In any case, growth in
the indigenous production of capital goods cannot
by itself be used to comment on investment and
capacity expansion, because, there has, of late, been
significant growth in imported capacity addition.
9.102 Industry-agriculture linkages are well known
in the Indian context. It appears that there is already
some spill over of the slowdown in the agriculture
sector affecting some segments of industry. While
the ongoing industrial recovery is observed to be
broad-based, it should also be noted that some of
the sectors that failed to revive in the current year,
like food products, paper products, leather products,
jute and cotton textiles and metal products (to an
extent), are labour intensive. Ensuring balanced and
sustained growth of the Indian economy is predicated,
to a great extent, on the ability of manufacturing to
absorb the vast surplus labour in the farm sector.
Apart from the need for sustaining the high growth in
labour-intensive sectors with the vast pool of talent
available within the country, another critical challenge
in this respect would be to erase the skill deficit with
a multi-faceted programme for skill upgradation.
9.103 Manufacturing inflation, especially of prices
of industrial inputs, remained mild in the current year.
It has predominantly remained an inflation story of
food products, which may have partly spilled over
from the slowdown in the farm sector. The
improvement in the cost structure of manufacturing
companies seems to have catalysed the process of
recovery. However, indications are that despite the
price levels of food products remaining firm, their
contribution to manufacturing inflation has been
coming down, suggesting a slightly more
decentralized movement in manufacturing prices.
While higher prices are an incentive to the producer,
they also have implications for the cost structure
and the demand for manufactured products. This
trade-off needs to be carefully managed.
9.104 Capacity addition in some of the key
infrastructure sectors like power and roads is lagging;
however, it is expected that with the completion of
the large number of projects in progress, the targets
would be achieved. One of the biggest challenges to
sustaining and stepping up industrial growth lies in
removing the infrastructural impediments. Growth in
infrastructure not only alleviates the supply-side
constraints in industrial production, but also
stimulates additional domestic demand required for
industrial growth.
Energy, Infrastructure
and Communications
10
CHAPTER

I n tandem with the pick-up in overall industrial growth, core industries and
infrastructure services have also evinced signs of recovery with easing of supply
bottlenecks in certain sectors and demand recovery in others. The robust growth
momentum in telecommunications, particularly the wireless segment, continues with
monthly additions exceeding 17.6 million connections. In the midst of the worst-
ever slowdown in the history of world civil aviation, even the modest levels of growth
in India are indicative of resilience. Core industries like power, coal and other
infrastructure like ports and roads are also reviving. Available evidence points to a
steady revival of flows of investible resources. However, the levels of broadband
penetration, capacity creation in some crucial infrastructure sectors and the state of
development of markets for longterm finance remain causes for concern. There is
need to develop infrastructure to complement and sustain the economic growth
momentum. Efforts—legislative, administrative and executive—are on to minimize
the infrastructure deficit, ameliorate bottlenecks in completion of projects and nurture
core industrial intermediates and infrastructure services.

10.2 The stimulus measures announced by the
national authorities worldwide to combat the
economic slowdown contained infrastructure build-
up plans. In line with the rest of the world, the Union
Budget for 2009-10 substantially stepped up
allocation for many infrastructure sectors over the
Budget estimates for the previous year, especially
for the National Highways Development Programme
(NHDP), Jawaharlal Nehru National Urban Renewal
Mission (JNNURM) and Accelerated Power
Development and Reform Programmes (APDRP).
2009 has been about 1,490 km (Table 10.1). Against
the target of awarding projects for a length of about
9,800 km under the NHDP during 2009-10, projects
have been awarded for about 1,285 km up to
November 2009. Capacity creation in the power
sector seems to have gone up in the current year;
however, the actual capacity addition during April-
December 2009 was only 43.9 per cent of the target
of 14,507 mega watt (MW) for the current fiscal,
with the corresponding achievements by the Central,
State and private sectors being at 29.4 per cent,
40.5 per cent and 54.8 per cent respectively.

OVERVIEW OF PERFORMANCE
10.3 Construction of rural roads under the Prime
Minister’s Gram Sadak Yojana (PMGSY) proceeded
apace and remained on course to achieving the
Eleventh Five Year Plan targets for expenditure on
rural roads. As against the target of developing about
3,165 km length of national highways under the
NHDP in 2009-10, the achievement till November
10.4 The Department of Programme
Implementation monitors the progress in Central-
sector projects costing Rs100 crore and above, on
a monthly basis. The Progress Report for October
2009 indicated that projects such as roads, power,
railways, petroleum, telecom, coal and steel
constituted about 94 per cent of the total number of
234 Economic Survey 2009-10

Table 10.1 : Indicators of infrastructure capacity creation

Item 2006-07 2007-08 2008-09 April-Dec.2009
Power Capacity Addition (MW) 6,853 9,263 3,454 6,375
Addition to Refinery Capacity- Petroleum 5.1 16.5 29.0 Nil
Road Length Upgraded -NHAI (km). 636 1,683 2,203 1,486*
Road Length Upgraded NIH (O) & BRDB- km. 1,686 1,897 2,226 1,294*
Road Works Completed under PMGSY (km) 30,710 41,231 52,405 36,273
Route km RKMs electrified–Railways 361 502 787
Additional Locations with Computerized 82 234 88 189*
Passenger Reservation–Railways
New Lines (km)–Railways 250 156 357
Doubling of Lines (km)–Railways 386 426 363
Gauge Conversion (km)–Railways 1,082 1,549 563
Addition to Port Capacity (MTPA) 48.5 27.3 42.7
Net Addition to Switch Capacity–Telecom (000 lines) 9,603 7,159 14,393 7,105*
Sources : Ministry of Power, Ministry of Petroleum & Natural Gas, Ministry of Statistics and Programme
Implementation (MoSPI), National Rural Roads Development Agency & Ministry of Railways.
* April-November.

591 monitored projects. Over time, project delays
have been creeping up (Fig 10.1)
10.5 In the current year, core industries and
infrastructure services, in general, seem to have
come out of the slump witnessed amidst the general
slowdown of the economy in the previous fiscal. In
the current fiscal, electricity generation emerged from
the lacklustre growth witnessed in the previous year
and equalled its performance in 2007-08. That this
was achieved despite constraints imposed by the
inadequate availability of coal and dismal hydel
generation owing to the failure of monsoons, attests
to its potential. This improved performance was
facilitated by the improved availability of gas for the
power sector. The coal sector grew at a reasonable
rate during the current year (Table 10.2); but the fact
that the power sector as a major consumer felt acute
shortage of domestic coal availability, raised
questions about the required growth in coal
production. Rail freight traffic grew at 7.4 per cent,
year-on-year, mainly on account of the buoyant growth
in traffic in coal, pig iron and finished steel, cement
and container services, pointing towards renewed
economic activity (Table 10.2). In airways, the
situation improved visibly in both cargo and passenger
traffic from that obtained in the second half of the
previous year; the passenger traffic in the domestic
terminals seems to have revived. The rising trend in
wireless phone connectivity, which remained
unaffected amidst the general slowdown during the

Figure 10.1 Progress in Central - sector projects (Rs 100 crore and above)
60
50 Ahead of
schedule
Per cent

40
30 Ontime
20
Delayed
10
0
Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

2007 2008 2009

Year Source: MoSPI
 Energy, Infrastructure and Communications 235
Table 10.2 : Growth in core industries and infrastructure services (in per cent)
2007-08 2008-09 H1 2008-09 H2 2008-09 April-Nov.
2009
Power 6.3 2.7 2.6 2.9 6.3
Coal 6.0 8.1 7.9 8.3 9.3
Finished Steel 6.8 0.6 4.3 -2.7 1.5
Railway Revenue-earning Freight Traffic 9.0 4.9 8.5 1.8 7.4
Cargo Handled at Major Ports 12.0 2.1 7.2 -2.4 4.7
Telephone Connections 83.7 10.1 31.3 -4.9 -
Cell Phone Connections 38.3 44.8 25.9 60.3 52.4
Fertilizers -8.6 -2.5 -1.2 -3.9 11.1
Cement 7.8 7.5 6.0 9.0 10.5
Crude Oil 0.4 -1.8 -0.8 -2.7 -1.4
Refinery 6.5 3.0 4.5 1.5 -1.2
Natural Gas 2.1 1.4 4.8 -1.9 32.7
Air Export Cargo 7.5 3.4 8.0 -1.2 5.6
Air Import Cargo 19.7 -5.7 5.9 -16.9 -4.5
Passengers at International Terminals 11.9 3.8 7.2 0.7 2.8
Passengers at Domestic Terminals 20.6 -12.1 -7.5 -16.4 10.7
Source : MoSPI

previous year, continues at a robust pace during the
current year too.
POWER
Generation
10.6 Electricity generation by power utilities during
2009-10 has been targeted to go up by 9.1 per cent
to 789.5 billion KWh. The growth of power generation
during April–December 2009 was about 6.0 per cent
(Table 10.3) as compared to about 2.7 per cent during
April-December 2008. Decline in hydroelectric power
generation was mainly due to poor monsoons. Coal-
based generation of power constituted around
80 per cent of thermal generation and around 66 per
cent of the total generation of power (Table 10.4).
The power sector is a major consumer of coal using
74 per cent of the coal production. Coal- based power
generation was constrained by the shortage in
domestic supply of coal and the non-materialization
of planned imports during April-December 2009. The
total consumption of coal by the power sector during
the period was 271.0 million tonnes. About 16.7
million tonnes of coal was imported. Apart from
bridging the demand-supply gap, blending of imported
high quality coal with high ash domestic coal helps
thermal power stations adhere to environmental
stipulations of using coal with less than 34 per cent
ash content.

Table 10.3 : Power Generation by Utilities (Billion KWh)

Category 2007-08 2008-09 April-December Growth
2008-09 2009-10 (per cent)

Power Generation* 704.5 723.8 540.0 572.5 6.0

i) Hydroelectric 123.4 113.0 92.4 85.4 (-) 7.4
ii) Thermal 559.0 590.0 430.7 468.5 8.8
iii) Nuclear 16.8 14.8 11.3 13.4 18.6
iv) Bhutan Import 5.3 5.9 5.6 5.1 (-) 8.3
Source : Ministry of Power
* Excludes generation from captive and non-conventional power plants and thermal power plants below 20
MW units and hydro power plants below 2 MW.
236 Economic Survey 2009-10

10.7 The availability of gas from the KG (Krishna indicates the continuity and change over time and
Godavari) basin (D6) and utilization of surplus gas regional variation (Fig 10.2).
available on fallback basis resulted in better 10.8 Out of the total installed generation capacity
utilization of capacity and higher plant load factor in the country, about 11 per cent is based on gas or
(PLF) as also high growth in electricity generated liquid fuel (excluding diesel). The commencement
from gas-based plants. The overall PLF also improved of production of gas from D-6 fields of the KG basin
during April-December 2009 (Table 10.4). A sector- since April 2009 has improved gas availability for
wise and region-wise break-up of PLF, a measure of electricity generation (Table 10.5).
efficiency, from 2007-08 to 2009-10 (April–December)
Power deficit
10.9 The deficit in power supply in terms of peak
Table 10.4 : Thermal power generation availability and total energy availability rose
during April-December 2009 continuously from 2003-04 to 2007-08, a period
characterized by high growth in peak demand and
Components Generation Growth PLF (in per cent)
(MUs) Apr.- Apr.- total energy requirement. Despite modest growth in
Dec. Dec. electricity generation, the peak deficit came down
2008 2009
significantly in 2008-09 on account of a slowdown in
Coal 376.6 5.5 75.9 76.5 growth of peak demand. During April-December 2009,
Lignite 18.0 17.1 62.7 74.5 the peak and total energy deficits came down
Gas Turbine 70.3 30.9 58.0 65.9
considerably to 12.6 per cent and 9.8 per cent
Multi-fuel 0.4 -56.5 53.0 23.1
Diesel 3.2 -9.0 - -
respectively from 13.8 per cent and 10.9 per cent
Thermal Total 468.5 8.8 75.2 76.2 during the corresponding period in the previous year
Source: Ministry of Power. (Figure 10.3). This happened mainly on account of
the increase in growth of electricity generation.

Figure 10.2A Plant load factor of thermal power stations (Sector wise) Figure 10.2B Plant load factor of thermal power stations (Region wise)
100 100
90 90
80 2007-08 80 2007-08
70 70
Pe r c e n t

Pe r c e n t

60 2008-09 60 2008-09
50 50
Apr-Dec Apr-Dec
40 2009 40 2009
30 30
20 20
10 10
0 0
State Central Private All India Northern Western Southern Central North Eastern

Table 10.5 : Coal and gas input for the power sector
Year Coal (in million tonnes) Gas (in MMSCMD)*
Consumption Imports Required at Shortfall Generation
90 per cent PLF loss (BUs)
2006-07 302.5 9.7 61.2 26.1 26.3
2007-08 329.6 10.2 65.7 27.5 31.2
2008-09 358.0 16.1 66.6 29.2 33.7
Apr-Dec 2009 ** 271.0 16.7 76.5 24.3 18.2
Source : Ministry of Power.
*Based on normative gas requirements; ** Figures for gas refer to April-November 2009;
BU–billion units; MMSCMD–million metric standard cubic metre per day.
 Energy, Infrastructure and Communications 237
Figure 10.3 Power supply position: All India
20
18
16 Peak
deficit
14
Energy
Per cent

12
deficit
10
8
6
4
2
0
2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Apr-Dec 2008

Apr-Dec 2009
Year

Capacity addition
10.10 The Eleventh Five Year Plan envisaged a
capacity addition of 78,700 MW, of which 19.9 per
cent was hydel, 75.8 per cent thermal and the rest
nuclear. Projects under execution in various sectors
for the Eleventh Five Year Plan have made steady
progress (Table 10.6).
Table 10.6 : Capacity addition during the
Eleventh Five Year Plan (with high level
of certainty) (MW)
Status Central State Private
Plan Target 36,874 26,783 15,043 78,700
Commissioned 4,990 9,112 4,990 19,092
(as on 31.12.2009)
Under Construction 16,232 12,243 14,807 43,282
Source : Ministry of Power.
10.11 The target for 2007-08, the first year of the
Eleventh Plan, was initially fixed at 16,335 MW and
subsequently reduced to 12,039 MW. Against this
revised target, a capacity addition of 9,263 MW was
achieved during the year. A capacity addition target
of 11,061 MW comprising 9,304 MW thermal, 1,097
MW hydro and 660 MW nuclear was originally
planned for 2008-09. On account of revision in the
definition of commissioning of thermal projects, the
capacity addition target for the year 2008-09 was
revised as 7,530 MW, against which a capacity of
3,454 MW was added up to March 31, 2009. In the
current fiscal, the hydel and nuclear segments made
little progress and the progress in the thermal
segment was uneven across the three sectors (Table
10.7).
10.12 The main reasons for underachievement of
capacity addition targets during 2007-08 and 2008-
Total 09 were delayed and non-sequential supply of
material by suppliers, shortage of skilled manpower
for construction and commissioning of projects,
contractual disputes between project authorities,
contractors and their sub-vendors, delay in readiness
of balance of plants by the executing agencies,
design problems in CFBC boiler and shortage of fuel.
10.13 The Ministry of Power has adopted a
monitoring system of capacity addition at different
levels: the Central Electricity Authority (CEA),
Ministry of Power, Power Project Monitoring Panel
and Advisory Group. The CEA and Ministry of Power
hold review meetings periodically with developers and
other stakeholders.

Table 10.7 : Capacity addition target (original) and achievement during April-December 2009
(in MW)
Sector Thermal Hydro Nuclear Total
Target Actual Target Actual Target Actual Target Actual
Central 2,490 1,000 252 Nil 660 Nil 3,402 1,000
State 4,679 1,979 301 39 Nil Nil 4,980 2,018
Private 5,833 3,357 292 Nil Nil Nil 6,125 3,357
Total 13,002 6,336 845 39 660 Nil 14,507 6,375
Source : Ministry of Power.
238 Economic Survey 2009-10
Ultra Mega Power Projects (UMPPs)
10.14 Nine UMPPs of 4,000 MW each have
originally been identified for development under the
international competitive bidding route. Four UMPPs,
namely Sasan in MP, Mundra in Gujarat,
Krishnapatnam in Andhra Pradesh and Tilaiya in
Jharkhand have already been awarded. One unit of
660 MW of the Sasan UMPP and two units of 800
MW each of the Mundra UMPP are expected to be
commissioned in the Eleventh Five Year Plan. In
respect of the UMPP at Sarguja district in
Chhattisgarh, all the pre-Request for Qualification
(RfQ) activities have been completed. For the UMPP
in Sundergarh district, Orissa, most of the pre-
requisites for issuing the RfQ are already in place,
except issuance of Section 4 Notification. With
respect to the UMPP in Tamil Nadu, the site has
been finalized at Cheyyur, along with the captive port
which is under finalization. For the second UMPP in
Andhra Pradesh, the site at Nayunipalli, Prakasam
District has been finalized by CEA/PFC in
consultation with State Government. For UMPPs to
be located in Karnataka and Maharashtra, second
UMPP in Gujarat and two additional UMPPs in
Orissa, requisite inputs regarding land availability
and water linkage are being examined.
Mega Power Policy
10.15 Guidelines under the Mega Power Policy,
introduced in 1995, were modified in 1998 and 2002
and further amended in April 2006 to encourage power
development in Jammu & Kashmir and the north-
eastern region. In the wake of the important statutory
and policy- level changes, some of the provisions of
the present Mega Power Policy were revisited,
bringing them in line with the National Electricity
Policy 2005 and Tariff Policy 2006. With a view to
rationalize the procedure for grant of mega certificate
and facilitate quicker capacity addition, following
modifications to the Mega Policy have been made.
(i) The existing condition requiring privatization
of distribution by power-purchasing states
will be replaced by the condition that they
shall undertake to carry out distribution
reforms as laid down by the Ministry of
Power.
(ii) The condition requiring inter-State sale of
power for getting mega power status will be
removed.
(iii) The present dispensation of 15 per cent price
preference available to domestic bidders in
case of cost plus projects of public-sector
undertakings (PSUs) will continue. However,
the price preference will not apply to tariff-
based competitively bid projects of PSUs.
(iv) Developers of mega power projects will not
be required to undertake international
competitive bidding for procurement of
equipment for the mega power project if the
requisite quantum of power has been tied
up through tariff-based competitive bidding
or the project has been awarded through
tariff-based competitive bidding.
(v) All benefits, except a basic custom duty of
2.5 per cent only, available under the Mega
Power Policy would be extended to
expansion unit(s) of existing mega power
projects even if the total capacity of
expansion unit(s) is less than the threshold-
qualifying capacity, provided the size of the
unit(s) is not less than that provided in the
earlier phase of the project. All other
conditions for grant of mega power status
shall remain the same.
(vi) Mega power projects may sell power outside
long-term power purchase agreements
(PPAs) in accordance with the National
Electricity Policy 2005 and Tariff Policy
2006.
Induction of supercritical technology through
bulk ordering
10.16 The Government approved proposals for the
induction of supercritical technology through bulk
ordering of 11 units of 660 MW (totalling 7,260 MW)
by the National Thermal Power Corporation (NTPC)
Ltd. for itself and on behalf of its joint venture (JV)
companies and on behalf of the Damodar Valley
Corporation (DVC). Following this, NITs for bulk tender
of Steam Generator Packages and Steam Turbine
Generator Packages were issued by the NTPC on
October 16, 2009. The award process is likely to be
completed by July 2010.
Development of hydro power
10.17 Forty-six hydro projects with an aggregate
capacity of 13,675 MW are under construction in
the country. The main reasons for their slow
development include difficult and inaccessible
potential sites, difficulties in land acquisition,
rehabilitation, environmental and forest –related
issues, inter-State issues, geological surprises and

contractual issues. Private-sector participation in
hydel power projects has been increasing; there are
14 schemes with an installed capacity of 4,383 MW
under construction in the private sector. Private
developers have been allotted 129 schemes with an
installed capacity 36,123 MW by States which are
yet to be taken up for construction. The bulk of the
potential which is in the Himalayan region is yet to
be tapped. Out of the 162 projects for which
preliminary feasibility reports were prepared under
the 50,000 MW Hydro Electric Initiative, 77 (33,951
MW) have been taken up for detailed survey and
investigation and preparation of detailed project
reports (DPRs)/implementation. So far, DPRs for 21
schemes have been prepared.
10.18 Some of the features of the new hydro policy
include making available the dispensation for project
development allowed for PSUs to the private sector
for a period of five years; better relief and rehabilitation
packages for affected families; risk mitigation for
developers and facilitation of early financial closure.
A Task Force under the Chairmanship of the Minister
of Power has been constituted to look into all issues
relating to the development of hydro power. Another
Task Force constituted to develop the model contract
documents for hydro power projects has since
prepared them.
Transmission, Trading, Access and
Exchange
10.19 An integrated power transmission grid helps
to even out supply-demand mismatches. The
existing inter-regional transmission capacity is about
20,800 MW. This has enabled inter-regional energy
exchanges of about 36,815 MUs during April-
December 2009.
Trading of Electricity
10.20 Power trading facilitates disposal of surplus
power with distribution utilities and meeting the short-
term peak demand. The Central and State Electricity
Table 10.8 : Electricity trading
Period Volume of
electricity
traded (MUs)
2005-06 14,188.8
2006-07 15,022.7
2007-08 20,964.8
2008-09 21,916.9
April-Oct. 2009 15,551.7
Source : Ministry of Power.
Energy, Infrastructure and Communications 239
Regulatory Commissions have powers to grant inter-
State and intra-State trading licences respectively.
The Central Electricity Regulatory Commission
(CERC) has so far granted 44 inter-State trading
licences, of which 40 are in existence as on July 31,
2009. Electricity trading by licensed inter-State
traders is picking up (Table 10.8).
Inter-State trading margin regulations 2010
10.21 The CERC has issued new regulations fixing
trading margins for inter-State trading in electricity.
The main features of the new regulations are: i) the
trading margin shall apply only to short-term buy –
short–term sell contracts for inter-State trading.
ii) the Trading margin shall not exceed 4 paise per
unit if the sell price of electricity is less than or equal
to Rs.3 per unit. The ceiling of trading margin shall
be 7 paise per unit in case the sell price of electricity
exceeds Rs 3 per unit. iii) if more than one trading
licensee is involved in a chain of transactions, the
ceiling on the trading margin shall include the trading
margins charged by all the traders put together. In
other words, traders cannot circumvent the ceiling
by routing the electricity through multiple
transactions. iv) long-term agreements have been
exempted from trading margins to facilitate innovative
products and contracts for new capacity addition
which involve higher risk in transactions.
Open access
10.22 The regulations on open access in inter-State
transmission and those on inter-State trading are
issued by the CERC while the responsibility for
introducing open access at distribution level rests
with State Electricity Regulatory Commissions
(SERCs). States have been asked to take steps to
ring fence the State Load Dispatch Centres (SLDCs)
so that they are not be under any pressure from
utilities to counter open access.
10.23 Open access in inter-State transmission is
fully operational. To boost open access, the CERC
Weighted average Weighted average Trading
purchase price sale price margin
(Rs./kWh) (Rs./kWh) (Rs./kWh)
3.14 3.23 0.09
4.47 4.51 0.04
4.48 4.52 0.04
7.25 7.29 0.04
5.32 5.36 0.04
240 Economic Survey 2009-10

Table 10.9 : Status of applications received for open access in distribution

(November 30,2009)
States Received Approved Implemented
No. MW. No. MW. No. MW.
Andhra Pradesh 11 1,055.8 4 51.3 4 51.3
Chhattisgarh 16 404.3 6 66.0 5 53.0
Gujarat 44 5,534.0 40 5,523.2 40 5,523.2
Madhya Pradesh 30 60.2 30 60.2 30 60.2
Maharashtra 64 14,452.0 57 14,310.5 7 163.0
Rajasthan 31 277.6 29 264.3 29 264.3
Tamil Nadu 16 1,752.0 1 18.0 0 0.0
Other States (*) 56 2,195.1 45 1,457.2 38 1,357.3
Total 268 25,731.0 212 21,750.8 153 7,472.4
Source: Forum of Regulators.
* Other States include Haryana, Himachal Pradesh, Jharkhand, Kerala, Orissa, Punjab, Uttar Pradesh, West
Bengal and Karnataka.

has recently notified a regulation on Connectivity,
Long-term Access and Medium-term Open Access
in inter-State Transmission. The regulation has
introduced medium-term open access to the inter-
State grid. A transmission corridor can now be availed
of for a period ranging from three months to three
years. Provisions have also been made for seeking
connectivity to grid. The new dispensation has
abolished the discrimination between public-sector
and private-sector generators in the matter of
connectivity to grid. Also, now any 100 MW and
above consumer can be connected directly to the
Central Transmission Utility grid without having to
go to SLDCs.
10.24 The volume of approved open access
transactions (in energy terms) in inter-State
transmission has increased over the period. The
energy approved for open access through the bilateral
route involving trade through electricity traders or
directly between distribution licencees was 16,441
MUs in 2004-05, 27,756 MUs in 2008-09 and 24,443
MUs in 2009-10 (up to Dec 2009). With the
introduction of power exchanges in 2008, open
access is approved separately for collective
transactions in the exchanges. The approved energy
for open access through such collective transactions
was 2,765 MUs in 2008-09 and 4,831 MUs in 2009-
10 (up to December 2009). There has been migration
of the volume of energy approved from bilateral to
collective transactions. The total volume of energy
approved for open access in inter-State open access
(including bilateral and collective transactions) was
30,521 MUs in 2008-09 and 29,274 MUs in 2009-10
(up to December 2009).
10.25 Status of applications received for open
access in distribution varies across select States
(Table 10.9). The open access charges vary widely
across States.
Power exchange
10.26 The CERC has issued power market
regulations which focus on creating an overall power
market structure and role of power exchanges and
traders and provide for market oversight and
surveillance. The two power exchanges, namely the
Indian Energy Exchange Ltd. (IEX), New Delhi, and
the Power Exchange India Ltd. (PXIL), Mumbai, have
been in operation from June 27, 2008 and October
22, 2008 respectively. Increasing volumes of
electricity transacted through power exchanges
would indicate the progress in this regard (Table
10.10).
Table 10.10 : Volume of electricity
transacted by power exchanges during
April-October 2009 (in MUs)
Day-Ahead Market IEX 3,047.5
PXIL 384.7
Term-Ahead Market * IEX 17.5
PXIL 2.2
Source : Ministry of Power.
* Term-Ahead Contracts introduced at the two
power exchanges from September 15, 2009.
Promotion of green power
10.27 The CERC has notified tariff regulations for
electricity generated from renewable energy (RE)
sources (Box10.1).These regulations assume

Box 10.1 : Terms and conditions for tariff
determination from Resources
The CERC has notified tariff regulations for electricity
generated from RE sources. Salient features of the
regulations are as under:
z Control Period of three years, except for solar projects
for which capital cost shall be reviewed every year
in view of technological advancement;
z Tariff Period is 13 years for RE technologies;
excluding SHP below 5 MW (35 years), Solar
Photovoltaic (PV) and Solar Thermal (25 years) as
these technologies need handholding support for a
longer time;
z Thirteen Years tariff period covers the debt
repayment obligation; beyond the tariff period, RE
project is to compete.
z Provision for generic levellized tariff based on suo
motu petition for RE technology such as wind energy,
small hydro power, biomass power (based on
rankine cycle technology), non-fossil fuel co-
generation; and solar PV and solar thermal.
z Provision for project-specific tariff for municipal
solid waste projects, solar PV and solar thermal
power projects, (if the developer so opts), hybrid
solar thermal power plants and biomass projects
other than those based on rankine cycle technology
application with water cooled condenser.
special importance in view of the National Action
Plan on Climate Change which stipulated that
minimum renewable purchase standards be set at 5
per cent of the total power purchases in year 2010
and increase thereafter by 1 per cent every year for
ten years. The Commission has issued generic tariff
for various RE technologies for 2009-10.
10.28 The Forum of Regulators has evolved a
Renewable Energy Certificate (REC) mechanism at
national level to facilitate inter-state transaction of
RE sources. The CERC has notified the REC
Regulation for implementing an REC framework. This
is a market-based instrument to promote renewable
energy and facilitate compliance with renewable
purchase obligations under inter-State transactions
of RE generation. The REC mechanism is aimed at
addressing the mismatch between availability of RE
resources in a State and the requirement of the
obligated entities to meet the renewable purchase
obligation.
AT&C losses and Restructured APDRP
10.29 The focus of the Restructured Accelerated
Power Development Reforms Programme (RAPDRP)
is on actual, demonstrable performance in terms of
reduction in aggregate technical and commercial
(AT&C) losses. Projects under the scheme will be
Energy, Infrastructure and Communications 241
taken up in two parts in towns and cities with
population more than 30,000 (10,000 in case of
special category States).
Part A
10.30 Part A shall include projects for
establishment of baseline data and information
technology (IT) applications for energy accounting/
auditing and IT-based consumer service centres.
Preparation of baseline data covering consumer
indexing, GIS mapping, metering of distribution
transformers and feeders, and automatic data
logging for all distribution transformers and feeders
and SCADA (Supervisory Control and Data
Acquisition) / DMS (Distribution Management
System) system is only for big cities. It would
include asset mapping of the entire distribution
network at and below the 11Kv transformers and
adoption of IT applications for meter reading, billing
and collection, energy accounting and auditing,
redressal of consumer grievances and establishment
of IT-enabled consumer service centres. The baseline
data shall be verified by an independent agency
appointed by the Ministry of Power.
10.31 A steering committee has been constituted
under the Secretary (Power) in order to sanction
projects, monitor and review implementation, approve
guidelines for operationalizing the components of
the scheme, approve and sanction activities to be
taken up under Part C of the scheme, appoint
agencies for verifying and validating baseline data
systems andfor verifying fulfilment of programme
conditions by utilities, and approve conversion of loan
into grant upon fulfillment of necessary conditions.
The steering committee has approved 1,344 projects
for 22 states under Part A at the cost of Rs 4,859.60
crore. The budget allocation for 2009-10 is Rs 1,730
crore (Rs 1,650 crore as loan and Rs 80 crore as
grant). Six States, namely West Bengal, Madhya
Pradesh, Rajasthan, Karnataka, Uttarakhand and
Gujarat have awarded the work for implementation
of projects approved under Part A of the RAPDRP to
the IT Implementing Agency.
Part B
10.32 Part B shall include regular distribution-
strengthening projects. These include renovation,
modernization and strengthening of 11 Kv- level sub-
stations, transformers/transformer centres, re-
conductoring lines at 11Kv level and below, load
bifurcation, load balancing, high voltage distribution
system (HVDS) and installation of capacitor banks
and mobile service centres. In exceptional cases,
where sub-transmission system is weak,
242 Economic Survey 2009-10
strengthening at 33 Kv or 66 Kv level may also be
considered.
10.33 Expected investment in Part A is Rs 10,000
crore and that in Part B Rs 40,000 crore. Initially
100 per cent funds for Part A and 25 per cent (90 per
cent for special category States) for Part B projects
shall be provided through loan from the Government
of India. The balance funds for Part B projects shall
be raised from financial institutions. The entire
amount of loan for Part A projects shall be converted
into a grant once the establishment of the required
baseline data system is achieved.
10.34 Up to 50 per cent (90 per cent for special
category States) of the cost of Part B projects shall
be converted into a grant in five equal tranches on
achieving the 15 per cent AT&C losses in the project
area on a sustainable basis for a period of five years.
In addition, utility level loss reduction (AT&C losses)
@ 3 per cent per annum for utilities with baseline
loss levels exceeding 30 per cent and @ 1.5 per
cent for utilities with baseline loss levels less than
30 per cent have to be achieved.
Part C
10.35 Part C is an enabling component for
implementation of the APDRP. A provision of Rs 1,177
crore through Gross Budgetary Support has been
made in the scheme. This part is to be implemented
by the Ministry of Power/nodal agency. The Power
Finance Corporation has been appointed as the nodal
agency for operationalizing the programme. The
activities under Part C include:
z Preparation of template for system requirement
specifications for subdivision automation and
customer relations management module, as well
as for automated baseline data collection
systems;
z validation of the baseline data to be done by
independent agencies;
z appointment of project advisors and project
management consultants to assist in monitoring,
to validate project proposals submitted by
distribution companies (project advisers) and to
assist distribution companies in formulating
detailed project reports (DPRs), in standardizing
bidding/contract documents, managing the bid
process, etc. (project management consultants);
z project evaluation for which a panel of evaluators
will be finalized through a bidding process;
z capacity building and development of franchisees
in the distribution sector; and
z carrying out consumer attitude survey to assess
the impact of the measures taken.
Part D
10.36 Under Part D of the scheme, there is provision
for incentive for utility staff in towns where AT&C loss
levels are brought below the baseline. An amount
equivalent to 2 per cent of the grant for part B projects
is proposed as incentive for utility staff in project
areas where AT&C loss levels are brought below 15
per cent.
Rural electrification
10.37 Under the Rajiv Gandhi Grameen
Vidyutikaran Yojana (RGGVY), 69,963 villages have
been electrified and connections have been released
to 88.8 lakh BPL households up to January 15, 2010.
Under Tenth Plan, 235 projects covering 68,763
villages and 83.10 lakh BPL connections were
sanctioned at a cost of Rs. 9732.90 crore. In Phase-
I of the Eleventh Five Year Plan period 332 projects
have been sanctioned for implementation at a cost
of Rs 16,506 crore for electrification of 49,736 un-
electrified villages and release of electricity
connections to 162.96 lakh BPL households. Till
January 15, 2010, 328 projects have been awarded.
Franchisees are in place in 1,02,255 villages in 16
States as on January 15,2010.
Energy Conservation and efficiency
10.38 Several measures have been taken by the
Ministry of Power and the Bureau of Energy
Efficiency to promote energy conservation and its
efficient use targeting 5 per cent reduction in demand
during the Eleventh Five Year Plan through schemes
being implemented by the Bureau of Energy
Efficiency ( Table 10.11).
10.39 The Ministry of Power has also launched an
awareness programme which includes giving
incentives for efficiency and conservation efforts by
way of National Energy Conservation Awards,
painting, debate and essay competitions for
schoolchildren and creating general awareness
through the media on the need for energy
conservation. The National Mission for Enhanced
Energy Efficiency is one of the eight missions under
the National Action Plan on Climate Change. The
scheme has been approved and its implementation
will commence in 2010-11. The objective of the
Mission is to achieve growth with ecological
sustainability by devising cost-effective strategies
for end-use demand side management.
 Energy, Infrastructure and Communications 243
Table 10.11 : Measures for energy conservation & efficiency
Initiative Components Achievements/developments

Bachat Lamp Yojna
Provides high-quality compact
fluorescent lamps to consumers
at rate comparable to that of
incandescent bulbs
The pilot scheme was approved by the CDM
(Clean Development Mechanism) Executive
Board of the UNFCCC (United Nations
Framework Convention on Climate Change)
in 2008-09. Avoided capacity generation of
104 MW achieved.

Standards & Labelling Lays down minimum energy Labelling of ACs, refrigerators, TFLs and
Scheme performance standards for high transformers made mandatory from January
energy equipment and 7, 2010. Labelling of geysers, motors,
appliances. pumps, colour TVs, LPG stoves, ceiling fans
introduced on a voluntary basis. About
1,744.84 MW of avoided capacity generation
achieved.

Energy Conservation,
Building Code (ECBC) in
existing buildings
Demand Side
Management (DSM)
ECBC sets performance Forty-four architects have been empanelled.
standards for new commercial Investment grade audits have been initiated
buildings with connected load of in 35 Central Government buildings and 400
more than 500 KW or 600 KVA of buildings in States. Thirty-five ESCOs have
electricity consumption, energy been empanelled and accredited. Avoided
conservation measures in capacity generation of 7 MW achieved.
existing buildings proposed
through Energy Service
Companies (ESCOs) under
performance contracting.
DSM in agriculture & Approval for implementing the scheme was
municipalities received in the last quarter of 2008-09 and it
is now operational.

Strengthening state- Financial assistance to SDAs for Action plans for 28 states are under
designated agencies strengthening institutional implementation. Avoided capacity
capacities generation of 787 MW achieved.

National Energy For specified sectors, large, Avoided capacity generation of 834 MW
Conservation Awards medium and small industries, achieved.
SDAs and municipalities
Energy efficiency in For small and medium Approval for the scheme was received in the
enterprises enterprises last quarter of 2008-09. Now operational.
State Energy Conservation Central Government to contribute Approval for the scheme was recently
Fund to the State Conservation Fund obtained.
once it is set up by the respective
State for energy conservation on
activities.
Source : Ministry of Power.

PETROLEUM 32 billion cubic metric tonnes (BCM) during the past

Oil and gas production
10.40 With around 75 per cent of total oil
consumption in the country being met through
imports, the dependence on imports for petroleum
and petroleum products continued to be high. The
domestic supply of crude oil remained around 34
million metric tonnes (MMT) and natural gas at about
five years. With 15 new oil and gas discoveries during
the current financial year, domestic availability is
expected to improve. During 2009-10, the projected
production for crude oil is 36.7 MMT, which is about
11 per cent higher than the actual crude oil production
of 33.5 MMT in 2008-09. This is primarily due to
increase in crude oil production from Rajasthan (2.4
MMT) and the KG deepwater (0.8 MMT). The
244 Economic Survey 2009-10
projected production for natural gas (including coal
bed methane [CBM]) for 2009-10 is 50.2 BCM which
is 52.8 per cent higher than the actual production of
32.8 BCM in 2008-09. The increase in natural gas
production is primarily from the KG deepwater block.
Progress of the New Exploration and
Licensing Policy (NELP) and Coal Bed
Methane Policy
10.41 Of the estimated sedimentary area of 3.14
million sq. km, at present 1.17 million sq. km is
held under petroleum exploration licences. Since
operationalization of the NELP in January 1999, 72
oil and gas discoveries have been made by private/
joint venture (JV) companies in 21 blocks. Under
the NELP, more than 600 MMT of oil equivalent
hydrocarbon reserves has been added.
10.42 As on April 1, 2009, investment made by
Indian and foreign companies was of the order of US
$ 11.9 billion. After concluding seven rounds of NELP,
203 production-sharing contracts (PSCs) have been
signed. The area awarded under the NELP for
exploration was 46 per cent of the Indian sedimentary
basin. The eighth round of the NELP was launched
in April 2009 offering the highest number of
exploration blocks ever, that is 70 blocks covering a
sedimentary area of about 1,63,535 sq. km. The
offered blocks included 24 deepwater blocks, 28
shallow water blocks, 8 on-land blocks and 10 Type-
S blocks. As part of the CBM policy approved in
July 1997, 26 CBM blocks have been awarded in
the first three rounds. As part of CBM IV, the
Government offered 10 blocks covering an area of
about 5,000 sq. km. spread over seven states,
namely Assam, Jharkhand, Orissa, Madhya
Pradesh, Chhattisgarh, Maharashtra and Tamil Nadu.
10.43 The Government has received 76 bids for 36
blocks out of 70 blocks offered under NELPVIII and
26 bids for 8 blocks out of 10 blocks offered under
CBMIV by the bid-closing date, that is October 12,
2009. In respect of 16 deep water blocks, 15 shallow
water blocks and 3 on-land blocks, no bids
were received. A total of 62 companies comprising
10 foreign and 52 Indian companies have made
bids.
Domestic reserves and production
10.44 Balance recoverable crude oil and natural
gas reserves in the country are 736.45 MMT and
1,119.55 BCM respectively. New oil and gas reserves
found by private/JV companies in the KG deepwater
and Rajasthan are in production.
Gas Production from KG-D6 Basin
10.45 Gas production from KG-D6 began on April1,
2009. It is expected that production would be ramped
up to 80 MMSCMD by the end of 2009-10. An
Empowered Group of Ministers (EGOM) constituted
to decide commercial utilization of gas under the
NELP has allocated 61.611 MMSCMD of gas
produced from KG-D6 on firm basis and 30
MMSCMD on fall-back basis to various priority
sectors.
Crude oil production from Rajasthan
10.46 Crude oil production by the Rajasthan Cairn
Energy India Pty. Ltd. has started in block RJ-ON-
90/1 with effect from August 29, 2009 at the initial
production rate of 3,500 barrels per day. Production
from this block, which is of very high quality, is likely
to increase during 2009 through 2011. The
Government has designated IOC, MRPL and HPCL
for lifting part of the crude oil production from this
block after ascertaining the capacity of receiving
refineries of the nominees. The production expected
from this block during 2009-10 is 2.4 MMT.
Improved oil recovery/enhanced oil recovery
(IOR/EOR)
10.47 Work programmes have been undertaken
primarily by the Oil and Natural Gas Corporation
(ONGC) for IOR/EOR in its 15 largest fields, which
account for 80 per cent of its reserves and production.
Eighteen IOR/EOR schemes of have already been
approved to increase the recovery factor from 14
ageing oil & gas fields of the ONGC at an estimated
cost of about Rs14,510 crore.
Development of marginal fields
10.48 Concerted efforts have been made to put new
and marginal fields in production through in-house
resources as well as through service contract. Out
of a total of 165 marginal fields, ONGC has already
monetized 56. Of the remaining 109 fields, 68 are
being monetized in-house by ONGC, 20 through
service contracts and 21 are likely to be offered. The
marginal field policy is being finalized.
Underground coal gasification (UCG)
10.49 ONGC entered into an Agreement of
Collaboration with the National Mining Research
Centre-Skochinsky Institute of Mining in Russia. In
the selected Vastan mine block, a seismic survey
was carried out and 18 boreholes were drilled for
detailed UCG site characterization. Vastan in Gujarat
and Hodu Sindri in Rajasthan have been found suitable
for UCG stations. Pilot production of UCG at Vastan
by the ONGC would commence in 2010.

Gas hydrate
10.50 India is a pioneer in the field of gas hydrate.
In accordance with the roadmap for the National Gas
Hydrate Programme (NGHP), India has already
acquired core samples with the help of the US drill
ship JOIDES Resolution. In December 2008, a
memorandum of understanding (MOU) was signed
between the Directorate General of Hydrocarbons
and the U S Geological Survey for cooperation on
exchange of scientific knowledge and technical
personnel in the field of gas hydrate and research.
The second NGHP expedition has been planned in
2010 to map the prospects of gas hydrate in Krishna
Godavari and Mahanadi deepwater areas.
Equity oil & gas from abroad
10.51 The Government is encouraging national oil
companies to aggressively pursue equity oil and gas
opportunities overseas. The Oil & Natural Gas
Corporation Videsh Limited (OVL) produced about
8.75 MMT of oil and equivalent gas in 2008-09 from
its assets abroad in Sudan, Vietnam, Venezuela,
Russia, Syria and Colombia. In 2008-09, OVL has
acquired seven blocks in five countries comprising
two blocks each in Brazil and Columbia and one
each in Myanmar, Venezuela and Trinidad & Tobago.
The largest ever acquisition of a foreign company,
Imperial Energy Plc. UK. (IEC) by an oil PSU, OVL
has taken place. OIL-IOC alliance has also acquired
one block in Timor Leste and two blocks in Egypt.
BPCL along with Videocon has acquired participating
interest in 10 blocks in Brazil.
Refining & pipeline capacity
10.52 The total installed capacity of refineries
increased to 177.97 MMTPA as on April 1, 2009.
The new refineries at Bhatinda, Paradip and Bina
will further augment domestic refinery capacity. By
the end of the Eleventh Five Year Plan, refinery
capacity is expected to reach 240.96 MMTPA. The
country has a network of 24 product pipelines with a
length of 10,514 km and capacity of 62.91 MMT; 3
LPG pipelines of 2,197 km length and 4.50 MMT
capacity; 6 crude oil pipelines of 5,795 km length
and 52.75 MMT capacity.
Rajiv Gandhi Gramin LPG Vitrak Yojana
(RGGLVY)
10.53 The Ministry of Petroleum & Natural Gas has
formulated a vision for the year 2015 ‘Customers
Satisfaction & Beyond’ wherein it is targeted to cover
75 per cent of the population with LPG by that year.
Energy, Infrastructure and Communications 245
The LPG customer base is targeted to increase from
10.6 crore as on April 1, 2009 to 16.0 crore by the
year 2015. The focus would be on States and regions
where coverage is below the national average. A new
low-cost LPG distributor scheme, the RGGLVY was
launched on October 16, 2009 with a view to releasing
LPG connections in rural areas where operations
with the present norms are economically unviable.
The scheme has been launched at locations having
potential of up to 600 refills per month.
Advertisements inviting applications for distributorship
have been released in eight States covering 1,215
locations.
Public grievances redressal system in Oil
Marketing Companies (OMCs)
10.54 In order to streamline the public grievances
redressal system, OMCs have started unique toll-
free telephone numbers that are provided to register
complaints and follow up. Customer contact with
senior company officials is fixed on prescribed days
of the month. For booking refill cylinders 24x7, SMS
and interactive voice response system (IVRS)
facilities have been introduced.
Special efforts towards energy (oil & gas)
conservation
10.55 The Petroleum Conservation Research
Association (PCRA) is mandated to formulate and
spread awareness on energy / petroleum
conservation. This is carried out through field- level
activities like energy audit, fuel oil diagnostic studies,
service to small-scale industries, institutional training
programmes, seminars, exhibitions, painting
competitions and workshops. During 2009-10, 3,572
activities have so far been conducted. The PCRA
has carried out technical/R&D interventions aimed
at reducing energy intensity in the small and medium
enterprises. A Technology Conservation Centre has
been set up at the PCRA, New Delhi, for effective
information dissemination on energy-efficient
products and technologies for the general public.
The Centre has been attracting a large number of
visitors including international visitors.
10.56 The PCRA media campaign “Save Fuel Yanni
Save Money” was adopted to develop a strong
motivation for attitudinal change in favour of fuel-
efficient measures in petroleum-intensive sectors.
An impact assessment survey showed that the
PCRA campaign was very successful and resulted
in significant fuel saving.
246 Economic Survey 2009-10
Box 10.2 : Major Initiatives in the petroleum
sector at a glance
z In the eighth round of the NELP (NELP-VIII), 1.62
sq. km area will be covered comprising 70 blocks.
Out of 70 blocks, 36 have been awarded under
NELP-VIII.
z In CBM-IV, out of 10 new blocks 8 have been
awarded.
z During 2009-10, crude oil production is projected
to increase by 11 per cent and natural gas production
by 53 per cent.
z Crude oil production commenced in block RJ-ON-
90/1 in August 2009.
z Eighteen new IOR/EOR schemes have been
approved to increase the recovery factor from 14
ageing oil & gas fields of the ONGC at a cost of Rs
14,510 crore.
z The first natural gas production from block D6 of
the KG Basin, undertaken by Reliance Industries
Limited (RIL) and NIKO Resources Limited,
commenced in April 2009.
z The Empowered Group of Ministers has decided to
allocate 61.6 MMSCMD of gas produced from KG-
D6 on firm basis and 30 MMSCMD on fall-back
basis to various priority sectors.
z The RGGLVY has been launched in October 2009 to
increase rural penetration of LPG.
z Vision-2015 for LPG to focus on providing 5.5 crore
new connections till 2015 to raise population
coverage from 50 per cent to 75 per cent.
COAL
10.57 More than 92 per cent of the coal production
in India is of non-coking coal. Raw coal production
during April-November 2009 was 325.87 million
tonnes as against 289.69 million tonnes in the same
period of the previous year, registering a growth of
12.5 per cent. Coking coal production for the period
was 25.60 million tonnes against 18.85 million tonnes
of the same period in the previous year. The growth
rate in the production of raw coal increased from 6
per cent during 2003-04 to 2007-08 to 8.4 per cent
in 2008-09, due to enhanced production by all the
Table 10.12 : E-auction by CIL & SCCL during April-December 2009 (million tonnes)
Company Offered Quantity
up toDec.2009
CIL 37.13
SCCL 1.29
Source: Ministry of Coal.
stakeholders especially captive blocks and large
PSUs like Coal India Ltd. (CIL) and Singareni
Collieries Company Ltd (SCCL). During 2008-09, the
import and export of coal was about 59 million tonnes
and 1.66 million tonnes respectively. The
corresponding figures stood at 18.85 million tonnes
and 0.39 million tonnes during April-June 2009.
10.58 Under the e-auction scheme, SCCL and CIL
have started e-auction of coal. During 2008-09, SCCL
sold 3.63 million tonnes of coal through e-auction
(Table 10.12).
10.59 The Government has approved formation of
a Special Purpose Vehicle (SPV) , namely
International Coal Ventures Limited (ICVL ) for
securing metallurgical coal and thermal coal assets
overseas by PSUs including CIL. Aspects like the
functioning of ICVL and strength of personnel are
being finalized. The Empowered Committee of
Secretaries constituted for considering the proposals
of ICVL for acquiring coal properties abroad will also
consider CIL’s proposals for investing in coal assets
abroad which are more than Rs 1,000 crore.
10.60 For increasing the output of washed coking
and non-coking coal, CIL has envisaged setting up
of 20 new coal washeries for an ultimate raw coal
throughput capacity of 111.10 million tonnes per
annum with an estimated capital investment of about
Rs 2,500 crore. These include seven coking coal
washeries and 13 non-coking coal washeries.
10.61 For increasing production from underground
mines, initiatives like identification of high capacity
underground mines for development with latest
technology, restart of mining in abandoned mines
forming joint ventures with reputed mining
companies, introduction of continuous miners and
PSLW as a mass production technology in more
mines, introduction of high wall mining and
upgradation of equipment size are being taken.
10.62 As of now, 213 coal blocks with geological
reserves of about 49.07 billion tonnes have been
allocated to public/private companies. However, the
Sold Quantity up Per cent Increase on
to Dec.2009 notified price up to
Dec. 2009
30.66 60.3
1.07 45.0

effective allocation is only of 208 coal blocks. Out of
the 208 coal blocks allocated, 95 with geological
reserves of about 27,388 million tonnes have been
allocated to public-sector companies and the rest
to private-sector companies. Out of the total
allocated blocks, 25 have commenced production.
The production from these coal blocks during April-
November 2009 was 23.66 million tonnes (provisional).
10.63 The Government granted Miniratna Status
(Category-II) to Central Mine Planning & Design
Institute Limited (CMPDIL), Ranchi, in May 2008.
RAILWAYS
10.64 Indian Railways is the third largest rail
network in the world under a single management.
Better resource management, through increased
wagon load, faster turnaround time and a more
rational pricing policy led to a perceptible
improvement in the performance of the Railways.
Out of freight and passenger traffic, the freight
Energy, Infrastructure and Communications 247
segment accounts for about 70 per cent of revenue.
Within the freight segment, bulk traffic accounts for
nearly 84 per cent of revenue-earning freight traffic
(in physical terms), of which about 44 per cent is
coal (Table 10.13).
Rationalization of freight rates and
passenger fares
10.65 There has been no across-the-board increase
in freight rates in recent years. Railways has taken
a number of steps to attract additional traffic, one of
which is the dynamic pricing policy through which
differential tariff is charged to take care of skewed
demand during different periods of the year and
between different regions. Besides, a slew of freight
incentives schemes have been launched, particularly
in the traditional empty-flow direction and during lean
season. The procedure for availing of the benefits
has been simplified. The freight for export of iron ore
has been reviewed and the rate brought down
significantly.

Table 10.13 : Performance of the Indian Railways

Change (per cent)
Particulars 2007-08* 2008-09* Apr.-Nov. 2008-09 Apr.-Nov.
(P) 2009 (P)* 2009
1. Revenue-earning Freight Traffic (million tonnes) 793.9 833.4 573.5 5.0 7.4
i) Coal 336.8 369.6 252.8 9.7 8.4
ii) Raw material for Steel Plants (excl. Iron Ore) 11.2 10.9 7.8 -3.0 5.6
iii) Pig Iron & Finished Steel 25.8 28.2 20.0 9.4 15.7
(a) from Steel Plants 20.8 22.0 15.6 6.0 16.8
(b) from Other Points 5.0 6.2 4.5 23.4 11.8
iv) Iron Ore for Export 136.7 130.6 88.6 -4.5 3.7
(a) for Export 53.7 45.8 30.1 -14.9 6.7
(b) for Steel Plants 43.6 42.9 29.7 -1.6 1.4
(c) for Other Domestic Users 39.3 41.9 28.7 6.6 3.2
v) Cement 79.0 86.3 59.6 9.2 9.1
vi) Foodgrains 38.2 35.6 22.7 -6.8 4.0
vii) Fertilizers 35.8 41.3 30.1 15.4 5.3
viii) Petroleum Oil Lubricants 35.9 38.1 26.2 6.1 2.2
ix) Container Service 21.1 27.8 22.6 31.7 16.9
(a) Domestic Container 3.7 6.5 5.5 74.6 49.5
(b) Export-Import Container 17.4 21.3 17.1 22.4 9.2
x) Balance (Other Goods) 73.3 65.0 43.2 -11.4 6.7
2. Net Tonne km (billion) 521.4 551.4 378.4 5.8 9.6
3. Net tonne km/wagon/day (BG) 3,539@ 8,762$ 8,958# — 3.7
e
4. Passenger Traffic Orig. (million) 6,524.0 6,920.0 4,849.8 6.1 4.7
5. Passenger km(billion) 770.0 838.0 612.0 8.8 7.8
Source : Ministry of Railways.
Notes: P - Provisional ; e excluding Metro Kolkata; * excluding Konkan Railway Loading; $ calculated in terms
of 8 wheelers; @ calculated in terms of 4 wheelers;
248 Economic Survey 2009-10
10.66 Similarly, passenger fares have also been
rationalized. With effect from April 1, 2009, the
existing basic fares up to Rs 50 per passenger for
non-suburban mail/express including super-fast
trains and non-suburban ordinary passenger trains
were reduced by giving a discount of Re 1. Fares
beyond Rs 50 per passenger were reduced by giving
a discount of 2 per cent.
Launch of new trains
10.67 Indian Railways has launched a new class
of passenger-carrying Duronto trains in September
2009. Seven Duronto trains have already been
introduced. Duronto is a non-stop super fast
passenger-carrying train, ensuring better speed,
comfort and security for passengers.
10.68 The first-ever Yuva trains which are targeted
mainly at unemployed youth have been introduced
between Howrah and Delhi and Hazrat Nizamuddin
and Bandra. These Yuva trains are being introduced
to ensure that youth of low-income groups can travel
at low rates between major cities. The Yuva fares
are applicable to unemployed persons between the
age group 15 and 45 and 60 per cent of the seats
are reserved for them. The total chargeable fare for
Yuva passengers inclusive of all other charges like
Reservation Fee, super fast train charge and
development charge will not exceed Rs 299 up to a
distance of 1,500 km and Rs 399 for distance more
than1,500 and up to 2500 km.
10.69 Indian Railways has introduced the Izzat
scheme of uniformly priced monthly seasons tickets
(MSTs) at Rs 25 inclusive of all surcharges which
will be issued for a distance up to 100 km to persons
working in the unorganized sector with monthly
income not exceeding Rs 1,500. These MSTs are
being issued for journeys with effect from August 1,
2009.
10.70 Indian Railways introduced only ladies
Matrabhumi train services in Delhi, Chennai and
Kolkata suburban on the pattern of Mumbai suburban
as working women face considerable difficulties in
travelling to work. These services will run during office
hours.
10.71 To attract high-value and transit-sensitive non-
bulk parcel traffic, Indian Railways introduced Delhi-
Howrah-Delhi, Delhi-Ahmedabad/ Vapi-Howrah faster
parcel services/premium parcel express trains named
Tejshree Parcel Sewa as a pilot project. This is
envisaged as a time-tabled service from dedicated
terminals with guaranteed transit time.
Upgradation of passenger amenities
Adarsh Stations
10.72 Indian Railways has decided that 17 more
railway stations would be added to the existing list
of 358 Adarsh Stations. Railways will develop Adarsh
Stations with basic facilities such as drinking water,
adequate toilets, catering services, waiting rooms
and dormitories especially for lady passengers and
better signage. The work has started at various
stations.
Quality food in trains
10.73 Indian Railways Catering and Tourism
Corporation Limited (IRCTC), a PSU of the Ministry
of Railways, has started a centralized 24x7 toll-free
telephone No. 1800-111-139 for railway users to make
suggestions on catering services on Indian Railways.
For meeting the catering requirements of common
passengers, Janta meals priced at Rs 10 has been
revamped. On an average 1.1 lakh Janata meals are
sold every day on Indian Railways. Besides,
Railways has plans to open Janahaar cafeterias
exclusively to sell economy meals and Janta meals.
Six Janahaar cafeterias have been commissioned
at Howrah, Bangalore, Secunderabad, Chennai,
Lucknow and Gorakhpur railway stations and five
more will be set up shortly at Sealdah, Patna,
Kharagpur, New Jalpaiguri and Mysore. Catering
services similar to Rajdhani/Shatabdi express are
provided in Duronto Trains. All sleeper-class
passengers of Duronto trains are also provided meals
onboard.
Multifunctional complexes
10.74 Multifunctional complexes are being
developed at 50 railway stations serving places of
pilgrimage, industry and tourist interest in different
parts of the country this year. Multifunctional
complexes in station premises will provide rail users
facilities like shopping, food stalls and restaurants,
book stalls, PCO/STD/ISD/fax booths, medicine and
variety stores, budget hotels and underground
parking.
10.75 The authorized enquiry for Indian Railways,
139 – Rail Sampark, has recently introduced SMS
facility, which is a premium service. The users can
obtain information regarding PNR status, fare, seat
availability and arrival/departure by sending SMSs
in the specified syntax to 139.

Train information
10.76 Real-time train running information to
passengers is proposed to be provided through
Online Coach Indication Display Boards and Train
Arrival/Departure Display Boards. The trial of one of
the pilot projects, Satellite Imaging for Rail Navigation
(SIMRAN) using real-time train tracking through GPS
and mobile (GSM) technologies has been
successfully carried out by the Research Design
and Standards Organisation (RDSO), Lucknow, in
coordination with IIT/Kanpur.
Computerization of passenger and freight
services
Passenger reservation system (PRS)
10.77 The computerized PRS of Indian Railways
is the largest passenger reservation network in the
world, available at 1,910 locations with more than
7,245 terminals. On an average, 3.5 crore
passengers per month are booked through the PRS
with an average earning of Rs 1,410.8 crore per
month. Further, Railways has tied up with India Post
for operation of PRSs through post offices.
Unreserved ticketing system (UTS)
10.78 The computerized UTS, initiated to provide
a fast, flexible, and secure method of issuing
unreserved tickets, enables passengers to get
unreserved tickets up to three days in advance from
any counter and any station to any station in a
defined cluster. Computerized UTS is available at
2,911 locations with approximately 6,239 counters
provided till November 2009. Automatic ticket-vending
machines have been installed at 375 locations.
Freight operations information system (FOIS)
10.79 The FOIS gives an account of all demands,
number of loads/rakes/trains and their pipeline, freight
locos, stock at aggregate level, etc. FOIS Phase I
(Rake Management System – RMS) module,
implemented at 243 locations, covers all major yards/
lobbies and control offices at divisions and zones.
FOIS Phase II (Terminal Management System – TMS)
has been commissioned at 523 locations.
Rail Safety
Reduction in accidents
10.80 As a result of continuing steps to prevent
accidents, the number of consequential train
accidents came down from 415 in 2001-02 to 177 in
2008-09. April to November 2009, the number of
consequential train accidents decreased from 117
Energy, Infrastructure and Communications 249
to 102, compared to the corresponding period of the
previous year. Accidents per million train kilometers,
an important index of rail safety, also came down
from 0.55 in 2001-02 to 0.20 in 2008-09.
Improving communication system on Railways
10.81 RailTel was set up for creating optical fibre
cable (OFC)-based communication infrastructure for
modernizing the communication system for train
control, operations and safety and to generate
revenue through commercial exploitation of surplus
capacity. RailTel has set up an OFC network of
37,000 route kilometres, of which 26,650 is of high
bandwidth capacity. Till date, 231 important stations
and about 3,276 other stations have been connected
on the OFC network.
Modernization of signalling system
10.82 Improvements and modernization of the
signalling system carried out to increase efficiency
and safety include provision of an electrical/electronic
interlocking system replacing the overaged
mechanical/multi cabin signalling system at 198
stations during April-November 2009; replacement
of outdated filament-type signals with long life, highly
durable LED signals at 561 stations, improvement
of the reliability and visibility of signals; introduction
of a centralized online monitoring/diagnostic system
with provision of Data Loggers at 337 stations;
provision of automatic block signalling to increase
line capacity on 52route km; commissioning of the
On-board Train Protection System at Chennai-
Gummiddipundi suburban section (50 route km) as
a pilot project to prevent “Signal Passing at Danger”
cases and enforce speed restrictions (a second pilot
project of the Train Protection Warning System on a
main line—Delhi-Agra section of Northern/North
Central Railways—is under way); provision of
automatic clearance of block section at 276 sections
through use of axle counters reducing dependence
on the human element and enhancing safety;
interlocking of 260 level-crossing gates; and provision
of track circuiting for enhancing safety by reducing
human dependence at 656 locations.
Investment in capacity
10.83 The Railways is setting up new production
units–Rail Coach Factory at Rae Bareilly, Coach
Factory at Kanchrapara, Diesel Locomotive Factory
at Marhowra, Electric Locomotive Factory at
Madhepura and Rail Wheel Factory at Chhapra. It is
also setting up two ancillary units at Dankuni to
manufacture components and sub-assemblies for
electric and diesel locomotives.
250 Economic Survey 2009-10
10.84 The Dedicated Freight Corridor (DFC) project
envisaging a Western DFC (1,483 km) from Mumbai
to Dadri/Tughlakabad catering largely to the
container transport requirement and an Eastern DFC
(1,806 km) from Ludhiana to Dankuni largely serving
coal and steel traffic, is being implemented by the
Dedicated Freight Corridor Corporation of India Ltd.
(DFCCIL). The project is funded through a debt to
equity ratio of 2:1. Along the Western DFC alignment,
the Delhi-Mumbai Industrial Corridor is also coming
up. Considering the need for DFCs on other important
routes, feasibility studies have been completed on
North-South, East-West, East-South and Southern
Corridors and traffic projections, cost and viability
are under examination.
10.85 Railways have set up the Rail Land
Development Authority for commercial development
of vacant Railway land and air space which is not
immediately required by the Railways. Railways also
plans to utilize its vacant land, wherever feasible, for
setting up infrastructural projects through innovative
financing to earn revenue, create additional
infrastructure and generate employment.
Consultation with State Governments is undertaken
wherever required.
10.86 During the Eleventh Five Year Plan period,
electrification of 3,500 route km is planned with an
outlay of Rs3,000 crore, taking the percentage of
electrified network to 33.4 per cent. In the first two
years of the Five Year Plan, 1,299 route km has
been electrified.
10.87 Following the opening of railway lines from
Anantnag to Mazhom (66 km) and Mazhom to
Baramulla (35 km), the newly constructed 18 km-
long rail line between Anantnag and Quazigund, the
last stretch of railway line in the Kashmir Valley,
was commissioned in October 2009, making the
entire 119 km-long rail line from Baramulla to
Quazigund operational.
Use of bio-fuel in Railways
10.88 Indian Railways is the largest single
consumer of high-speed diesel (HSD) oil in the
country (Table 10.14). There is huge potential for
using bio-diesel in lieu of HSD. Indian Railways has
tested various bio-fuels up to B10 blend on diesel
locomotives and found that B10 blend, that is 10 per
cent bio-diesel in HSD oil, can be used inthe existing
diesel engines without any modification.
10.89 As part of the bio-diesel initiative of Indian
Railways, plantation of Jatropha curcas on vacant
Table 10.14 : Diesel (HSD) oil consumption
(in million litres)
Year Traction Non-traction
2004-05 2,080.6 34.2
2005-06 2,111.2 39.1
2006-07 2,211.5 39.9
2007-08 2,284.1 43.7
2008-09 2,312.0 46.2
Source : Ministry of Railways
Railway land has been taken up in a significant way.
Railways is going to set up four esterification plants
for converting Jatropha curcas oil into bio-diesel.
Railways also plans to introduce the use of
compressed natural gas (CNG) in diesel multiple
unit (DMU) commuter trains. One DMU power car
has been converted to run on dual fuel mode using
CNG and diesel. The operating cost of CNG-based
DMUs is expected to be 25 per cent less than that
of diesel-based DMUs with salutary effect on carbon
dioxide emission as well.
ROADS
10.90 Road transport accounted for around 87 per
cent of passenger movement and 60 per cent of
freight movement in 2005-06. The country’s road
network consists of national highways (NHs), state
highways, major district roads, other district roads
and village roads.
National Highways Development Project
(NHDP)
10.91 About 27 per cent of the total length of national
highways is single-lane/intermediate lane, about 54
per cent is two-lane standard and the balance 19
per cent is four-lane standard or more. In 2009-10,
as against the stipulated target of developing about
3,165 km length of NHs under various phases of the
NHDP, the achievement up to November 2009 has
been about 1,490 km. Against the target of awarding
projects for a total length of about 9,800 km under
various phases of the NHDP during 2009-10, projects
have been awarded for a total length of about 1,285
km up to November 2009 (Table 10.15).
10.92 Steps taken to expedite the progress of the
NHDP include regular monitoring of contracts and
progress reviews, appointment of senior officials by
State Governments as nodal officers for resolving
problems associated with implementation of the
NHDP, setting up of a Committee of Secretaries under

Table 10.15 : National highways development projects (as in November 2009)
NHDP Component Total length
GQ 5,846
NS-EW 7,142
Port Connectivity 380
Other NHs 965
NHDP Phase-III 12,109
NHDP Phase-V 6,500
NHDP Phase-VII 700
Total 33,642
Source: Ministry of Road Transport and Highways.
Notes: GQ= Golden Quadrilateral(connecting Delhi, Mumbai, Chennai and Kolkata); NS-EW=North-South & East-
West corridor (Srinagar to Kanyakumari).
the Cabinet Secretary to address inter-ministerial
and Centre-State issues such as land acquisition,
utility shifting, environment approvals and clearance
of ROBs, simplification of the procedure of issue of
land acquisition (LA) notifications and posting of
Railways officer to the National Highways Authority
of India (NHAI) to coordinate with the Ministry of
Railways in expediting the construction of ROBs.
Decision to not allow non-performing contractors to
bid for future projects unless they improve
performance in existing contracts and steps to
improve cash flow problems of contractors by
granting interest-bearing discretionary advance,
release of retention money against bank guarantee
of equal amount, deferment of recovery of advances
(on interest basis) and relaxation in minimum IPC
amount were some of the other steps taken.
10.93 Reasons for delay in the award of projects
under the NHDP included new procedure for approval
of PPP projects, modifications in the model
concession agreements (MCA), new request for
qualification (RFQ) process and new MCA conditions,
cap on maximum number of pre-qualified bidders,
and time involved in evaluation of voluminous
information. Besides shortage of financial
consultants due to conflict of interest clause, need
for evaluation of request for proposal (RFP)
documents for individual packages and factors that
affected the bankability of projects like lenders’
perception of high risk due to provision relating to
premature termination of concessions, lingering
doubts of lenders on interpretation of many provisions
of the new MCAs and inadequate availability of long-
term debt funds were the other reasons.
Energy, Infrastructure and Communications 251
(length in km)
Completed Under Balance for award
4 lane implementation of civil works
5,743 103 —
4,439 2,066 637
244 130 6
868 77 20
1,089 2,714 8,306
148 886 5,466
— 19 681
12,531 5,995 15,116
10.94 Recent initiatives taken included
restructuring of projects to reduce total project cost
(TPC) to make them financially viable, increase of
up to 20 per cent in TPC case-of-project costs based
on old DPRs, release of entire viability gap funding
(VGF) (maximum up to 40 per cent) during the
construction period, removal of provision in RFQs
limiting the maximum numbers of pre-qualified
bidders, urging lenders to resolve issues inhibiting
financial closure, expeditious land acquisitions and
shifting of utilities. These are expected to increase
the pace of award under the NHDP.
Revised Strategy for Implementation of the
NHDP
10.95 With a view to expediting the progress of
the NHDP, the Ministry of Road Transport &
Highways has set a target of completion of 20 km of
NHs per day, which translates to 35,000 km at the
rate of 7,000 km per year during the next five years
(2009-14). The NHAI formulated Work Plans (Work
Plan I & II) for awarding 12,000 km each during the
years 2009-10 and 2010-11. These Plans lay down
a specific timeframe for various activities and are
being monitored very closely at various levels. Work
Plan I (2009-10) covers balance stretches of NHDP-
PhasesII, III & V. So far, 14 projects for a length of
about 1,300 km have already been awarded, bids for
20 projects covering a length of about 2,000 km have
been received and are under process and another
23 projects for a length of about 1,700 km are
presently on offer. After the last review of the road
sector by the Prime Minister, a Committee (under
Shri B.K. Chaturvedi, Member, Planning
Commission) was set up. Based on the
252 Economic Survey 2009-10

recommendations of the Committee, appropriate Special Accelerated Road Development

changes in RFQs, RFPs and MCAs are being Programme in the North-eastern Region
considered by the NHAI. (SARDP-NE)
10.96 The NHAI is setting up 192 Special Land 10.98 The SARDP-NE aims at improving road
Acquisition Units (SLAU) in various States for connectivity to State capitals, district headquarters
expediting the LA process, which is identified as and remote places of the north-east region. It
major bottleneck in the implementation of the envisages two- / four-laning of about 5,184 km of
projects. Seventy-two such units have already been National Highways and two-laning / improvement of
set up. The NHAI has also decided to set up six about 4,756 km of State roads. This will ensure
zonal offices headed by Executive Directors to connectivity of 85 district headquarters in the north-
coordinate with State Governments in regard to LA eastern States to 2 National Highways/ two-lane
and other pre-construction activities. Further, the State roads. The programme has been divided into
NHAI has set up 10 regional offices to be headed by Phase ‘A’, Phase ‘B’ and the Arunachal Pradesh
Chief General Managers for improvement in liaison Package of Roads & Highways.
with State Governments and for expediting pre- 10.99 Phase A consists of improvement of 2,796
construction activities. Besides, Chief Ministers have km of roads consisting of 2,039 kmof NHs and 757
been requested to set up High Level Coordination km of State roads at an estimated cost of Rs 17,749
Committees under Chief Secretaries to sort out crore. Out of the 2,796 km, the Border Roads
issues involving coordination between departments. Organization (BRO) and State Public Works
It has also been decided to take up some mega Departments (PWDs) have been assigned the
projects of about 400 km to 500 km each costing up development of 1,580 km. (The remaining length of
to US $ 1 billion to attract investment by international 1,216 kmwill be built by the NHAI, Ministry/Arunachal
companies. Two mega projects would be put up for Pradesh PWD and BRO.) Out of the 1,580 km,
bidding in the current financial year. projects covering a length of 1,158 km have been
approved till November 2009 and work is in different
Financing of the NHDP
stages of progress. Phase B, involving two- laning of
10.97 A part of the fuel cess is allocated to the 1,673 km of NHs and two-laning / improvements of
NHAI to fund the implementation of the NHDP (Table 3,152 km of State roads, is approved only for
10.16). The fund allocated from the cess is leveraged preparation of DPRs. Till November 2009, a DPR
to borrow additional funds from the domestic market. was prepared for 900 km.
The Government of India has also taken loans for
10.100 The Arunachal Package covering a 2,319
financing various projects under the NHDP from the
km stretch of road was approved by the Government
World Bank (US$ 1,965 million), Asian Development
as part of the SARDP-NE on January 9, 2009. Out
Bank(ADB) (US$ 1,605 million) and Japan Bank for
of this, 776 km has been approved for execution on
International Cooperation (32,060 million yen), which
build-own-transfer (BOT) (annuity) basis and the
are passed on to the NHAI partly in the form of grant
remnant for tendering on Engineering Procurement
and partly as loan. The NHAI has also negotiated a
and Construction (EPC) basis. An RFQ have been
direct loan of US $165 million from the ADB for one
invited for the stretch to be taken up on BOT (Annuity)
of its projects.
basis and an RFP in respect of 748 km has been
issued. For the other stretches to be taken up on
Table 10.16 : Financial structure of NHAI EPC basis, DPRs are under preparation.
(amount in Rs. crore)
Initiatives for development of the entire NH
Year Cess External Borro- Budge-
Funds Assistance wings tary network to minimum acceptable standard
Grant Loan Support of two lanes
2005-06 3,269.7 2,400.0 500.0 1,289.0 700.0 10.101 Initiatives have been taken to develop NHs
2006-07 6,407.5 1,582.5 395.5 1,500.0 110.0 having less than two lanes to minimum acceptable
2007-08 6,541.5 1,788.8 447.2 305.2 265.0 2-lane standards by December 2014 by proposing a
2008-09 6,972.5 1,515.0 379.0 1,096.3 159.0 World Bank Loan and also through budgetary
allocations. Proposals have been invited from the
2009-10 8,578.5 272.0 68.0 492.4 200.0
consultants for preparation of a DPR for the about
Source : Department of Road Transport & Highways. 3,800 km length proposed to be developed under

World Bank assistance. The Ministry of Road
Transport and Highways has also initiated action for
improvement of the remaining 2,500 km of single /
intermediate lane NHs through budgetary resources.
In order to make a visible impact, the corridor
development approach is being adopted whereby
apart from widening to two lanes, strengthening of
the existing two lanes in these corridors as also
removal of other deficiencies are being covered.
Development of roads in Left Wing
Extremism (LWE)-affected areas
10.102 The project covering 1,202 km of NHs and
4,362 km of State roads in LWE-affected areas is
spread over 33 districts in eight States, that is Andhra
Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya
Pradesh, Maharashtra, Orissa and Uttar Pradesh.
An allocation of Rs 500 crore has been made from
the gross budgetary support (GBS) under Annual
Plan 2009-10 for the programme. As against the
target of approval of projects for a total length of about
1,600 km at an estimated cost of Rs 1,900 crore
under the LWE scheme up to December 2009,
projects have been sanctioned / processed for a total
length of 1,584 km at an estimated cost of Rs 1,784
crore till end-November 2009.
Other new initiatives
z A Joint Task Force of the Confederation of Indian
Industry (CII) and Ministry of Road Transport and
Highways has been constituted to serve as an
institutionalized framework for constant industry
– Government interaction on issues related to
development of NHs.
z The Ministry had awarded a consultancy service
in December 2008 with the objective of preparing
a Master Plan for a National Expressway Network.
The Final Report submitted by the consultants in
November 2009, inter-alia, recommended a total
Expressway Network of about 18,637 km for
completion in a prioritized manner in three phases
up to the years 2012, 2017 and 2022. The Report
has been accepted by the Government.
z The current numbering of NHs is not being done
on a scientific basis. The Committee set up in
this regard finalized its report in August 2009, duly
considering the best global practices. Initiatives
have been taken for publishing notification in this
regard.
z In order to further address the dispute redressal
mechanism of the NHAI, restructuring and
strengthening of the NHAI and other tax-related
Energy, Infrastructure and Communications 253
issues, the Chaturvedi Committee has been
further requested to suggest measures in its
second report.
z The proposal for setting up an Expressway
Authority of India (EAI) is under active
consideration. An Expressways Division has
already been set up in the NHAI. Further action
has been initiated to prepare a legislative framework
for the EAI.
z Keeping in view the developments in the road
transport sector it has been decided to review the
Motor Vehicles Act 1988 (MVA) comprehensively
vis-à-vis similar laws applicable in leading Asian
countries such as China and Japan so as to meet
the modern-day requirement of regulation of
vehicular traffic. A committee has been constituted
to carry out this exercise.
z The Government proposes to provide financial
assistance to States for implementation of IT such
as GPS, electronic ticket-vending machines and
a computerized reservation system, subject to
certain reforms to be undertaken by the State
Governments. A scheme in this regard has been
approved by the Planning Commission and the
Expenditure Finance Committee.
z About 84 per cent of the Regional Transport Offices
across the country have so far been computerized.
z Keeping in view the lack of proper infrastructure
for enforcement of a strict inspection and
maintenance regime for motor vehicles to check
their roadworthiness, the Central Government
proposes to assist the States to set up model
Inspection and Certification (I&C) Centres. A
scheme in this regard has been approved by the
Planning Commission and the Expenditure
Finance Committee.
Construction of rural roads under the Prime
Minister ’s Grameen Sadak Yojana
(PMGSY)
10.103 The Eleventh Five Year Plan has projected
an investment requirement of Rs 41,347 crore (at
2006-07 prices) for rural roads. During the first three
years of the Eleventh Five Year Plan, the flow of
expenditure under the PMGSY seems to be on
course for meeting the Plan target (Table 10.17). In
addition to the PMGSY there are roads built by
PWDs and Panchayati Raj institutions in rural areas,
the data on which are available only with a lag.
10.104 It may be seen that among the States, 57.3
per cent of the expenditure incurred under the
254 Economic Survey 2009-10

Table 10.17 : Progress under the PMGSY
Year Length of road
works completed
(km)
2005-06 22,891
2006-07 30,710
2007-08 41,231
2008-09 52,405
Apr.-Dec. 2009 36,273
Source : National Rural Roads Development Agency.
PMGSY and 62.5 per cent of the road works
completed during 2005-06 to April-December 2009
were in six States, namely Rajasthan, Madhya
Pradesh, Uttar Pradesh, Chhattisgarh, Maharashtra
and Orissa (Figure 10.4). Efforts are made to
persuade the State Governments to increase their
absorptive capacity through institutional and
organizational development. Shortage of contractors
to undertake rural works on a large scale is a critical
constraint in certain States though need-based
relaxation in the bidding capacity and packaging of
works has helped marginally in overcoming the
problem. The constraint of inadequate availability of
trained human resources has been sought to be
overcome through need-based training programmes
and more than 19,600 engineering personnel have
so far been trained.
CIVIL AVIATION
10.105 The civil aviation sector had shown signs
of slowdown in passenger traffic during 2008 due to
the steep rise in fuel cost coupled with the impact of
global economic slowdown. Signs of recovery
Expenditure became visible in the second past of 2009. The
scheduled domestic passenger traffic has increased
(Rs. crore) from 40.8 million in 2008 to 43.3 million in 2009,
4,100.4 while scheduled cargo traffic showed almost no
7,304.3 growth.
10,618.7
Fleet Size
15,162.0
10.106 There are 15 scheduled operator’s permit
12,993.1 holders including two regional ones and two in the
cargo category, with 419 aircraft endorsed on their
permits. The number of non-scheduled operator’s
permit holders in different categories, namely
passenger, cargo and charter, has gone up to 118,
with 332 aircraft endorsed on their permit. The number
of non-scheduled flight clearances granted to foreign
non-scheduled operators in 2009 was 11,183. During
2009, a total of 1,18,064 tourists visited the country
by 557 Inclusive Tourist Package (ITP) tourist charter
flights.
Airport Development
10.107 Development of airports at Delhi and Mumbai
has been taken up under PPP mode. It is planned
to fund the capital expenditure through private equity,
borrowings and internal resources of joint venture
companies. The development work is likely to be
completed by 2010 at Delhi airport and 2012 in
Mumbai at a total cost of Rs 20,000 crore.
Development of Kolkata and Chennai international
airports has been taken up by the Airports Authority
of India (AAI) at the approved cost of Rs 1,942 crore
and Rs 1,808 crore respectively. The work is in
progress and is scheduled to be completed by May

Figure 10.4 Share (in per cent) in length and expenditure under the PMGSY
during 2005-06 to 2009-10 (Apr-Dec)
20
18
16 Share in
length
14
Share in
Per cent

12
expendi-
10 ture
8
6
4
2
0
Rajasthan

Madhya Pradesh

Uttar Pradesh

Chhattisgarh

Maharashtra

Orissa

Andhra Pradesh

Himachal Pradesh

Assam

West Bengal

Karnataka

Bihar (NEA)

Other states

Note: Other states include Gujarat, Tamil Nadu, Haryana, Punjab, Jharkhand, Uttaranchal, Manipur, Arunachal Pradesh,
Bihar (REO), Nagaland, Jammu & Kashmir, Sikkim, Mizoram, Tripura, Kerala, Meghalaya and Goa.

2010 and January 2011 respectively. Bangalore and
Hyderabad international airports have been
developed on PPP mode as greenfield airports.
These two airports have been put in operation.
Greenfield Airports in the North-eastern
region
10.108 The AAI plans to construct of greenfield
airports in the north-eastern region with budgetary
support. Construction work has already commenced
at Pekyong Airport in Sikkim at a cost of Rs 309.46
crore and is likely to be completed by January 2012.
Approval is being obtained for construction of
greenfield airports at Cheitu (Nagaland) and Itanagar
(Arunachal Pradesh).
Development of 35 Non-metro Airports
10.109 The AAI has taken up the development of
35 non-metro airports at an estimated cost of Rs
4,662 crore. Of them, 9 have been completed and
put in operation. The other projects are in progress
and likely to be completed by 2010-11. The
Committee of Infrastructure has identified 24 of the
35 non-metro airports for city-side development
through PPP. It has been decided that in the first
instance city-side development of 10 selected
airports, namely Ahmedabad, Kolkata, Jaipur,
Lucknow, Amritsar, Indore, Vishakapatnam,
Hyderabad, Guwahati and Bhubaneswar, should be
undertaken. It has been proposed to carve out the
surplus land available with the AAI on the city side
of the selected airports and lease out the same
through open tenders.
Creation of Heliport
10.110 Pawan Hans Helicopters Ltd. proposes to
construct a heliport in New Delhi to provide
connectivity to tourists and the business community,
especially during the Commonwealth Games 2010,
and for emergency/disaster management.
Possession has been taken of the land allotted by
the Delhi Development authority (DDA) at Rohini and
M/s RITES Ltd has been engaged for preparation of
a feasibility study.
Progress made by the National Aviation
Company of India Ltd (NACIL)
10.111 Post amalgamation of Air India (AI) with
Indian Airlines (IA), the NACIL has made progress in
some of the key areas identified as part of the merger
plan.
Energy, Infrastructure and Communications 255
z Economies of scale: These have been achieved
in the procurement of goods and services by
combining procurement and thereby availing of
‘volume discount’ in areas such as fuel in-flight
service items, aviation and non aviation insurance.
z Progressive integration of network/
schedules: The NACIL has been progressively
reducing the overlaps between routes operated
by the erstwhile companies. All overlaps between
schedules of erstwhile AI and IA except Del/DXB
(Delhi/Dubai) and BOM/DXB (Mumbai/Dubai) have
been eliminated. The overlaps between routes of
full service carriers (AI, IA code) and low cost
carriers (Air India Express) are progressively being
reduced.
z Progressive cross-utilization of aircraft fleet:
Fleet planning is now done across the entire
NACIL fleet leading to more optimal fleet
deployment.
z Opportunity to join Star Alliance: The NACIL
has the opportunity to become part of the ‘Star
Alliance’ network and is investing in and upgrading
its products and facilities to satisfy the minimum
requirements of Star Alliance.
10.112 Out of the combined acquisition of 111
aircraft, most of the new aircraft have been inducted
as scheduled, but the B787 deliveries have been
delayed. Boeing has revised the delivery schedule
with the first aircraft to be delivered in April 2011 and
the induction of 27 units to be completed by the
second quarter of 2014.
Financial Surveillance of Air Operators
10.113 The Air Transport Directorate in the Office
of the Director General of Civil Aviation (DGCA) has
started an evaluation of the financial health of the
scheduled airlines. A one-time comprehensive audit
of NACIL (I), Kingfisher and Jet Airways has also
been carried out.
Transparency in Air Fare Advertising
10.114 In order to have transparency in airfare
advertising, Rule 135 of Aircraft Rules 1937 has been
amended wherein airlines shall display tariff in a
conspicuous manner to show the total amount
payable by a passenger and complete break-up of
the total amount, indicating the fare, tax, fees or
any other charge, if any, separately. Scheduled
domestic airlines have complied with the provisions
of Rule 135.
256 Economic Survey 2009-10

Tariff Monitoring Table 10.18 : Traffic at major ports

10.115 The DGCA has started monitoring tariffs of (million tonnes)
scheduled domestic airlines. A group has been Commodity 2006- 2007- 2008- Growth%
constituted comprising tariff analysis experts who 07 08 09 over
carry out the analysis of fares on major routes on 2007-08
daily basis. PoL 154.3 168.7 176.1 4.4
Iron Ore 80.6 91.8 94.0 2.4
India-EU Civil Aviation Cooperation
Fert. & raw
Programme materials 14.1 16.6 18.2 9.6
10.116 Under the Joint Action Plan, a Civil Aviation Foodgrains 5.0 2.2 1.8 -18.2
Cooperation Project-II has been agreedupon. Its Coal 60.0 64.9 70.4 8.5
terms of reference (TOR) have been finalized. The Vegetable Oil 3.6 3.8 4.8 26.3
project called “Institutional Capacity Building in the Other Liquids 10.9 12.8 11.9 -7.0
Civil Aviation Section in India” is likely to commence
Containerized
during 2010. Cargo 73.4 92.3 93.1 0.9
Others 61.9 66.2 60.2 -9.1
India-USA Aviation Cooperation
Programme (ACP) Total 463.8 519.3 530.5 2.1
Source : Department of Shipping.
10.117 The India-US ACP was signed in June 2007
with the objective of promoting safety, operational
efficiency and system capacity and facilitating and tonnes per annum in 2007-08 to 574.77 million
coordinating aviation industry training and technical tonnes per annum in 2008-09. The average
ties between the US and India. The first phase of the turnaround time decreased from 3.93 days to 3.87
ACP was completed in 2008 and its second phase days.
is under way.
10.121 The average output per ship berth-day
improved from 10,071 tonnes in 2007-08 to 10,473
PORTS tonnes in 2008-09. The pre-berthing waiting time at
10.118 India has 12 major ports and 200 non-major major ports on port account decreased from 11.40
ones. Of the non-major ports, about 66 are handling hours in 2007-08 to 9.55 hours in 2008-09. Significant
traffic. The total traffic carried by both the major and inter-port variations in pre-berthing waiting time
non-major ports during 2007-08 was estimated at persisted (Table 10.19).
around 723 million tonnes. The 12 major ports carry 10.122 Despite adequate capacity and modern
about three-fourths of the total traffic, with handling facilities, the average turnaround time of
Visakhapatnam as the top traffic handler in each of major Indian ports was 3.87 days in 2008-09,
the last seven years. compared to 10 hours in Hong Kong. This undermines
the competitiveness of Indian ports. Since ports are
Traffic growth not adequately linked to the hinterland, the evacuation
10.119 In 2008-09, the cargo handled by major ports of cargo is slow, leading to congestion. To this end,
registered a growth of 2.1 per cent against 12.0 per all port trusts have set up groups with representatives
cent in 2007-08. About 80 per cent of the total volume from the NHAI, Railways and State Governments to
of traffic handled was in the form of dry and liquid prepare comprehensive plans aimed at improving
bulk, with the residual consisting of general cargo, road-rail connectivity of ports. The NHAI has taken
including containerized cargo (Table10.18). There was up port connectivity as major component of the
an impressive growth of 11.05 per cent per annum in NHDP.
container traffic during the five years ending 2008- 10.123 Traditionally, most ports in the world are
09. Half of the world’s traded goods are containerized, owned by the public sector. But privatization of port
and this proportion is expected to increase further. facilities and services has now gathered momentum.
An enabling policy framework has been put in place
Capacity addition by the Government. Depending on the nature of
10.120 The annual aggregate cargo-handling facility/service, private operators can enter into a
capacity of major ports increased from 532.07 million service contract, a management contract, a
 Energy, Infrastructure and Communications 257
Table 10.19 : Inter-port variations at Indian ports
Name of port Average pre-berthing waiting Average turnaround
time (hours) (on port A/c) time (days)
2006-07 2007-08 2008-09 2006-07 2007-08 2008-09
Kolkata 0.13 0.24 1.27 3.89 4.87 4.60
Haldia Dock 26.05 33.44 24.45 3.97 4.26 4.21
Mumbai 5.22 5.07 7.37 4.63 4.44 4.95
JNPT 5.45 10.20 9.50 1.67 1.85 1.97
Chennai 0.80 1.00 0.90 3.40 4.60 4.20
Cochin 0.29 1.21 1.31 2.19 1.99 2.08
Visakhapatnam 4.78 5.10 4.35 3.65 3.91 3.93
Kandla 35.28 32.64 28.08 5.46 5.13 5.20
Mormugao 19.34 18.35 11.48 4.46 4.03 3.61
Paradip 1.41 1.48 1.30 3.54 5.54 4.78
New Mangalore 1.87 1.92 0.90 3.14 3.21 3.00
Tuticorin 3.22 4.32 3.36 3.67 3.80 3.66
Ennore 0.31 0.75 0.74 1.89 2.08 2.35
All Major Ports 10.05 11.40 9.55 3.62 3.93 3.87
Source : Department of Shipping

concession agreement or a divestiture to operate
port services. Areas that have been opened up to
the private sector on BOT basis include construction
of cargo-handling berths and dry docks, container
terminals and warehousing facilities and ship-repair
facilities.
TELECOMMUNICATIONS
Growth
10.124 The opening of the telecom sector has not
only led to rapid growth in subscriber base but also
helped a great deal towards maximization of
consumer benefits, particularly in terms of price
discovery following the forbearance approach in
tariffs. From only 54.6 million telephone subscribers
in 2003, the number increased to 429.7 million at
the end of March 2009 and further to 562 million as
on October 31, 2009 showing addition of 2.49 million
during the period from March to December 2009.
Figure 10.5 shows that this increase has been
entirely due to the spectacular increase in wireless
connections at a compound annual growth rate
(CAGR) of 60 per cent per annum since 2004. With
525.1 million wireless connections, Indian telecom
has become the second largest wireless network in
the world. Approximately 85 per cent of the Eleventh
Five Year Plan target of 600 million connections has
already been achieved at the halfway point. Wire
line connections, however, declined in recent years
(Figure 10.5).

Figure 10.5 Growth of telephones over years (in million)

600
500 Fixed
lines
400
Million

300 Wireless
200
Gross total
100
0
Mar 2006

Mar 2007

Mar 2008

Mar 2009

Dec 2009

Year
258 Economic Survey 2009-10
Major trends
10.125 The share of the private sector in total
telephone connections has increased to 82.3 per
cent in December 2009 as against a meagre 5 per
cent in 1999. Teledensity, an important indicator of
telecom penetration, increased from 12.7 per cent
in March 2006 to 37.0 per cent in March 2009 and
47.9 per cent in December 2009. Rural teledensity,
which was above 1.2 per cent in March 2002,
increased to 9.5 per cent in March 2008 and further
to 15.1 per cent in March 2009 and 21.2 per cent at
the end of December 2009. Urban teledensity
increased from 66.4 per cent in March 2008 to 88.8
per cent in March 2009 and stands at 110.7 per cent
in end- December 2009.
10.126 With the penetration of mobile services and
flourishing of private service providers, rural telephone
connections have gone up from 12.3 million in March
2004 to 123.5 million in March 2009 and further to
174.6 million in December 2009. Their share in total
telephone connections has steadily increased from
around 14 per cent in 2005 to 31 per cent as on
December 31, 2009. During 2008-09, the growth rate
of rural telephones was 61.5 per cent as against a
36.7 per cent growth of urban telephones. The private
sector has contributed crucially to the growth of rural
telephones by providing about 81.5 per cent of rural
telephones as on December 31, 2009.
10.127 Internet / Broadband : With supportive
policies, broadband subscribers grew from 0.2 million
in 2005 to 6.2 million by end-April 2009 and about to
7.98 million by end-December 2009. India faces
technological and commercial challenges in
broadband penetration, the most important of which
are low PC penetration and affordability issues due
to high cost. The government has issued guidelines
for Broadband Wireless Access (BWA) Services;
the introduction of which will enhance broadband
penetration. Wi-Max has been making headway in
wireless broadband connectivity.
New Horizons for Growth
10.128 3G Telecom services : The explosive
growth of the telecom industry has kindled the urge
to move towards better technology. One of the key
frontiers is the launch of 3G technology. The
government has recently announced guidelines for
penetration of 3G telecom services. This 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 innovations.
10.129 Mobile Number Portability (MNP) : MNP
allows any subscriber to change his service provider
without changing his mobile phone number. With
the announcement of guidelines for MNP, telecom
service provider will be forced to improve quality of
service to avoid losing subscribers.
10.130 Value added Services (VASs): Mobile
VASs include, text or SMS, menu-based services,
downloading of music or ring tones, mobile TV,
videos, streaming, and sophisticated m-commerce
applications. Prior to 2008, a majority of VAS
revenues were attributable to SMS. With greater
penetration of new services, availability of relatively
inexpensive, feature-rich handsets and consumer
education, VASs other than SMS are gaining
importance. It is expected that over the next few
years, non-SMS services would become a dominant
contributor to VAS revenue.
10.131 Manufacturing: The Indian telecom
industry manufactures a vast range of telecom
equipment using state-of-the-art technology. The last
five years saw many renowned telecom companies
setting up manufacturing bases in India. The
production of telecom equipment in value terms
increased from Rs 41,270 crore (2007-08) to Rs
48,800 crore during 2008-09 and is further expected
to increase to Rs 57,584 crore during 2009-10.
Favourable factors such as facilitative policies, large
talent pool in R&D and low labour cost can provide
an impetus to the telecom manufacturing industry
in the country. Exports increased from Rs 402 crore
in 2002-03 to Rs 1,10,00 crore in 2008-09 accounting
for 21 per cent of the equipment produced in the
country.
MAJOR POLICY INITIATIVES
10.132 No cap on the number of access providers
in any service area. In 2008, 122 new Unified Access
Service (UAS) licences were granted to 17
companies in 22 service areas of the country.
z Permission for use of dual technology spectrum
under the same UAS/Cable Modern Termination
System (CMTS) licence was granted to eight
companies including Bharat Sanchar Nigam
Limited (BSNL) and Mahanagar Telephone Nigam
Limited (MTNL). BSNL and MTNL were exempted
from the prescribed fee for such usages.
z On July 11, 2008, provision of mobile service
within 500 meters of the international boarder
within Indian territory has been permitted.

z With a view to regulating unsolicited calls from
telemarketers, a regulation has been implemented
whereby a National Do Not Call Registry (NDNC)
has been put in place. With this, there has been
substantial reduction in the number of unsolicited
calls.
z It has been decided to introduce the National
Integrated Directory Service (NIDQS). This facility
would be useful to subscribers/users.
z Revised subscriberbased criteria for allocation of
Global System for Mobile Communications (GSM)
and Code Division Multiple Access (CDMA).
spectra were issued in January 2008.
Committees have been constituted for allocation
of spectrum to access service providers and
spectrum pricing.
z Foreign direct investment (FDI) ceilings have been
raised from 49 per cent to 74 per cent. In the area
of telecom equipment manufacturing and provision
of IT-enabled services, 100 per cent FDI is
permitted. This has made telecom one of major
sectors attracting FDI inflows.
z Allocation of spectrum for 3G and BWA services
to be through a controlled, simultaneous,
ascending e-auction process. The Department of
Telecom has taken the pioneering decision of
launching of 3G services by BSNL and MTNL and
initiation of process for auction of spectrum for
3G and BWA services to private operators.
Activities under Universal Service
Obligation (USO) Fund
10.133 The USO Fund (Table 10.20) continues to
be used to subsidize telecom development in rural
areas in the following ways;
z Operation and maintenance of village public
telephones (VPT) in the revenue villages identified
as per Census 1991 and installation of VPTs in
every revenue village as per Census 2001. About
5.7 lakh VPTs are currently eligible for financial
support for operation and maintenance.
Agreements were signed with BSNL to provide
subsidy support for provision of VPTs in 62,302
uncovered villages. As on December 31, 2009,
61,186 VPTs have been provided by BSNL.
z Provision of additional rural community phones
(RCPs) is another important activity under the
USOF. Out of the target of 40,705 RCPs, 40,694
have been provided till December.
Energy, Infrastructure and Communications 259
z Another important activity under the USOF relates
to replacement of Multi Access Radio Relay
(MARR) technology VPTs installed before April
2002. Out of a total of 1,85,121 MARR based
VPTs, 1,84,521 have been replaced till December
31, 2009.
z Support from the USOF is being given for provision
of rural direct exchange lines (RDELs) in all the
1,685 net cost positive short distance charging
areas. As on December 31, 2009, about 70.5
lakh RDELs have been provided.
z To provide infrastructure support for mobile
services, a scheme has been launched to provide
support for setting up and managing 7,436
infrastructure sites spread over 500 districts in
27 states. As on December 31, 2009, about 6,956
towers have been set up under this scheme.
Utilizing the infrastructure so created, BTSs are
being commissioned and mobile services started
by universal service providers in a phased manner.
z In order to provide broadband connectivity to rural
areas under the purview of the USOF, 95,011
broadband connections out of the proposed
8,88,832 wire-line broadband connections and four
kiosks have been provided till December 2009.
10.134 It is proposed to achieve rural tele-density
of 25 per cent by means of 200 million rural
connections by the end of the Eleventh Five Year
Plan. Recognizing the potential importance of
broadband services, the Eleventh Five Year Plan
targets providing broadband to all secondary and
higher secondary schools, Public Health Care
Centers and Gram Panchayats. It is also envisaged
that internet and broadband subscribers will increase
to 40 million and 20 million respectively by 2010.
Table 10.20 : USO Fund: Collections and
disbursements (Rs crore)
Year Allocation Disbursements
2005-06 1,766.9 1,766.9
2006-07 1,500.0 1,500.0
2007-08 1,290.0 1,290.0
2008-09 1,600.0 1,600.0
2009-10* 2,400.0 1,846.9
Source : Department of Telecommunications.
Note : * As on December 31,2009.
260 Economic Survey 2009-10
POST
10.135 New mail paradigm: The mail profile in India
Post has changed substantially with increase in
volume of mail in Business-to-Customer and
Business-to-Business segments. In line with this,
India Post has leased three dedicated freighter
aircraft for carriage of mail, parcel and logistics to
and from the North-Eastern region operating six days
a week on the Kolkata-Guwahati-Imphal-Agartala-
Kolkata route and the metro cities such as Delhi,
Mumbai, Chennai, Kolkata and Bangalore with
Nagpur serving as the mail exchange hub. India Post
has also set up 162 Mail Business Centres and plans
to set up Automatic Mail Processing System at
Delhi, Kolkata, Hyderabad and Bengaluru and
upgrade the existing ones at Mumbai and Chennai.
10.136 IT induction: Out of a total of 25,531
departmental post offices, 12,604 have been
computerized. So far 1,304 post offices have been
networked through leased lines with the National Data
Centre. Further, 5,170 post offices have been
networked through broadband. The strong IT base
has enabled Indian Post to offer a range of e-enabled
services such as electronic Money Order (eMO), e-
payment and instant Money Order (iMO) to
customers. India Post is planning to computerize
and network all its post offices in the next two years.
10.137 Banking and insurance services: India Post
is pursuing the objective of financial inclusion through
its 39,173 post offices in rural areas and 15,862 post
offices in urban areas. The total number of accounts
with post offices has increased from 14.23 crore in
2003-04 to 20.50 crore in 2008-09. The outstanding
balance in Post Office Savings Bank accounts in
2008-09 was Rs 5,47,904 crore. India Post has
already computerized its savings bank operations
in 8,000 post offices. The post offices also provide
insurance services to Government and semi-
government employees and to the rural populace
under the banners of postal life insurance (PLI) and
rural Postal Life Insurance (RPLI). The number of
Rural Postal Life Insurance policies has increased
from 26.66 lakh in 2003-04 to more than 70 lakh in
2008-09.
10.138 Premium services: The revenue from
premium products such as Speed Post, Bill Mail
Service and Business Post has consistently been
growing. From Rs 425.74 crore revenue booked in
2003-04, these services achieved Rs 1,435 crore in
2008-09. One of the premium products, Speed Post,
which covers more than 1,200 towns has a market
share of 27 per cent in the courier segment.
Leveraging of the postal network
10.139 National Rural Employment Guarantee
Scheme (NREGS): The Department of Posts has
been given the responsibility of disbursing wages to
NREGS beneficiaries through Post Office Savings
Bank accounts. Starting with Andhra Pradesh Postal
Circle in 2006, the payment of wages under the
NREGS is currently operational in 19 Postal Circles
comprising 21 States. The scheme is operational
through 90,000 post offices. Nearly 4 crore NREGS
accounts have been opened up to November 2009,
and the amount disbursed in this financial year (April-
Nov 2009) amounts to more than Rs 5,600 crore.
10.140 Tie-up with the State Bank of India (SBI):
India Post has tied up with the SBI to sell its assets
and liability products through identified post offices.
Initially started in five States, the scheme was later
extended to 23 States and Union Territories. The
total liability products and total asset products sold
so far amount to Rs 37 crore and Rs 12.98 crore
respectively.
10.141 Tie-up with NABARD: The Department of
Posts in collaboration with NABARD is providing
micro-credit facility to Self-Help Groups (SHGs)
through identified post offices on agency basis. The
corpus fund for implementing this project is given by
NABARD. The pilot is in operation in five districts
involving seven divisions of Tamil Nadu Circle. So
far, 800 SHGs have been provided with a loan of
more than Rs 1.9 crore.
10.142 Sale of Gold Coins: In a tie-up with Reliance
Money Limited, sale of gold coins was launched in
October 2008 in selected post offices. The scheme
is available in 468 post offices in 16 circles.
10.143 Old age pension: Old age pension is being
paid through 20 lakh Post Office Savings accounts
in Bihar, Delhi, Jharkhand and the north-east, and
through money order in Jammu & Kashmir,
Karnataka, Himachal Pradesh, Gujarat, Rajasthan
and Tamil Nadu.
10.144 Online Acceptance of Right to Information
(RTI) Applications: The Department of Posts has
been assisting other public authorities under the
Central Government in implementing the RTI Act by
providing the services of its designated Central
Assistant Public Information Officers (CAPIOs). Sub
Post Masters at Tehsil level act as CAPIOs for
accepting RTI requests and appeals. The
Department has designated 4,000 post offices as
points for receiving RTI applications and forwarding
to public authorities. An RTI software has been
developed to deal with such applications.

10.145 Railway Ticket Reservation: The scheme
for sale of railway tickets through post offices is
presently operative at 78 locations and will be
extended to rural areas also.
10.146 Collection of Rural Price Index Data: The
Ministry of Statistics and Programme Implementation
(MoSPI) has entrusted the collection of statistics
for ascertaining the Rural Price Index to 1,183 post
offices across the country with effect from October
2009. The data so collected would be electronically
transmitted to MoSPI.
International relations
10.147 To improve quality of international mail
processing, all Foreign Post Offices and Sub Foreign
Post Offices have been computerized. International
Parcel Post Hubs have also been established at
Delhi, Mumbai and Kochi for specialized handling of
parcels.
10.148 International Electronic Money Order
Service: Indian Post is in the process of replacing
its paper-based international money order service
with the Electronic International Money Order Service
through Universal Postal Union software. As per the
agreement signed between India and the UAE for
exchange of Electronic International Money Orders,
the service was launched in April 2008. Initially, the
service is being offered from the UAE to India through
all head post offices in Delhi, Mumbai, Chennai,
Kolkata, and the State of Kerala covering 97 head
post offices.
10.149 Launch of World Net Express: A bilateral
agreement has been signed between Indian Post
and Deutsche Post AG on November 27, 2008 for
providing new services to domestic and international
customers. Under this, articles will be booked by
selected post offices for delivery in about 200
countries around the world using the DHL network.
10.150 Launch eMO Videsh: With the launch of
the new international remittance service eMO Videsh
in October 2009, Indian Post now offers its customers
an opportunity to send money in cash to a recipient
abroad payable in cash or in his account. This service
is in tie-up with the EURO GIRO for both outward
and inward international remittance.
10.151 Global Business Division: A Global
Business Division has been set up in the Department
of Posts to provide focus to its international
operations.
10.152 Indian Post has implemented certain
recommendations of the R.S. Nataraja Murthy
Energy, Infrastructure and Communications 261
Committee on the service conditions of Gramin Dak
Sewaks (GDS), which include enhancement of
emoluments of all categories of GDS and
enhancement of certain allowances.
Urban Infrastructure
10.153 As per the 2001 Census, about 27.8 per
cent of the population lives in urban areas. Further,
the Registrar General of India estimated in 2006 that
67 per cent of the population growth in the next 25
years is expected to take place in urban areas alone.
Hence improving urban infrastructure including basic
civic services assumes critical importance.
Municipal institutions responsible for providing these
civic services are facing acute shortage of capacity
and resources.
Jawaharlal Nehru Urban Renewal Mission
(JNNURM)
10.154 The JNNURM was launched in December
2005. In order to provide reforms-linked Central
assistance to State Governments for the development
of urban infrastructure, a Mission Mode approach
was adopted in 63 selected cities, which include
cities with 4 million plus population (7), cities with 1
million plus but less than 4 million population (28
cities) and other selected cities like State capitals
and cities of religious/historic and tourist importance
(28). During 2009, two more cities, that is Tirupati
and Porbandar were included as Mission Cities,
taking the total number to 65. The Mission has two
components, Urban Infrastructure and Governance
(UIG) and Basic Services for the Urban Poor (BSUP).
UIG Sub-component addresses the needs of Urban
Infrastructure.
10.155 During 2008-09, the seven-year allocation
for additional Central assistance (ACA) for the UIG
component was increased from Rs 25,500 crore to
Rs 31,500 crore. Since inception and till December
2009, as many as 515 projects across 31 States at
a cost of Rs 58,038 crore were sanctioned under
the UIG, comprising interalia 147 water supply
projects, 108 sewerage projects, 70 drainage/ storm
water drainage projects, 41 solid waste management
projects, 85 roads /flyovers projects and 34 urban
transport projects. So far, the committed ACA under
the UIG for approved projects is Rs 27,040.3 crore,
against which Rs 10,261.7 has been released till
December 2009.
10.156 The Mission has achieved significant
progress in triggering reforms in the urban sector.
So far, 38 per cent of State-level reforms, 55 per
262 Economic Survey 2009-10
cent of urban local bodies (ULB)-level reforms and
54 per cent of optional level reforms–all three
committed up to the fourth year–have been achieved.
Maharashtra, Gujarat, Tamil Nadu and Andhra
Pradesh have shown good progress. Some of the
achievements are that 29 cities have migrated to a
double-entry accrual-based accounting system, 15
cities have achieved 85 per cent coverage in property
tax collection, 45 cities have internal earmarking of
funds for services to urban poor and 20 States have
taken steps to establish District Planning
Committees. Five cities have achieved 100 per cent
cost recovery in water supply. Stamp duty has been
reduced to 5 per cent in 8 States including Union
Territories and enhanced community participation in
development programmes has been realized by
enacting the Community Participation Law in 5
States and Public Disclosure Law in 11 States.
10.157 The Mission cities have agreed to include
promotion of PPP through appropriate policies and
projects. States such as Andhra Pradesh, Assam,
Bihar, Gujarat, Jharkhand, Karnataka, Kerala,
Maharashtra, Orissa, Rajasthan, West Bengal, has
adopted a PPP policy. PPP initiatives have been
taken by Indore, Vadodara, Pune and Ahmedabad
for establishing city bus services.
10.158 The Urban Infrastructure Development
Scheme for Small and Medium Towns (UIDSSMT)
is a sub-component of the JNNURM for development
of infrastructural facilities in all towns and cities (other
than the Mission cities). The UIDSSMT subsumed
the erstwhile Integrated Development of Small and
Medium Towns (IDMT) and Accelerated Urban Water
Supply Programme (AUWSP) schemes. For
obtaining assistance under the UIDSSMT, States
and urban local bodies (ULBs) need to sign a
memorandum, committing to reforms. During 2008-
09, the seven-year allocation for the UIDSSMT was
raised from Rs 6,400 crore to Rs 11,400 crore to
enable the Centre to consider the "backlog" of
projects which State Governments had
recommended to the Central Government. From its
inception till December 2009, as many as 753
projects across 636 towns and cities at a cost of Rs
12,824.6 crore were sanctioned under the UIDSSMT,
comprising inter alia 416 water supply projects, 97
sewerage projects, 65 storm water drainage projects,
51 solid waste management projects, and 103 road
projects. So far, the committed ACA under the
UIDSSMT for approved projects is Rs 10,340.5 crore,
against which Rs 5,862.1 crore had been released
till December 2009.
Initiatives under the JNNURM
10.159 A National Mission Mode Project under the
National e-Governance Plan is being implemented
in 35 JNNURM mission cities with more than one
million population across 15 States on a pilot basis.
The services covered for e-Governance reforms at
State/ULB level under the scheme include
registration and issue of building plan approvals, e-
procurements and monitoring of projects, health,
licences, solid waste management, accounting
systems and personal information systems.
10.160 The Peer Experience and Reflective
Learning (PEARL) programme was launched to foster
knowledge sharing through networking among the
Mission cities. The Mission supported formation of
groups/networks amongst Mission cities having
similar socio-economic profile and urban issues,
along with natural affinity to peer pair. The National
Institute of Urban Affairs (NIUA) has been appointed
as National Coordinator for the PEARL programme.
Under the programme, the network of heritage cities
has organized knowledge-sharing workshops. A
website has been made operational providing tools
to support networking and knowledge sharing and
the NIUA has brought out a newsletter called PEARL
Update.
10.161 Other innovations for better implementation
and monitoring of projects under the JNNURM inter
alia include supporting a professionally manned
programme management unit at State level and
programme implementation unit at ULB level; third
party monitoring through appointment of independent
review and monitoring agencies; capacity building
and communication activities for slow performing
cities through rapid training programmes and the
Community Participation Fund (CPF) for enhancing
engagement of citizens in urban management.
Other Urban Infrastructure Schemes and ini-
tiatives in Urban Governance
10.162 A new pilot scheme for infrastructure
development (water supply, solid waste management
and sewerage) in "satellite towns" around seven
megacities (which exclude those towns and cities
that have taken up projects under the UIDSSMT)
has been launched. The selection of the cities/towns
has been done in consultation with State
Governments, subject to their commitment to
implement reforms. These are Vikarabad (Andhra
Pradesh), Vasai Virar (Maharashtra), Sri Perumbudur
(Tamil Nadu), New Town (West Bengal), Hoskote

(Karnataka), Sanand(Gujarat) Sonepat (Haryana) and
Pilkhua (Uttar Pradesh).
10.163 To assist the north-eastern States in
meeting their development challenges in the urban
sector, the ADB-assisted North Eastern Region
Urban Development Programme (NERUDP) has
been launched. Phase I of the project covers five
capital cities, Agartala, Aizawl, Gangtok, Kohima
and Shillong. Arunachal Pradesh, Assam and
Manipur will be covered in Phase II. While 30 per
cent of the cost will be borne by the Central
Government and the balance given by the ADB as
loan, 90 per cent of the project cost in the hands of
the States will be a grant, and only 10 per cent will
be a loan.
10.164 The Ministry of Urban Development
prescribed service-level benchmarks for water supply
and sewerage services in 2008. A pilot project on
implementation of municipal service- level
benchmarks in the urban water and sanitation sector
has been initiated in 28 cities and the first stage,
that is establishment of baseline levels of
performance has been completed. During 2009,
service-level benchmarks have been laid down also
for e-governance of key municipal services. Under
the Capacity Building in Urban Local Bodies (C-
BULB) project, nine Centres of Excellence with focus
on identified aspects of urban development have been
set up across reputed institutions. Under the National
Urban Sanitation Policy 2008, three important
initiatives have recently been launched, namely rating
of cities on sanitation, communication campaign and
formulation of state sanitation strategies and city
sanitation plans.
10.165 Under the Pooled Finance Development
Fund (PFDF) Scheme, which provides credit
enhancement to ULBs to access market borrowings
through a state-level pooled finance mechanism,
eight states have set up their "State Pooled Finance
Entity". The first proposal for issue of a tax-free
Pooled Finance Development Bond worth Rs 45.0
crore by the Water and Sanitation Pooled Fund of
Tamil Nadu was notified and appropriate releases
towards the Fund and project development cost were
made in February 2008. However, only Rs 6.7 crore
was subscribed. In the present economic scenario,
the progress of the scheme has generally been slow.
10.166 The Constitution (112th Amendment) Bill
2009 to provide for 50 per cent reservation of women
in ULBs was introduced in the Lok Sabha on
November 24, 2009. The Bill seeks to increase the
representation of women from the present level of
Energy, Infrastructure and Communications 263
one-third to 50 per cent which would also include
enhancement of reservation for women up to 50 per
cent in seats reserved for Scheduled Castes,
Scheduled Tribes, and 50 per cent reservations for
women in the posts of Chairperson.
Urban Transport
10.167 With the objective of guiding and facilitating
implementation of the National Urban Transport
Policy 2006 right from the planning stage, Central
financial assistance to the extent of 80 per cent of
the cost of studies in the area of urban transport is
being provided under a revamped scheme, with 50
per cent of such assistance being admissible for
preparation of detailed project reports.
10.168 Four Centres of Excellence have been set
up for urban transport, one each at IIT Delhi and
Chennai, the National Institute of Technology
Warangal and CEPT University, Ahmedabad. Urban
Bus Specifications were circulated to all States and
Union Territories, JNNURM Mission cities and State
Road Transport Corporations. Service-level
benchmarks for urban transport have recently been
laid down.
10.169 To provide better public transport and ease
congestion, proposals for Bus Rapid Transit Systems
(BRTS) have been approved for Ahmedabad, Bhopal,
Indore, Jaipur, Pune, Rajkot, Surat, Vijaywada and
Vishakhapatnam under the JNNURM covering a
length of more than 422 km with total estimated cost
of approximately Rs 4,770 crore, out of which Central
assistance is around Rs 2,195 crore. A number of
other cities are also coming up with BRTS proposals
to be funded under the JNNURM.
10.170 As part of the stimulus package, purchase
of buses for public transport in a time-bound manner
was permitted under the JNNURM for the Mission
cities. So far, a total of 15,260 buses have been
approved for 61 Mission cities at a cost of about Rs
5,000 crore, out of which total admissible Central
assistance would be Rs 2,100 crore. The financing
is meant exclusively for city bus services and BRTS.
Till January 2010, delivery of 4,883 modern ITS-
enabled buses has taken place. This has transformed
the bus transport scenario in those cities. As a result
of the scheme, 34 cities in India would be getting
organized city bus services for the first time.
Metro Rail Projects
10.171 Delhi and Kolkata have introduced Metro
Rail systems in their cities. Delhi Metro is a joint
venture company of the Government of India and
264 Economic Survey 2009-10

Table 10.21 : Metro rail projects approved by the Government of India

Project Length Commissioning Cost
(km) schedule range ( Rs crore)

National Capital Region

Delhi MRTS Phase I 65.1 3/2004 to 11/2006 10,571
Delhi MRTS Phase II 54.7 6/2008 to 6/2010 11,691
Extension of Delhi Metro to Gurgaon 14.5 3/2010 15,89
Extension of Delhi Metro to NOIDA 7.0 11/2009 827
Central Secretariat to Badarpur 20.2 9/2010 4,012
Metro Link (Dwarka Sector-9 to Sector-21) 2.8 9/2010 356
Airport Metro Express Link 22.7 9/2010 3,869
Total for Delhi & NCR 186.8 32,916

Metro rail projects other than National Capital Region

Bangalore Metro 42.3 9/2012 8,158
Kolkata East-West Metro Corridor 14.7 1/2015 4,875
Chennai Metro 45.0 2014-15 14,600
Mumbai Metro Line-1 11.1 10/2010 2,356
Mumbai Metro Line-2 31.9 7,660
Total outside NCT 145.0 37,649
Grand total (NCT+ outside NCT) 331.8 70,564

Source: Ministry of Urban Development.

Government of the National Capital Territory of Delhi.

While the existing Kolkata Metro is presently under Table 10.22 : Increment Flow of Bank Credit
the direct control of the Ministry of Railways, the to Infrastructure
East-West Metro Corridor Project for Kolkata is on (Rs. crore)
the Delhi model and is being implemented through a Net Infra- Power Tele- Roads Other
joint venture company of the Government of India bank struc- com & Infra-
and Government of West Bengal. The Delhi Metro ture Ports struc-
(Total) ture
Railways (Amendment) Act 2009 came into effect in
September 2009, providing an umbrella "statutory" 2006-07 30,122 12,659 991 5,246 11,226
safety cover for metro work in all the metro cities of 2007-08 61,745 21,909 18,597 9,546 11,692
India. The Act was extended to the National Capital 2008-09 64,852 29,380 12,283 12,530 10,680
Region, Bangalore, Mumbai and Chennai
2008 21,918 13,107 -3,823 4,593 8,042
metropolitan areas with effect from October 16, 2009. (April-Nov)
The details of metro rail projects approved by the
2009 64,321 37,806 761 18,408 7,326
Government of India are presented in Table 10.21. (April-Nov)

FINANCING OF INFRASTRUCTURE Source : Reserve Bank of India (RBI).

Debt financing
10.172 Net bank credit to infrastructure in 2008-
09, defined as the difference between outstanding
gross deployment of bank credit to infrastructure in
March 2008 and March 2009, increased substantially
in the current fiscal (Table 10.22). Considering that
there has been a steep decline in total industrial
credit during the current year, this is particularly
important.
Note : Data relate to select banks.
10.173 In the stock of infrastructure investment
made by insurance companies in end-2007-08 ( Rs
93,924.2 crore), public-sector companies had a share
of 94.3 per cent. Private-sector investment share
increased from 2.5 per cent 2004-05 to 5.7 per cent
in 2007-08. In 2006-07, public-sector companies
significantly stepped up in their infrastructure
investment, but could not sustain the momentum in
 Energy, Infrastructure and Communications 265
Table 10.23 : Investment by insurance Table 10.25 : Funds through private
companies in infrastructure placement (only debt) in infrastructure
(Rs. crore)* (Rs. crore)
2005-06 2006-07 2007-08 2008-09 Sector 2007- 2008- Apr.-Dec.
Public-sector 3,933.7 27,656.7 8,309.0 11,353.5 08 09 2009*
Companies Power generation & 3,468.0 12,670.7 7,674.6
Private-sector 775.3 1,249.3 2,090.8 1,735.1 supply
Companies Roads & Highways 388.1 1,551.9 1,185.0
Total 4,709.0 28,906.0 10,399.8 13,088.6 Shipping Nil 436.0 2,250.0
Telecommunications Nil 4,350.0 1,092.0
Source : Insurance Regulatory Authority of India.
Total 3,856.1 19,008.6 12,201.6
2007-08 (Table 10.23). With public-sector companies Source: PRIME Database. Note: *provisional.
achieving a 36.6 per cent growth in infrastructure
investment, the year 2008-09 witnessed a modest information on equity components is not available.)
recovery, but private-sector insurance companies are It may be seen that all infrastructure sectors raised
yet to make large-scale investments in the substantially higher resources during 2008-09
infrastructure sector. through private placement of their debt, compared
to earlier years (Table 10.25). The flow of debt private
10.174 Flow of resources to the infrastructure
placement to infrastructure sectors has so far
sectors through external commercial borrowings
remained stable during the current year.
(ECBs) had quadrupled from 2005-06 to 2007-08 but
went down drastically during 2008-09 (Table 10.24). Equity financing of infrastructure
The picture that emerged during the first half of the
10.176 Corresponding to the steep decline in the
current fiscal does not lend support to any recovery
total capital raised through public and rights issues
in ECB flows to the infrastructure sectors on the
observed in 2008-09, there was a considerable
whole, from the decline seen in the previous year.
downtrend in the capital raised through public and
10.175 Infrastructure industries have started rights issues in infrastructure also. However, as the
deriving significant amounts of resources through primary markets revived in the current year, equity
private placement of debt. (While private placement financing of the infrastructure sector also seems to
has equity and debt components, the sector-specific have gathered momentum (Table 10.26).

Table 10.24 : Flow of external commercial borrowings to infrastructure (US$ million)

Sector 2007-08 2008-09 H1 2008-09 H2 2008-09 H12009-10
Air Transport 4,739.9 1,650.2 650.7 999.6 1,003.8
Telecommunications 3,022.2 1,678.2 587.1 1,091.1 558.5
Power 863.5 719.2 241.0 478.2 521.1
Shipping 664.7 791.5 310.7 480.7 125.9
Railways 1.4 100.0 0.0 100.0 450.1
Other Infrastructure Sectors 864.6 285.4 220.1 65.4 77.2
Source: RBI.
Notes: Figures are revised figures; Other infrastructure sectors included maritime transport, energy, port
development, roads & bridges and other infrastructure projects .

Table 10.26 : Capital raised through public and rights issues (Rs crore)
(April-Nov.)
Sector 2006-07 2007-08 2008-09 2008 2009
Power 30 13,709 958 959 10,584
Telecommunication 2,994 1,000 100 100 Nil
Source: Securities and Exchange Board of India (SEBI).
266 Economic Survey 2009-10

Table 10.27 : FDI flows to infrastructure (US$ million)

(April-Nov.)
Sector 2006-07 2007-08 2008-09 2008 2009

Power 157.5 968 984.8 594.2 1237.8

Non-conventional energy 2.1 43.2 85.3 31.8 67.0
Petroleum & natural gas 89.4 1,426.8 412.3 211.9 218.7
Telecommunications 477.7 1,261.5 2,558.4 2,052.1 2,223.3
Information & broadcasting * 43.6 321.5 762.3 400.3 420.1
Air transport ** 92.1 99.1 35.2 35.1 14.1
Sea transport 72.5 128.4 50.2 29.5 274.2
Ports 0 918.2 493.2 484.7 65.4
Railway related components 25.8 12.4 18.0 15.0 25.1

Total (of above) 960.7 5178.8 5,399.6 3,854.6 4,545.8

Source: Department of Industrial Policy & Promotion.

Notes: * Information & broadcasting including print media; ** Air transport including air freight

10.177 The total FDI flows during the first eight
months of the previous and current fiscal years
remained at comparable levels, but the FDI flows to
the infrastructure sectors during April-November 2009
were distinctly higher than those during the
corresponding period of the previous year. In recent
years, a large chunk of these flows has been
appropriated by the power and telecommunication
sectors (Table 10.27).
interests of users, especially the poor, and assures
quality supply at reasonable cost. For this purpose,
it is important that issues relating to the overarching
PPP policy, incorporating inter alia the models to be
used, contract documents to be adopted,
procurement strategies and templates to be
employed and mechanisms for financial structuring
to be considered, are clearly outlined ab initio at the
level of the sponsoring agencies, including State
Governments.

INFRASTRUCTURE DEVELOPMENT AND 10.180 The Government of India has identified a

PUBLIC PRIVATE PARTERSHIPS (PPPS) set of constraints in promoting PPPs, namely policy
and regulatory gaps, inadequate long-term finance
10.178 The recent economic downturn reinforced
(debt and equity), inadequate shelf of bankable
the need for enhancing infrastructure investment for
projects, inadequate capacity in the public and
greater productivity and growth. This in turn
private sectors to manage PPP processes and
underscored the importance of PPPs in effectively
projects and inadequate advocacy to create greater
harnessing the required resources. PPPs offer a
acceptance of PPPs by the stakeholders. To address
number of advantages in terms of leveraging public
these constraints, several initiatives have been taken
capital to attract private capital and undertake a larger
by the Government of India to create an enabling
number of infrastructure projects, introducing private-
framework for PPPs. The Government has
sector expertise and cost-reducing technologies as
established a streamlined system for clearance of
well as bringing in efficiencies in operation and
PPP projects developed by Central agencies through
maintenance. Hence, more than their fiscal
setting up of the Public Private Partnership Appraisal
implications, PPPs are tools to fulfill the basic
Committee (PPPAC). Standardized bidding and
obligations of Governments to provide better
contractual documents have been notified. The
infrastructure services (with large externalities), by
financing needs of projects are supported by providing
increasing the accountability of the private sector
Viability Gap Funding (VGF) to PPP projects and
as a service provider.
long tenor loans through India Infrastructure Finance
10.179 Yet, attracting private capital through PPP Company (IIFC) Limited. IIFC (UK) Ltd., a subsidiary
is neither easy nor automatic. A key pre-requisite is of IIFCL in London, has been established with the
to lay down a policy, legal and regulatory framework objective of borrowing funds from the RBI and lending
that assures a fair return for investors, protects the to Indian companies implementing infrastructure

projects in India solely for meeting capital expenditure
outside India. For providing financial support for quality
project development activities to the States and the
Central Ministries, the India Infrastructure Project
Development Fund (IIPDF) supports up to 75 per
cent of the project development expenses in the form
of interest-free loan. The projects, sponsored by
State Governments and municipalities, represent
various sectors where PPPs are increasingly being
adopted, namely the urban sector, health and
education, civil aviation and roads. A panel of
Transaction Advisers for PPPs has been notified for
use by the States and other entities who are
undertaking PPP transactions.
10.181 The Department of Economic Affairs (DEA)
Ministry of Finance, in collaboration with the ADB
initiated the PPP Pilot Projects Initiatives where the
process of structuring the PPP project is handheld
Energy, Infrastructure and Communications 267
by the Central Government to develop demonstrable
PPP projects in challenging sectors. Thirty projects
in States, municipalities and Central Ministries have
been identified and are thus being developed. A series
of measures have been initiated to strengthen the
capacities of PPP cells, established in Central
Ministries and State Governments. The assistance/
expertise is being utilized by State Governments for
better identification of PPP projects, oversight of the
procurement process, contract management and
oversight, development of database and repository
of knowledge resource and best practices, capacity
building and policy support.
10.182 To intensify capacity building of public
functionaries and integrate a capacity-building
programme on PPPs at State level, the DEA is
developing a comprehensive capacity- building
programme, in collaboration with the World Bank

Table 10.28 : State-wise and sector-wise PPP projects

Below Between More Value of
Rs 250 Rs 251 to than Rs contacts
State/sector Number crore 500 crore 500 crore (in crore)

States
Andhra Pradesh 63 2,617 3,189 33,474 39,279
Delhi 10 95 408 10,374 10,877
Gujarat 29 407 3,361 14,944 18,712
Karnataka 97 2,673 12,203 24,616 39,492
Kerala 12 226 616 11,131 11,973
Madhya Pradesh 39 2,144 2,695 2,949 7,789
Maharashtra 31 865 1,100 32,062 34,026
Orissa 16 235 500 6,888 7,623
Pudducherry 1 0 419 1,867 2,286
Punjab 19 972 572 0 1,544
Rajasthan 51 1,308 833 3,113 5,253
Sikkim 24 734 2,669 13,708 17,111
Tamil Nadu 30 699 6,413 5,340 12,452
Uttar Pradesh 6 0 1,459 649 2,108
West Bengal 5 200 1,214 641 2,055
Other States 17 1,324 1,638 0 2,962
Inter-State 13 355 2,295 5,984 8,634
Total 450 14,939 41,583 1,67,739 2,24,176
Sector
Airports 5 0 303 18,808 19,111
Energy 24 734 2,669 13,708 17,111
Ports 43 1,066 2,440 62,993 66,499
Roads 271 8,689 32,862 60,454 1,02,005
Urban Development 73 2,753 2,404 10,132 15,288
Other sectors 34 1,613 905 1,644 4,162
268 Economic Survey 2009-10
and KfW Development Bank, which would be
delivered through the Lal Bahadur Shastri National
Academy of Administration (LBSNAA), Mussoorie,
State Administrative Training Institutes and Central
Training Institutes. The programme components
include training needs' assessment; development of
course content; training of trainers (ToT); and roll-
out of the programme through a few demonstration
modules for the initial handholding of Trainers. Two
levels of training would be imparted through the
training institutes, namely sensitization courses on
PPPs and specialized modules on managing PPPs.
PPP Toolkits for four sectors (highways, ports, solid
waste management and urban transport), risk and
contingent liability frameworks and communication
strategy for PPPs are being developed.
10.183 Many State Governments have
institutionalized measures to encourage private-
sector engagement in creation of infrastructure and
delivery of services. Infrastructure Development and
Enabling Acts have been developed by Andhra
Pradesh, Bihar, Gujarat and Punjab. PPP policies
and guidelines to facilitate PPP projects have been
notified by Karnataka, Orissa, Assam, Goa and
Madhya Pradesh. Other measures include
development of sectoral policies for promoting PPPs,
establishing nodal departments/ PPP cells,
establishing VGFs(to supplement VGF provided by
the Government of India), establishing Project
Development Funds (to supplement Government of
India grant under the India Infrastructure Project
Development Fund (IIPDF) and establishing panels
of transaction advisers and developing standardized
bid documents, sectoral templates and handbooks
on PPPs. Awareness of schemes, guidelines,
initiatives and resource materials prepared is being
created through PPP websites of Central and State
Governments. The measures have resulted in a
robust pipeline of over 450 projects in diverse sectors
with an estimated project cost of over Rs 2, 24, 175.8
crore (Table 10.28).
Development of PPP toolkits
10.184 The Government of India has been
developing several enabling tools to promote PPPs.
These tools are vital to catalyze investments for
building new infrastructure and improve the efficient
operation and management of assets over their
lifetime and ensure real focus on service delivery.
With a view to supporting and guiding Urban Local
Bodies (ULBs) in the development of PPP projects,
a Water Supply toolkit and Urban Transport toolkit
were launched in January 2010. The toolkits act as
a ready reference guide to all ULBs in the country
and aim to ensure widespread access to
infrastructure financing through the PPP framework.
For the purpose of preparation of the toolkit, service-
level assessment of 16 sample cities in the state of
Maharashtra was undertaken.
10.185 The toolkit has been developed after a
review of existing PPP documentation and draws
experience from existing PPP projects such as the
performance-based management contract in Latur,
concession for water supply and sewerage in Salt
Lake city and city bus transport in Indore. Term
sheets have been drafted for each PPP structure
based on the learning of the documentation review
and the study of concession contracts. Each term
sheet contains a brief reference guide for
understanding the key clauses applicable under the
specific PPP structure. The clauses presented in
the term sheet aim at guiding a service provider in
drafting a contract for the selected PPP structure
for the identified projects in urban water supply/urban
transport sectors.
10.186 The toolkit details the key processes such
as steps involved in identification of suitable PPP
structure and processes involved in implementation;
preparatory work to be done for the identification of
a PPP structure; viability assessment of projects
identified on PPP basis; process a public entity
should follow to decide whether it should opt for public
funding or PPP; identification and allocation of risks
amongst the public entity and private operator/
developer and selection of a suitable contract
structure; and procurement process to be followed if
the ULB decides to implement the project on a PPP
basis.
CHALLENGES AND OUTLOOK
10.187 Infrastructure services that were affected
by the slowdown in general economic activity during
the previous year have gradually revived in the current
fiscal with easing of supply bottlenecks in certain
sectors and with demand recovery in others.
However, considering the dimensions of the
infrastructure deficit in the country, growth in
infrastructure capacity and services will need to be
accelerated on a big scale.
10.188 Raising the capacity creation in some
critical infrastructure sectors to the desired level is
a major challenge. Initiatives required are

multifaceted, and include those promoting flow of
domestic and global resources to infrastructure,
facilitating formulation, approval, financial closure and
award of projects and easing implementation hurdles
in terms of disputes in land acquisition,
rehabilitation, contractual issues, shortage of raw
materials, capital goods and fuel, environmental
disputes and inadequate availability of skilled
manpower. The foregoing analysis indicates that
efforts--legislative, administrative and executive--are
on, with a view to ameliorating the bottlenecks in
realization of infrastructure projects. The need of the
hour is to expedite, synergize and consolidate these
efforts so as to sufficiently and promptly meet the
demands of increasing population and urban
migration and faster economic growth.
Energy, Infrastructure and Communications 269
10.189 The Planning Commission has estimated
that as compared to 4.5 per cent in 2003-04,
investment in infrastructure as a proportion of the
gross domestic product (GDP) rose to 6 per cent in
2007-08. The collapse of markets worldwide and the
dampening of equity markets acted as decelerators
on the mobilization of resources by infrastructure
sectors during the previous year. Available evidence
points towards a steady revival of flows of investible
resources to infrastructure sectors during the current
year. However, reaching the target of an infrastructural
investment of 9 per cent of the GDP fixed by the
Eleventh Five Year Plan (2007-2012) would be an
extremely challenging task. Efforts are required to
channelize the long-term contractual savings to
infrastructure sectors on a much larger scale.
Human Development, Poverty
and Public Programmes
11
CHAPTER

T he ultimate objective of development planning is human development or increased social

welfare and well-being of the people of a nation. This goal is also important because the
sustainability of the development process hinges upon the quality of life enjoyed by the people.
A healthy and educated population leads to increased productivity which, in turn, can contribute
effectively to output growth. Development strategy, therefore, needs to continuously strive for
broad-based improvement in standards of living. High growth is essential to generate resources
for social spending. However, the fruits of growth need to be shared equitably among all
sections of society. Especially, it needs to be ensured that the weaker and disadvantaged sections
are not left out of the benefits of growth. The inclusive growth strategy being pursued in the
Eleventh Plan has this very objective as it aims to ensure that higher growth of the economy
helps overcome the problems of chronic poverty, ignorance and disease.

11.2 This chapter brings out the comparative
international standing of India in terms of human
development and the areas needing greater
emphasis for better performance. It also studies the
recent trends in social sector spending by Central
and State Governments. Thereafter, it highlights the
important issues concerning poverty and
employment followed by the progress made in
various public programmes in the social sector.
These include rural infrastructure and development,
education, health, women and child development,
welfare and development of weaker sections of
society, social security and related issues. This
chapter also briefly reviews the status of
international negotiations on climate change as well
as India’s stand and the action being taken to
address this important issue.
HUMAN DEVELOPMENT AND THE
GENDER SITUATION
11.3 As per the 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
per capita (PPP US $), life expectancy at birth, and
education as measured by adult literacy rate and
gross 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 (Table 11.1) indicates that
improvement in HDI in India in recent years has
been better than in most of them.
11.4 This trend indicating improvement in the HDI
powered by per capita income growth for India is
heartening though there is no room for complacency
as India is still in the Medium Human Development
category with even countries like China, Sri Lanka
and Indonesia having better ranking. India’s HDI rank
is also lower than its per capita GDP (PPP US $)
rank by six notches, indicating that our human
development effort still needs to catch up with the
 Human Development, Poverty and Public Programmes 271
Table 11.1 : Human development index trends
Avg. annual
growth
rate
Country 1980 1985 1990 1995 2000 2005 2006 2007 2000-07
Poland …. ….. 0.806 0.823 0.853 0.871 0.876 0.880 0.45
Brazil 0.685 0.694 0.710 0.734 0.790 0.805 0.808 0.813 0.41
Russia …. …. 0.821 0.777 …. 0.804 0.811 0.817 …..
Turkey 0.628 0.674 0.705 0.730 0.758 0.796 0.802 0.806 0.87
Thailand 0.658 0.684 0.706 0.727 0.753 0.777 0.780 0.783 0.57
China 0.533 0.556 0.608 0.657 0.719 0.756 0.763 0.772 1.00
Sri Lanka 0.649 0.670 0.683 0.696 0.729 0.752 0.755 0.759 0.57
Indonesia 0.522 0.562 0.624 0.658 0.673 0.723 0.729 0.734 1.25
Vietnam …. 0.561 0.599 0.647 0.690 0.715 0.720 0.725 0.71
Egypt 0.496 0.552 0.580 0.631 0.665 0.696 0.700 0.703 0.81
India 0.427 0.453 0.489 0.511 0.556 0.596 0.604 0.612 1.36
Source: HDR 2009.

progress made in GDP per capita. The existing gap
between the health and education indicators of India
and those in the developed world and even many
developing countries needs to be bridged at a faster
pace. According to the Report, life expectancy at
birth in India was 63.4 years in 2007 as against 80.5
years in Norway, 81.4 years in Australia, 74.0 years
in Srilanka and 72.9 years in China. Adult literacy
rate (aged 15 and above) in 1999-2007 was 66.0 per
cent in India as against near 100 per cent in many of
the developed nations, 93.3 per cent in China and
92.0 per cent in Indonesia. Combined gross
enrolment ratio in education in 2007 was 61 per cent
in India as against 99.3 per cent in Canada, 98.6 per
cent in Norway, 78.0 per cent in Thailand and 76.4
per cent in Egypt (Table 11.2).
11.5 In terms of the Gender Development Index
(GDI), with an index value of 0.594, India ranks 114
out of 155 countries. When the HDI ranks used are
recalculated for the countries with a GDI value, a
zero count for HDI rank minus GDI rank is obtained
for India which is indicative of the same status of
world ranking in terms of gender development and
human development. Therefore, continued efforts are
called for in the area of gender development.

Table 11.2: India’s global position in human development 2007

Country HDI GDP Life Adult Literacy Combined
per capita Expectancy Rate Gross Enrol.
(PPP US $) at birth(yrs) (% aged 15 Ratio in
yrs & above) education(%)
2007 2007 2007 1999-2007 2007
Poland 0.880(41) 15,987 75.5 99.3 87.7
Brazil 0.813(75) 9,567 72.2 90.0 87.2
Russia 0.817(71) 14,690 66.2 99.5 81.9
Turkey 0.806(79) 12,955 71.7 88.7 71.1
Thailand 0.783(87) 8,135 68.7 94.1 78.0
China 0.772(92) 5,383 72.9 93.3 68.7
Sri Lanka 0.759(102) 4,243 74.0 90.8 68.7
Indonesia 0.734(111) 3,712 70.5 92.0 68.2
Vietnam 0.725(116) 2,600 74.3 90.3 62.3
Egypt 0.703(123) 5,349 69.9 66.4 76.4
India 0.612(134) 2,753 63.4 66.0 61.0
Source: HDR 2009.
Figures in parentheses in col.2 give ranking among 182 countries.
272 Economic Survey 2009-10

TRENDS IN INDIA’S SOCIAL-SECTOR
EXPENDITURES
11.6 Central government expenditure on social
services and rural development has gone up
consistently over the years (Table 11.3). The share
of Central Government expenditure on social
services including rural development in total
expenditure (Plan and non-Plan) has increased from
10.46 per cent in 2003-04 to 19.46 per cent in 2009-
10 (BE). Central support for social programmes has
continued to expand in various forms although most
social-sector subjects fall within the purview of the
States. Major programme specific funding is available
to the States through centrally sponsored schemes.
11.7 Expenditure on social services which include
education, sports, art and culture, medical and public
health, family welfare, water supply and sanitation,
housing, urban development; welfare of Scheduled
Castes (SCs), Scheduled Tribes (STs) and other
Backward Classes (OBCs), labour and labour welfare,
social security and welfare, nutrition, relief for natural
calamities, etc. by the General Government (Centre
and States combined) has also shown increase in
recent years (Table 11.4) reflecting higher priority to
social services. Expenditure on social services as a
proportion of total expenditure increased from 19.9
per cent in 2004-05 to 21.6 per cent in 2006-07 and
further to 23.8 per cent in 2009-10 (BE). Expenditure
on education as a proportion of total expenditure has
increased from 9.7 per cent in 2004-05 to 10.6 per
cent in 2009-10 (BE). The share of health in total
expenditure has also increased from 4.3 per cent in
2004-05 to 4.8 per cent in 2009-10 (BE).
POVERTY AND INCLUSIVE GROWTH
11.8 The Planning Commission estimates the
incidence of poverty on the basis of the large sample
surveys on household consumer expenditure
conducted by the National Sample Survey
Organisation (NSSO) at an interval of approximately
five years. The Uniform Recall Period (URP)
consumption distribution data of the NSS 61st Round
yields a poverty ratio of 28.3 per cent in rural areas,
25.7 per cent in urban areas and 27.5 per cent for
the country as a whole in 2004-05. The corresponding
poverty ratios from the Mixed Recall Period (MRP)
consumption distribution data are 21.8 per cent, 21.7
per cent and 21.8 per cent respectively. While the
former consumption data uses a 30-day recall/
reference period for all items of consumption, the
latter uses a 365-day recall/reference period for five
infrequently purchased non-food items, namely
clothing, footwear, durable goods, education and

Table 11.3 : Central Government expenditure (Plan and non-Plan) on social services and
rural development
(as per cent of total expenditure)
ITEM 2003-04 2004-05 2005-06 2006-07 2007-08 2008- 2009-
Actual Actual Actual Actual Actual 09(RE) 10(BE)
1. Social services
a. Education, Sports, Youth Affairs 2.32 2.81 3.71 4.28 4.24 4.07 4.37
b. Health & Family Welfare 1.53 1.64 1.89 1.87 2.08 1.86 1.99
c. Water Supply, Housing, etc. 1.67 1.81 2.08 1.72 2.06 2.34 1.99
d. Information & Broadcasting 0.28 0.26 0.30 0.25 0.22 0.21 0.24
e. Welfare of SCs/STs and OBCs 0.24 0.27 0.33 0.34 0.38 0.35 0.42
f. Labour & Employment 0.18 0.20 0.25 0.32 0.27 0.27 0.23
g. Social Welfare & Nutrition 0.50 0.52 0.84 0.85 0.84 0.73 0.70
h. North-eastern Areas 0.00 0.00 0.00 0.00 0.00 1.58 1.60
i. Other Social Services 0.15 0.34 0.40 -0.17 1.29 1.79 1.82
Total 6.86 7.85 9.79 9.47 11.39 13.19 13.35
2. Rural Development 2.59 1.91 3.12 2.84 2.56 4.55 4.30
3. I) Pradhan Mantri Gramodaya Yojana 0.51 0.56 0.00 0.00 0.00 0.00 0.00
(PMGY)
II) Pradhan Mantri Gram Sadak Yojana 0.49 0.49 0.83 1.08 1.54 1.70 1.81
(PMGSY)*
4. Social Services, Rural Dev., PMGY and 10.46 10.81 13.75 13.38 15.48 19.44 19.46
PMGSY
5. Total Central Government Expenditure 100.00 100.00 100.00 100.00 100.00 100.00 100.00
Source : Budget documents and Ministry of Rural Development.
* Launched in 2000-01 as a new initiative for basic rural needs.However, the PMGY has been
discontinued from 2005-06.
 Human Development, Poverty and Public Programmes 273
Table 11.4 : Trends in social services expenditure by Central Government
(Central and State Governments combined)
(Rs. crore)
ITEMS 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Actual Actual Actual Actual (RE) (BE)
Total Expenditure 8,69,757 9,59,855 11,09,174 12,95,903 16,59,109 18,70,955
Expenditure on
Social Services 1,72,812 2,02,672 2,39,340 2,88,500 3,98,828 4,45,751
of which:
i) Education 84,111 96,365 1,14,744 1,27,547 1,67,981 1,98,842
ii) Health 37,535 45,428 52,126 60,869 76,489 89,314
iii) Others 51,166 60,879 72,470 1,00,084 1,54,358 1,57,595
As per cent of GDP
Total Expenditure 26.85 25.90 25.89 26.19 29.76 30.35
Expenditure on
Social Services 5.33 5.47 5.59 5.83 7.15 7.23
of which:
i) Education 2.60 2.60 2.68 2.58 3.01 3.23
ii) Health 1.16 1.23 1.22 1.23 1.37 1.45
iii) Others 1.58 1.64 1.69 2.02 2.77 2.56
As per cent of total expenditure
Expenditure on
Social Services 19.9 21.1 21.6 22.3 24.0 23.8
of which:
i) Education 9.7 10.0 10.3 9.8 10.1 10.6
ii) Health 4.3 4.7 4.7 4.7 4.6 4.8
iii) Others 5.9 6.3 6.5 7.7 9.3 8.4
As per cent of social services expenditure
i) Education 48.7 47.5 47.9 44.2 42.1 44.6
ii) Health 21.7 22.4 21.8 21.1 19.2 20.0
iii) Others 29.6 30.0 30.3 34.7 38.7 35.4
Source: RBI as obtained from Budget Documents of Union and State Governments.
BE: budget estimates; RE: revised estimates.

institutional medical expenses, and a 30-day recall/ poverty estimates of 1993-94(50th round), which was
reference period for remaining items. The percentage 36 per cent for the country as a whole. The
of poor in 2004-05 estimated from the URP percentage of poor in 2004-05 estimated from the
consumption distribution of NSS 61st Round MRP consumption distribution of NSS 61st Round
consumer expenditure data is comparable with the consumer expenditure data is roughly comparable
with the poverty estimates of 1999-2000 (55th round),
Table 11.5 : Poverty ratios by URP and MRP which was 26.1 per cent for the country as a whole
(per cent) (Table 11.5).
Sl. Category 1993-94 2004-05
No. Methodology for estimation of poverty and
By URP Method BPL households
1 Rural 37.3 28.3 11.9 The official estimates of poverty and the
2. Urban 32.4 25.7 number of BPL households have been criticized on
3. All India 36.0 27.5 various counts. Keeping this in view, two committees
By MRP Method were constituted to look into these issues.
1999-2000 2004-05
4 Rural 27.1 21.8
Report of the Planning Commission Expert
5 Urban 23.6 21.7
Group
6 All India 26.1 21.8 11.10 The Planning Commission set up an expert
Source : Planning Commission group to examine the issue and suggest a new
274 Economic Survey 2009-10

poverty line and estimates. The expert group has
submitted its report (Box 11.1) which is being
examined by the Government.
Committee for the Estimation of BPL
households in Rural areas
11.11 The committee constituted by the Ministry
of Rural Development for suggesting a methodology
for estimation of BPL households in rural areas
observed that the national poverty line at Rs 356 per
capita per month in rural areas and Rs 539 per capita
per month in urban areas at 2004-05 prices permitted
both rural and urban people to consume about 1,820
k calories as against the desired norm of 2,400/2,100
k calories. Hence, a large number of the rural poor
got left out of the BPL status benefits as in order to
consume the desired norm of 2,400/2,100 k calories,
the cut-off line for determining BPL status should
have been around Rs 700 in rural areas and
Rs 1,000 in urban. The committee, therefore
recommended that the percentage of people entitled
to BPL status should be revised upwards to at least
50 per cent though the calorie norm of 2,400 would
require this to be 80 per cent. The Committee, based
upon available studies, also observed, inter-alia, the
following:
z At any given point of time, the calorie intake of
the poorest quartile continues to be 30 to 50 per
cent less than the calorie intake of the top quartile
of the population, despite it needing more
calories because of harder manual work.
z Calorie consumption of the bottom 50 per cent
of the population has been consistently
decreasing since 1987, which is a matter of
concern.
11.12 Thus the recommendations of both
committees suggest an increase in BPL families
coverage. This in turn implies automatic expansion
in the coverage of the public distribution system
(PDS) and other Government schemes where
beneficiaries are decided on BPL basis. The
additional Government expenditure implications are
also apparent.

Box 11.1 : Important recommendations and estimates of the Planning Commission Expert Group
(Tendulkar Committee) regarding poverty lines
z Poverty estimates to continue to be based on private household consumer expenditure of Indian households collected
by the National Sample Survey Organization (NSSO).
z Need to move away from anchoring the poverty lines to a calorie intake norm.
z Since for canvassing household expenditure on a recall basis, the NSSO has decided to shift to an MRP-based
estimates for all its consumption surveys in future, there is need to adopt the MRP-based estimates of consumption
expenditure as the basis for future poverty lines as against the previous practice of using URP estimates. This change
captures the household consumption expenditure of poor households on low- frequency items of purchase more
satisfactorily.
z MRP equivalent of the urban poverty line basket (PLB) corresponding to 25.7 per cent urban headcount ratio as the
new reference PLB to be provided to rural as well as urban population in all the states after suitable adjustments.
z The proposed reference PLB takes into account all items of consumption (except transport and conveyance) for
construction of price indices. Separate allowance for private expenditure on transport and conveyance has been made
in the recommended poverty lines.
z The proposed price indices are based on the household-level unit values (approximated price data) obtained from the
61st round (July 2004 to June 2005) of the NSS on household consumer expenditure for food, fuel and light, clothing
and footwear at the most detailed level of disaggregation and hence much closer to the actual prices paid by
consumers in rural and urban areas. Price indices for health and education were also obtained from unit-level data
from related National Sample Surveys. The proposed price indices (Fisher Ideal indices in technical terms) incorporate
both the observed all-India and state-level consumption patterns in the weighting structure of the price indices. For
rent and conveyance, the actual expenditure share for these items was used to adjust the poverty line for each state.
z The new poverty lines seek to enable the rural as well as urban population in all the States to afford the recommended
all-India urban PLB after taking due account of within-State rural-urban and inter-State differentials (rural and
urban) incorporating observed consumer behaviour both at the all-India and State levels.
z The all-India rural headcount ratio and all-India combined headcount ratio using the recommended procedure is 41.8
per cent and 37.2 per cent in comparison with official estimates of 28.3 per cent and 27.5 per cent respectively. Poverty
at all-India level in 1993-94 was 50.1 per cent in rural areas, 31.8 per cent in urban areas and 45.3 per cent in the country
as a whole as compared to the 1993-94 official estimates of 37.2 per cent rural, 32.6 per cent urban and 36.0 per cent
combined. Thus, even though the suggested new methodology gives a higher estimate of rural and combined rural-
urban headcount ratio at the all-India level for 2004-05, the extent of poverty reduction in comparable percentage
point decline between 1993-94 and 2004-05 is not very different from that inferred using the old methodology.
 Human Development, Poverty and Public Programmes
INEQUALITY
11.13 Inequality in India in comparison to other
countries as reflected in the Gini Index, which is a
measure of unequal distribution of income (or
consumption) among individuals or households,
is given in the HDR 2009. The lower (higher) the
number, the more equal (unequal) is the distribution.
At 36.8, India’s Gini index was more favourable
than that of comparable countries like Brazil(55),
Turkey(43.2), Thailand(42.5), China(41.5),
Indonesia(39.4), Vietnam(37.8) and even the USA
(40.8), Singapore(42.5), Hong Kong(43.4) and
Portugal(38.5), which are otherwise ranked very
high in human development. At 8.6, the ratio of the
richest 10 per cent of population to the poorest 10
per cent was also lower than in these countries.
11.14 Inter-State inequality in India as reflected in
the Lorenz ratio ( which like Gini Index is used as
a measure of relative inequality) has been estimated
by the NSSO based on household consumer
expenditure for 2004-05. For rural India, the Lorenz
ratio for total consumption expenditure was 0.30
while for urban India, it was 0.37 indicating, as
expected, higher relative inequality in urban areas.
Lower inequality was seen in rural areas of Assam
(0.197), Meghalaya(0.155) and Manipur(0.158) than
in Kerala(0.341), Haryana(0.323), Tamil Nadu(0.315)
and Maharashtra(0.310). Similiarly, lower inequality
was seen in the urban areas of Arunachal
Pradesh(0.243), Jammu & Kashmir(0.244),
Meghalaya(0.258) and Manipur(0.175) than in
Chattisgarh(0.439), Goa(0.405), Kerala(0.400), and
Madhya Pradesh(0.397). As expected, disparity in
consumption of durable goods was much higher
than in the consumption of cereals.
EMPLOYMENT
11.15 As noted in Economic Surveys of previous
years based on NSSO data, employment on a
current daily status (CDS) basis during 1999-2000
to 2004-05 had accelerated significantly as
compared to the growth witnessed during 1993-94
to 1999-2000. During 1999-2000 to 2004-05, about
47 million work opportunities were created
compared to only 24 million in the period between
1993-94 and 1999-2000. Employment Growth
accelerated from 1.25 per cent per annum to 2.62
per cent per annum. However, since the labour force
grew at a faster rate of 2.84 per cent than the
work force, unemployment rate also rose. The
incidence of unemployment on CDS basis increased
275
from 7.31 per cent in 1999-2000 to 8.28 per cent in
2004-05.
Unemployment
11.16 A comparison between the different
estimates of unemployment (Table 11.6) indicates
that the CDS estimate of unemployment rate being
the broadest is the highest. The higher
unemployment rates according to the CDS approach
compared to the weekly status and usual status
approaches indicates a high degree of intermittent
unemployment. It captures the unemployed days of
the chronically unemployed, the unemployed days
of the usually employed who become intermittently
unemployed during the reference week and
unemployed days of those classified as employed
according to the criterion of current weekly status.
Table 11.6 : All-India rural & urban
unemployment rates* for NSS 61st round:
Different estimates 2004-05
Sl. No. Estimate** Rural Urban
1 UPS 2.5 5.3
2 US(adj.) 1.7 4.5
3 CWS 3.9 6.0
4 CDS 8.2 8.3
Source: NSS Report No. 515(part I).
* as per cent of labour force **UPS–Usual Principal
Status, US(adj.)–Usually unemployed excl. Subsidiary
Status workers,
CWS –Current Weekly Status and CDS–Current Daily
Status.
Employment in the Organized Sector
11.17 Employment growth in the organized sector,
public and private combined, has declined during
the period between 1994 and 2007. This has primarily
happened due to the decline of employment in the
public organized sector. Employment in
establishments covered by the Employment Market
Information System of the Ministry of Labour grew
at 1.20 per cent per annum during 1983-94 but
decelerated to -0.03 per cent per annum during 1994-
2007. However, the latter decline was mainly due to
a decrease in employment in public-sector
establishments from 1.53 per cent in the earlier period
to -0.57 per cent in the later period, whereas the
private sector showed acceleration in the pace of
growth in employment from 0.44 per cent to 1.30
per cent per annum (Table 11.7).
276 Economic Survey 2009-10

Table 11.7 : Rate of growth of employment the Indian economy, including employment, and
in organized sector several measures, financial and fiscal, were taken.
The latest sample survey of the Labour Bureau
(per cent per annum)
indicates job gains in the sectors covered (Box 11.2).
1983-94 1994-2007
Public Sector 1.53 -0.57
Private Sector 0.44 1.30
SOCIAL-SECTOR INITIATIVES
Total Organized 1.20 -0.03
Poverty-alleviation and employment-
Source: Eleventh Five Year Plan Document and generation programmes
Ministry of Labour and Employment
11.19 Several poverty-alleviation and employment-
generation programmes are being implemented by
Effect of global financial crisis and economic the Government. The important among these are
slowdown listed below.
11.18 Employment opportunities in the current (i) The National Rural Employment Guarantee
financial year were affected by the global financial Scheme (NREGS), was launched in February
crisis and economic slowdown in India. While 2006 in 200 most backward districts in the first
comprehensive employment data for the current phase and was expanded to 330 districts during
financial year are not available, some sample surveys 2007-08. The coverage was extended to all
conducted by the Labour Bureau, Ministry of Labour rural districts of the country in 2008-09. At
and Employment, indicated employment losses in present, 619 districts are covered under the
the wake of the global financial crisis and economic NREGS. During the year 2008-09, more than
slowdown. The Government was concerned about 4.51 crore households were provided
the possible impact of the global financial crisis on employment under the scheme. As against the

Box 11.2 : Estimates of job losses/gains during the global economic crisis and recent recovery.
The findings of the Report on Effect of Economic Slowdown on Employment in India(July-September 2009) based upon the
fourth quarterly quick employment sample survey conducted by the Labour Bureau, Ministry of Labour and Employment,
are:

z The fourth quarterly quick employment survey was launched in the third week of October 2009 and all the units
covered in the previous survey were revisited. In the survey, information was collected from 2,873 units by covering 21
centres spread across 11 States/UTs. Eight sectors, namely textiles, leather, metals, automobiles, gems & jewellery,
transport, IT/BPO and handloom/powerloom were covered.
z At overall level, employment has increased by about 5 lakh during July-September, 2009 over June 2009. During the
previous quarter of April-June 2009 employment had declined by 1.31 lakh at overall level.
z All the seven sectors, except leather, have registered an increase in employment during the quarter July-September
2009 over June 2009. On the contrary, during April-June 2009 quarter all sectors, except leather, automobiles and
handloom/powerloom, experienced a decrease in employment, probably due to seasonality.
z Employment during the July-September 2009 quarter has increased substantially in textiles (3.18 lakh) followed by
metals (0.65 lakh) and gems & jewellery (0.58 lakh). However, the previous quarterly survey for the period April-June
2009 found that employment had declined in all three sectors by 1.54 lakh, 0.01 lakh and 0.20 lakh respectively.
z The previous quarterly survey results for the period April-June 2009 over March 2009 showed a substantial decline in
the employment of direct category workers. As a departure from the April-June 2009 quarter wherein the employment
of direct category of workers had declined, a significant increase was observed during the July-September 2009
quarter. About 80 per cent of the increase in employment that occurred during the July-September 2009 quarter was
in direct category workers.
z Though increase in employment is more in non-exporting units, exporting units have also shown a significant recovery
by registering an increase in employment to the extent of 2.04 lakh during July-September 2009 over June 2009.
z By comparing the results of the different quarters studied, it may be observed that employment declined by 4.91 lakh
during the October-December 2008 quarter, increased by 2.76 lakh during January-March 2009, again declined by
1.31 lakh during April-June 2009; and then increased by 4.97 lakh during the July-September 2009 quarter. Thus, even
on the basis of this small sample, estimated employment in the selected sectors has experienced a net addition of 1.51
lakh during the last one-year period from October 2008 to September 2009.
 Human Development, Poverty and Public Programmes
budgeted outlay of Rs 39,100 crore for the year
2009-10, an amount of Rs 24,758.50 crore has
been released to the States/UTs till December
2009. During the year 2009-10, 4.34 crore
households have been provided employment
under the scheme. Out of the 182.88 crore
person days created under the scheme during
this period, 29 per cent and 22 per cent were in
favour of SC and ST population respectively and
50 per cent in favour of women.
(ii) Swarnjayanti Gram Swarozgar Yojana (SGSY):
The Swarnjayanti Gram Swarozgar Yojana
(SGSY) was launched in April 1999 after
restructuring of the Integrated Rural
Development Programme (IRDP) and allied
programmes. It is a self-employment
programme for the rural poor. The objective of
the SGSY is to bring the assisted swarozgaris
above the poverty line by providing them
income-generating assets through bank credit
and Government subsidy. The scheme is being
implemented on a cost-sharing basis between
the Centre and States of 75:25 for non-north-
eastern states and 90:10 for north-eastern
states. Up to December 2009, 36.78 lakh self-
help groups (SHGs) had been formed and
132.81 lakh swarozgaris have been assisted
with a total investment of Rs 30,896.08 crore.
(iii) Swarna Jayanti Shahari Rozgar Yojana
(SJSRY) : The Government has recently
revamped the SJSRY with effect from April 1,
2009. The scheme provides gainful employment
to the urban unemployed and underemployed
poor, by encouraging the setting up of self-
employment ventures by the urban poor and
also by providing wage employment and
utilizing their labour for construction of socially
and economically useful public assets. The
revamped SJSRY has five components: (a) the
Urban Self-Employment Programme (USEP)
which targets individual urban poor for setting
up of micro enterprises; (b) the Urban Women
Self-help Programme (UWSP) which targets
urban poor women self-help groups for setting
up of group enterprises and providing them
assistance through a revolving fund for thrift and
credit activities; (c) Skill Training for
Employment Promotion amongst Urban Poor
(STEP-UP) which targets the urban poor for
imparting quality training so as to enhance their
employability for self-employment or better
salaried employment; (d)the Urban Wage
277
Employment Programme (UWEP) which seeks
to assist the urban poor by utilizing their labour
for the construction of socially and economically
useful public assets, in towns having population
less than 5 lakh as per the 1991 census; and
(e) the Urban Community Development Network
(UCDN) which seeks to assist the urban poor
in organizing themselves into self-managed
community structures so as to gain collective
strength to address the issues of poverty facing
them and participate in effective implementation
of urban poverty-alleviation programmes. Budget
allocation for the SJSRY scheme for 2009-10
is Rs 515.00 crore of which Rs 363.12 crore
had been utilized till December 31, 2009. During
2009-10, as reported by States/UTs, 28,613
urban poor have been assisted to set up
individual enterprises, 13,453 urban poor women
have been assisted in setting up group
enterprises, 27,463 urban poor women have
been assisted through a revolving fund for thrift
and credit activities and 85,185 urban poor have
been imparted skill training.
Social Protection Programmes
11.20 In view of the predominance of informal-sector
workers in the workforce, there is need for expansion
in the scope and coverage of social security
schemes for these unorganized workers so that they
are assured of a minimum level of social protection.
Many measures were taken by the Government of
India along these lines (Box 11.3).
Rural Infrastructure and Development
11.21 Substantial progress was made by the Central
Government in creating rural infrastructure during the
year. This was in accordance with the commitment
to faster social-sector development to remove
disparities under the Eleventh Five Year Plan. These
include Bharat Nirman, the Total Sanitation
Campaign (TSC) and the National Rural Health
Mission. It is evident that the focus of these
programmes is on providing better facilities and
quality of life to rural population.
Bharat Nirman
11.22 This programme, launched in 2005-06 for
building infrastructure and basic amenities in rural
areas, has six components,namely rural housing,
irrigation potential, drinking water, rural roads,
electrification and rural telephony. It is an important
initiative for reducing the gap between rural and urban
278 Economic Survey 2009-10

Box 11. 3 : Recent measures for social protection

Aam Admi Bima Yojana (AABY): Under this scheme launched on October 2, 2007, insurance will be provided against
natural as well as accidental death and partial/permanent disability to the head of the family of rural landless households
in the country. Up to September 30, 2009, the Scheme had covered 81.99 lakh lives.
Rashtriya Swasthya Bima Yojana (RSBY): The RSBY was launched on October 1, 2007 for BPL families (a unit of not
more than five) in the unorganized sector. The total sum insured is Rs 30,000 per family per annum. The premium is shared
on a 75:25 basis by the Centre and the State Government. In case of north-eastern States and Jammu & Kashmir, the
premium is shared in a 90:10 ratio. The beneficiary is entitled to cashless transactions through a smart card. The RSBY
became operational from April 1, 2008. Till January 12, 2010, 26 States/Union Territories have initiated the process of
implementing the scheme. Out of these, 22 States/UTs, namely Assam. Rajasthan, Haryana, Punjab, NCT of Delhi,
Gujarat, Bihar, Himachal Pradesh, Kerala, Maharashtra, Tamil Nadu, Uttar Pradesh, Jharkhand, Uttarakhand, West
Bengal, Goa, Nagaland, Chattisgarh, Meghalaya, Tripura, Orissa and Chandigarh Administration, have started issuing
smart cards and more than 97.19 lakh cards have been issued.
The Unorganized Workers’ Social Security Act 2008: The Act has the objective of providing social security to unorganized
workers. The Unorganised Workers’ Social Security Rules 2009 have also been framed. The Act has come into force w.e.f.
May 16, 2009. It provides for constitution of a National Social Security Board and State Social Security Boards which will
recommend social security schemes for these workers. The National Social Security Board has since been constituted and
has met twice. The Board has made some recommendations regarding extension of social security schemes to certain
additional segments of unorganized workers.
Bilateral social security agreements: Bilateral social security agreements have been signed with Belgium, France, Germany,
Switzerland, Luxemburg and Netherlands to protect the interests of expatriate workers and companies on a reciprocal
basis. Negotiations for similar agreements with other countries like Czech Republic, Norway, Hungary, Denmark, Canada
and Republic of Korea have been completed. Negotiations are in progress with several other countries. These agreements
help workers by providing exemption from social security contribution in case of posting, totalisation of contribution
periods and exportability of pension in case of relocation to the home country or any third country.

areas and improving the quality of life of people in
rural areas. The allocation in 2009-10 for Bharat
Nirman was stepped up by 45 per cent over 2008-
09(BE). Up to December 2009, a total length of about
2,50,554 km of roads has been completed under
the PMGSY with a cumulative expenditure of Rs
59,800 crore. Under rural roads component of Bharat
Nirman 33,812 habitations have been provided all
weather road connectivity upto December, 2009 and
projects for connecting 20,067 habitations are at
different stages. Under phase I of the rural housing
component of Bharat Nirman, 60 lakh houses were
envisaged through the Indira Awaas Yojana all over
the country during the four years from 2005-06 to
2008-09. Against this target, 71.76 lakh houses were
constructed with an expenditure of Rs 21,720.39
crore. It has now been proposed to double this target
and to construct 120 lakh houses during the next
five-year period starting from the current year 2009-
10. During the current financial year, as against the
target of construction of 40.52 lakh houses, 18.57
lakh houses have been constructed so far. Under
Bharat Nirman for rural water supply, Rs 4,098 crore
in 2005-06, Rs 4,560 crore in 2006-07, Rs 6,441.69
crore in 2007-08 and Rs 7,276.29 crore in 2008-09
have been utilized. In 2009-10, a budgetary provision
of Rs 8,000 crore has been made out of which
Rs 5,669.88 crore has been utilized (Table 11.8).

Table 11.8 : Bharat Nirman - Rural drinking water-cumulative achievements

Component Target Cumulative
(at the begining of Bharat Nirman) achievements*

Uncovered habitations to be provided 55,067 54,589

with potable water
Slipped-back habitations to be 3,31,604 3,83,106a
provided with potable water
Quality-affected habitations to be 2,16,968 3,15,132a
addressed with potable water
Total 6,03,639 7,52,827
a Higher achievement reported cumulatively as some states have reported coverage of habitations other
than those included in Bharat Nirman Programme.
* As on December 23, 2009.
 Human Development, Poverty and Public Programmes
11.23 In the case of quality-affected habitations,
as reported by States, 52,428 habitations have been
fully covered by safe water supply. Projects to cover
2,57,512 habitations have been given technical and
administrative approval and are under execution. The
goal is to cover all water quality-affected habitations
with safe drinking water by the end of 2011.
Sustainability of drinking water sources and systems
has been accorded high priority. In order to enable
the rural community to shoulder responsibility in
management, operation and maintenance of water
supply systems at village level, a decentralized,
demand-driven, community-managed approach has
been adopted.
11.24 To enable rural schools to provide safe and
clean drinking water for children, the Jalmani
programme was launched on November 14, 2008
and Rs 100 crore was provided to the States in
2008-09. Under the programme, 100 per cent financial
assistance has been provided to States to instal
standalone water purification systems in rural
schools to allow children access to safe and clean
water. During 2009-10, another Rs 100 crore has
been made available and allocated to the States.
Rural Sanitation: Total Sanitation Campaign
(TSC)
11.25 The annual budgetary support for the TSC
was increased from Rs 202 crore in 2003-04 to Rs
1,200 crore in 2009-10. With the scaling up of the
TSC, combined with higher resource allocation,
programme implementation has improved
substantially. Since 1999, over 6.01 crore toilets have
been provided to rural households under the TSC. A
significant achievement has also been the
construction of 9.37 lakh school toilets and 2.95 lakh
Anganwadi toilets. The number of households being
provided with toilets annually has increased from only
6.21 lakh in 2002-03 to 115 lakh in 2008-09. In 2009-
10 (up to December 22, 2009), more than 62 lakh
toilets were provided to rural households. The
cumulative coverage till now is 61 per cent as against
only 21.9 per cent rural households having access
to latrines as per Census 2001 data.
11.26 The TSC follows a community-led and people-
centred approach. The components of the TSC
include start-up activities, Individual household
latrines, community sanitary complexes, school
sanitation and hygiene education and Anganwadi
toilets. To encourage Panchayati Raj institutions
(PRIs) to take up sanitation promotion, there is the
Nirmal Gram Puraskar (NGP) incentive scheme under
279
which an award is given to those PRIs that attain a
100 per cent open defecation-free environment. The
NGP has been acclaimed internationally as a unique
tool of social engineering and community
mobilization.
Skill Development
11.27 In the Eleventh Five Year Plan, a
comprehensive skill development programme with
wide coverage throughout the country has been
initiated by the Government. The Coordinated Action
Plan for Skill Development has a target of 500 million
skilled persons by the year 2022. In this regard, a
three-tier institutional structure consisting of (i) the
Prime Minister’s National Council on Skill
Development, (ii) the National Skill Development
Coordination Board(NSDCB) and (iii) the National
Skill Development Corporation(NSDC), has already
been set up to take forward the skill development
mission. The NSDCB has addressed to five core
areas of skill development, namely (i) curriculum
revision on a continuous basis, (ii) vocational
education, (iii) apprenticeship training, (iv)
accreditation and certification system and (v) skill-
gap mapping. The NSDC has been set up to promote
private-sector action for skill development, an
institutional arrangement in the form of a non-profit
corporation in the Ministry of Finance. The
Corporation was registered on July 31, 2008 under
Section 25 of the Companies Act 1956. The National
Skill Development Fund (NSDF) was incorporated
as a Trust on January 7, 2009 as a receptacle for
funds for the NSDC. A sum of Rs 995.10 crore was
subsequently transferred to the Trust. An Investment
Management Agreement was concluded between the
NSDC and NSDF on March 27, 2009, and a sum of
Rs 200 crore from the overall corpus of the Trust
was transferred to the NSDC for implementation of
its work programme. The NSDC has been mandated
to train about 150 million persons by 2022 under the
National Skill Development Policy which is now in
place. The NSDC Board has received a large number
of proposals for providing funding support for skill
development and due diligence in respect of these
proposals is under way.
Unique Identification Authority of India
(UIDAI)
11.28 On June 25, 2009 the Cabinet approved the
creation of the position of Chairperson, Unique
Identification Authority of India (UIDAI). On July 30,
2009 the Prime Minister has also constituted a
280 Economic Survey 2009-10
council under his chairmanship to advice the UIDAI
and ensure coordination between the ministries,
stakeholders and partners. The council will advice
the UIDAI on programme, methodology and
implementation to ensure coordination between
ministries/departments, stakeholders and partners.
It will also identify specific milestones for early
completion of the project. Initiatives like setting up
of the UIDAI have been taken to bring in efficiency in
the implementation of Government programmes.
Once fully operational, the scheme will, besides
facilitating financial inclusion, ensure better
governance and improved service delivery so that
the targeted group of people is actually benefited by
the schemes implemented by the Centre and States.
Subsequently, the Government constituted a Cabinet
Committee on UIDAI on October 22, 2009. The
Committee, inter-alia, will look into all issues relating
to the UIDAI including its organisation, plans,
policies, programmes, funding and methodology to
be adopted for achieving the objectives of the
Authority. The main features of the UIDAI model as
per the strategy paper prepared by the UIDAI and
broadly endorsed by the Prime Minister’s council
on the UIDAI are given below.
z The UID number will only provide identity:
The UIDAI’s purview will be limited to the issue
of unique identification numbers linked to a
person’s demographic and biometric information.
The UID number will only guarantee identity, not
rights, benefits or entitlements.
z The UID will prove identity, not citizenship:
All residents in the country can be issued a
unique ID. The UID is proof of identity and does
not confer citizenship.
z A pro-poor approach: The UIDAI envisions full
enrolment of residents, with a focus on enrolling
India’s poor and underprivileged communities.
The Registrars that the Authority plans to partner
with in its first phase – the NREGA, RSBY and
PDS – will help bring large numbers of the poor
and underprivileged into the UID system. The
UID method of authentication will also improve
service delivery for the poor.
z Enrolment of residents with proper
verification: Existing identity databases in India
are fraught with problems of fraud and duplicate/
ghost beneficiaries. To prevent this from seeping
into the UIDAI database, the Authority plans to
enrol residents into its database with proper
verification of their demographic and biometric
information. This will ensure that the data
collected is clean from the start of the
programme. However, much of the poor and
underserved population lacks identity
documents, and the UID may be the first form of
identification it has access to. The Authority will
ensure that the Know Your Resident(KYR)
standards don’t become a barrier for enrolling
the poor, and will devise suitable procedures to
ensure their inclusion without compromising on
the integrity of the data.
z A partnership model: The UIDAI approach
leverages the existing infrastructure of
Government and private agencies across India.
The UIDAI will be the regulatory authority
managing a Central ID Data Repository (CIDR),
which will issue UID numbers, update resident
information and authenticate the identity of
residents as required.
z Enrolment will not be mandated: The UIDAI
approach will be a demand-driven one, where
the benefits and services that are linked to the
UID will ensure demand for the number. This will
not, however, preclude Governments or
Registrars from mandating enrolment.
z The UIDAI will issue a number, not a card:
The Authority’s role is limited to issuing the
number. This number may be printed on the
document/card that is issued by the Registrar.
z Process to ensure no duplicates: Registrars
will send the applicant’s data to the CIDR for
de-duplication.The CIDR will perform a search
on key demographic fields and on the biometrics
for each new enrolment, to ensure that no
duplicates exist.
z Timelines: The UIDAI will start issuing UIDs in
12-18 months, and it plans to cover 600 million
people within four years from the start of the
project. This can be accelerated if more
Registrars partner with the Authority for both
enrolment and authentication.The adoption of
UIDs is expected to gain momentum with time,
as the UID number establishes itself as the most
accepted identity proof in the country.
Education
11.29 The 86th Constitutional Amendment Act
2002 led to insertion of Article 21-A in Part III of the
Constitution that made free and compulsory
education for all children between 6 and 14 years of
age, a fundamental right. The Right of Children to
 Human Development, Poverty and Public Programmes
Free and Compulsory Education Act 2009 to provide
for free and compulsory education for all children of
the age 6 to 14 years, was published in the Gazette
of India on August 27, 2009 and has the following
salient features:
z Every child of the age 6-14 years shall have a
right to free and compulsory education in a
neighbourhood school till completion of
elementary education ;
z The appropriate Government and the local
authority shall establish, within such area or limits
of neighbourhood, a school where it is not so
established, within a period of three years;
z The Central and State Governments shall have
concurrent responsibility for providing funds for
carrying out the provisions of this Act;
z It shall be the duty of every parent or guardian to
admit or cause to be admitted his or her child or
ward to an elementary education in the
neighbourhood school;
z No school or person shall, while admitting a
child, collect any capitation fee and subject the
child or his or her parents or guardians to any
screening procedure;
z No teacher shall engage himself or herself in
private tuition or private teaching activity;
z The Central Government shall constitute by
notification a National Advisory Council,
consisting of members to be appointed from
amongst persons having knowledge and
practical experience in the field of elementary
education and child development for advising the
Central Government on implementation of the
provisions of the Act in an effective manner.
Elementary and Secondary Education Schemes
11.30 Universalization of elementary education of
adequate quality to ensure satisfactory learning
standards among children is an objective that needs
to be pursued vigorously. Keeping this objective in
view, the progress made in some of the important
elementary and secondary education schemes is
given below :
¾ Sarva Shiksha Abhiyan (SSA): The SSA is being
implemented in partnership with the States to
address the needs of children in the age group
of 6-14 years. The achievements of the SSA till
September end 2009 are opening of 2,88,155
new schools, construction of 2,40,888 school
281
buildings, construction of 10,26,831 additional
classrooms, 1,84,652 drinking water facilities,
construction of 2,86,862 toilets, supply of free
textbooks to 9.05 crore children, appointment
of 10.11 lakh teachers and in-service training for
21.79 lakh teachers. There has been significant
reduction in the number of out-of-school children
on account of SSA interventions.
¾ Rashtriya Madhyamik Shiksha Abhiyan (RMSA):
A new centrally sponsored scheme, the RMSA,
to enhance access to secondary education and
improve its quality was launched in March 2009.
The objectives of the scheme are to achieve an
enrolment ratio of 75 per cent for Classes IX-X
within five years by providing a secondary school
within reasonable distance of every habitation,
to improve quality of education imparted at
secondary level through making all secondary
schools conform to prescribed norms, to remove
gender, socio-economic and disability barriers,
universal access to secondary level education
by 2017, i.e. by the end of 12th Five Year Plan
and universal retention by 2020. The Central
Government shall bear 75 per cent and the State
Governments 25 per cent of the project
expenditure during the Eleventh Five Year Plan.
The funding pattern will be 90:10 for the north-
eastern States.
¾ National Programme of Midday Meals in
Schools: Under this programme, the
Government has revised the food norm for upper
primary children by increasing the quantity of
pulses from 25 to 30 g, vegetables from 65 to
75 g and decreasing the quantity of oil and fat
from 10 to 7.5 g. Upward revision of the cooking
cost (excluding labour and administrative
charges) for primary to Rs 2.50 and for upper
primary to Rs 3.75 has also been made. The
cooking cost now includes the cost of pulses,
vegetables, oil and fats, salt and condiments
and fuel. A separate provision for payment of
an honorarium to a cook-cum-helper @ Rs 1000
per month has been made. Transportation
assistance for 11 Special Category States—
Assam, Arunachal Pradesh, Himachal Pradesh,
Jammu & Kashmir, Manipur, Meghalaya,
Nagaland, Sikkim, Uttarakhand and Tripura—
has been revised to the rate prevalent under the
Public Distribution System (PDS) in these
States in place of the existing assistance at a
flat rate of Rs 125 per quintal. The new rates
are effective from December 1, 2009. Besides
282 Economic Survey 2009-10
the cost of construction of kitchen-cum-store
has been revised. The cooking cost, honorarium
and cost of construction of kitchen-cum-store
will be shared between the Centre and the
north-eastern States on a 90:10 basis and other
States / UTs on a 75:25 basis.
¾ The Kasturba Gandhi Balika Vidyalaya (KGBV):
The KGBV scheme was launched in July 2004
for setting up residential schools at upper
primary level for girls belonging predominantly
to the SC, ST, OBC and minority communities.
There are 2573 KGBVs reported to have been
sanctioned in the States and 1.96 lakh girls
belonging to the SC,ST,OBC & minority
communities enrolled in them.
¾ Model Schools: Under the centrally sponsored
scheme to establish 6000 high-quality model
schools at block level as benchmarks of
excellence, the first phase of which was
launched in November 2008, 419 schools in 12
States have been approved by the Grants-in-aid
Committee (GIAC) during 2009. So far 167
schools in six states have been sanctioned.
¾ Girls Hostels In Educationally Backward
Blocks: Under another centrally sponsored
scheme to set up Girls Hostels with 100 seats
in about 3,500 educationally backward blocks,
launched in October 2008, 647 hostels in 14
States have been approved by the GIAC during
2009. So far 163 hostels in seven states have
been sanctioned.
Examination Reform
11.31 Government policies have been focusing on
providing quality education and upgrading skills as
well as creating a more child-friendly educational
environment. After wide consultations held by the
Central Board of Secondary Education (CBSE)
with various stakeholders including principals,
teachers, parents, students, academics and the
public, some important decisions were taken
(see Box 11.4).
11.32 The Annual Status of Education Report
(ASER) facilitated by Pratham, a non-governmental
organization (NGO), is an annual survey of rural
children conducted by the citizens of India every
year since 2005. In 2009 which is its fifth year, the
ASER was conducted in 575 districts, over 16,000
villages and 3,00,000 households, surveying almost
7,00,000 children. Over five years, the ASER has
observed a clear rise in enrolment (Box 11.5).
Box 11.4 : Examination reforms
Important decisions taken for reforming the examination
system are as follows:
z There will be no Class X board examination with effect
from 2011 in CBSE schools.
z The students of Classes IX and X will be assessed on
the basis of CCE (Continuous and Comprehensive
Evaluation) to be implemented at school level. CCE
will be applicable to Class IX students from the session
2009-10.
z For students who wish to move out of their schools
and for students in schools that have no higher
secondary classes, on-demand examination will be
offered by the CBSE from 2011 onwards. Though it is
not required for students continuing in the same
school in Class XI, they will have the option to appear
for on-demand examination to get themselves
assessed.
z It has been decided to replace the present system of
awarding marks by grades in all subjects in the Class
X board examination to be conducted by the CBSE in
2010. Such grading would be continued for on-demand
examination of 2011 and beyond and also for CCE.
Higher and Technical Education
11.33 Quality higher and technical education
increases the employability of the youth and can
help reap the benefits of India’s looming demographic
dividend. Some recent steps (see also Box 11.6) in
this direction are given below :
¾ Scheme of Sub-Mission on Polytechnics under
Coordinated Action for Skill Development: During
2009, 175 districts have been covered for
establishment of New polytechnics under the
Scheme with financial support of Rs 425.00
crore.
¾ Community Development through Polytechnics:
Under this revamped scheme, 703 polytechnics
have been included for implementation of this
scheme.
¾ Indian Institutes of Technology (IITs) : Two new
IITs at Indore and Mandi started functioning from
the academic session 2009-10.
¾ Indian Institutes of Management (IIMs): During
the Eleventh Five Year Plan, one new IIM,
namely the Rajiv Gandhi Indian Institute of
Management (RGIIM), Shillong (Meghalaya), has
been established and has commenced its first
 Human Development, Poverty and Public Programmes 283
Box: 11.5 Main findings of ASER 2009
z In 2009, 96 per cent of children in the age group 6 to 14 in rural India are enrolled in school.
z Fewer girls in the age group 11-14 years were out of school
z In 2009 as in 2008, well over 50 per cent of 5 year olds enrolled in school.
z Learning levels have been improving in Std 1. Overall, the percentage of children in Std 1 who can recognize letters or
more has increased from 65.1 per cent in 2008 to 68.8per cent in 2009. Similarly there is an increase in number
recognition, with the percentage of children recognizing numbers or more increasing from 65.3 per cent in 2008 to 69.3
per cent in 2009.
z The all-India figure for the percentage of all rural children in Std 5 reading Std 2-level text shows a decline from 56.2 per
cent in 2008 to 52.8 per cent in 2009. This means that well over 40 per cent of all rural children in Std 5 in India are at
least three grade levels behind.
z In reading, for government school children in Std 5 in Tamil Nadu there is an 8 percentage point increase over 2008
levels. Karnataka and Punjab also show improvements over the last year. There is hardly any change in other states in
reading as compared to 2008.
z In maths, for children in Std 5, for the country as a whole, the ability to do division problems has hardly improved.
However , seven states show increases of 5 to 8 percentage points. These states are Himachal Pradesh, Punjab, Assam,
West Bengal, Orissa, Andhra Pradesh and Karnataka.
z Nationally, between 2007 and 2009, the percentage of children taking paid tuition increased for every class, in both
government and private schools. Only Kerala and Karnataka show a small but consistent decline in the incidence of
tuition across government school children in most classes.
z There is an increase in useable toilets and improvements in availability of drinking water. All-India figures indicate that
overall, the percentage of schools with no water or toilet provision is declining over time. Water is available in 75 per cent
of government primary schools and 81 per cent of upper primary schools.
z Comparisons across the three years (2005, 2007 and 2009) indicate that children’s attendance in school, as observed on
a random day in the school year, varies considerably across states. There are states like Bihar where less than 60 per cent
of enrolled children were attending on the day of the visit compared to southern states where average attendance is well
above 90 per cent. In addition, states like Rajasthan, Uttar Pradesh, Jharkhand, Orissa and Madhya Pradesh need to
pay more attention to raising attendance in schools. In most states, on the day of the visit, close to 90 per cent of
appointed teachers were present in the school.
Source : ASER 2009 Press release dated January 15, 2010 as obtained from website http://asercentre.org/asersurvey/
aser09/pdfdta/......

Box 11.6 : Technical education reforms: Initiatives by the All-India Council for Technical Education
(AICTE)
In order to overcome imbalances in technical education, the AICTE has taken certain initiatives. In order to reduce the
imbalance between engineering education and polytechnic education, the Council has permitted a second shift of polytechnic
in an existing polytechnic institution and also a second shift of polytechnic in an existing engineering institution. Keeping
in view the regional imbalance in student intake among various States of the country, the Council has allowed a second
shift of engineering in existing colleges only in those States where the number of seats available in engineering colleges per
lakh of population is less than the all-India average. For a balanced growth of various streams of education in engineering
and technology, the Council has taken a policy decision to allow establishment of new engineering institutions with at least
three conventional branches as a mandatory requirement in States where the number of seats available in engineering
colleges per lakh of population is more than the all-India average, whereas in states where the number of seats available in
engineering colleges per lakh of population is less than the all-India average, no such restriction is applicable.

academic session from 2008-2009 and the
remaining will be set up in Tamil Nadu,
Jharkhand, Chhattisgarh, Haryana, Uttarakhand
and Rajasthan.
¾ Establishment of New Central Universities : The
Central Universities Ordinance 2009 was
promulgated by the President on January 15,
2009 for the conversion of three State Universities
in Madhya Pradesh, Chhattisgarh and
Uttarakhand into Central Universities and
establishment of a new Central University each
in twelve States. The Ordinance was
subsequently replaced by the Central
Universities Act 2009. While the three States
284 Economic Survey 2009-10

Universities stood converted immediately on
promulgation of the Ordinance, 11 new Central
Universities have also been set up in Bihar,
Gujarat, Haryana, Himachal Pradesh,
Jharkhand, Karnataka, Kerala, Orissa, Punjab,
Rajasthan and Tamil Nadu, which did not have a
Central University. Most of them have already
started their academic activities from temporary
premises. The Central Universities (Amendment)
Ordinance 2009 was promulgated on October
20, 2009 to rename the Central University of
Jammu & Kashmir the Central University of
Kashmir with territorial jurisdiction limited to
Kashmir division and to establish a new university
by the name of the Central University of Jammu
having territorial jurisdiction extending over
Jammu division.
¾ National Institute of Technology (NITs): The
Government of India decided to set up 10 new
NITs during the Eleventh Five Year Plan in the
States/UTs which do not at present have NITs.
Accordingly, the Government has approved
setting up of 10 new NITs in Meghalaya, Manipur,
Mizoram, Nagaland, Sikkim, Arunachal Pradesh,
Goa (also catering to the needs of Daman &
Diu, Dadra & Nagar Haveli and Lakshadweep),
Puducherry (also catering to the needs of A&N
Islands), Delhi (also catering to the needs of
Chandigarh) and Uttarkhand.
¾ One Regional Centre of the Indira Gandhi
National Tribal University (IGNTU) Amarkantak
has been started in Manipur.
¾ A scheme to provide interest subsidy for a limited
period on the educational loans for students
belonging to economically weaker section for
pursuing professional studies has been launched.
Health
11.34 An assessment of the performance of the
country’s health-related indicators would suggest that
significant gains have been made over the years
(Table 11.9). However, despite the progress, India
fares poorly in most of the indicators in comparison
with a number of developing countries like China and
Sri Lanka. In addition, the progress in health
indicators has been quite uneven across regions
(large-scale inter-State variations), gender (male-
female differences) as well as space (with significant
rural-urban differences).
11.35 The country has a well-structured three-tier
public health infrastructure, comprising Community
Health Centres (CHCs), Primary Health Centres
(PHCs) and sub-centres (SCs) spread across rural
and semi-urban areas and tertiary medical care
providing multi-speciality hospitals and medical
colleges located almost exclusively in urban areas.
Improvements in health indicators can be attributed
in part to this network of health infrastructure.
However, inadequacies in this infrastructure including
shortage of personnel, resulted in glaring gaps in
coverage and outreach of services, particularly in
the rural areas. In order to bridge this gap and provide
accessible, affordable, equitable health care, the
Government has launched a large number of
programmes and schemes.

Table 11.9 : India — Selected health indicators

Sl. No. Parameter 1981 1991 Current level

1. Crude Birth Rate (CBR) (Per 1000 Population) 33.9 29.5 22.8 (2008)
2. Crude Death Rate (CDR)(Per 1000 Population) 12.5 9.8 7.4 (2008)
3. Total Fertility Rate (TFR)(Per women) 4.5 3.6 2.7 (2007)
4. Maternal Mortality Rate (MMR) (Per 100,000 live births) NA NA 254 (2004-06)
5. Infant Mortality Rate (IMR)(Per 1000 live births) 110 80 53 (2008)
Male 52
Female 55
6. Child (0-4 years) Mortality Rate per 1000 children) 41.2 26.5 16.0 (2007)
7. Life Expectancy at Birth: (1981-85) (1989-93) (2002-06)
Total 55.5 59.4 63.5
Male 55.4 59.0 62.6
Female 55.7 59.7 64.2
Source : Ministry of Health and Family Welfare / RGI
 Human Development, Poverty and Public Programmes
National Rural Health Mission (NRHM)
11.36 The NRHM was launched in 2005 to provide
accessible, affordable and accountable quality
health services to rural areas with emphasis on poor
persons and remote areas. It is being
operationalized throughout the country, with special
focus on 18 states, which include eight Empowered
Action Group States (Bihar, Jharkhand, Madhya
Pradesh, Chhattisgarh, Uttar Pradesh, Uttarakhand,
Orissa and Rajasthan), the eight north-eastern
States, Himachal Pradesh and Jammu & Kashmir.
11.37 Among major innovations of the NRHM are
the creation of a cadre of Accredited Social Health
Activists (ASHA) and improved hospital care,
decentralization at district level to improve intra and
inter-sectoral convergence and effective utilization
of resources through PRIs, NGOs and the
community in general. The NRHM further aims to
provide an overarching umbrella to the existing
programmes including the Reproductive Child Health
Project (RCH-II), Integrated Disease Surveillance
and other programmes for treatment of malaria,
blindness, iodine deficiency, filaria, kala azar, TB
and leprosy by strengthening the public health
delivery system at all levels. The SCs, PHCs and
CHCs are proposed to be revitalized through better
human resource management, including provision
285
of additional manpower, clear quality standards,
revamping of existing medical infrastructure, better
community support and untied funds to facilitate
local planning and action so as to achieve the goals
laid down in the National Population Policy 2000.
Further, the Mission, in a sector-wide approach
addressing sanitation and hygiene, nutrition and safe
drinking water as basic determinants of good health
seeks greater convergence among the related
social-sector departments, i.e. AYUSH, Women and
Child Development, Sanitation, Elementary
Education, Panchayati Raj and Rural Development.
The expected outcomes of the Mission include
reduction of IMR to below 30 per1,000 live births,
MMR to below 100 per1,00,000 live births and TFR
to 2.1 by 2012. ( Box 11.7).
11.38 The NRHM has many achievements as stated
above. The Comptroller and Auditor General (CAG)
Report on the basis of a performance audit has also
observed that the increased patient inflow at PHCs
and CHCs and improved institutional deliveries and
immunization were an indicator of the Mission’s
positive impact on health care delivery. The innovative
practice of engaging ASHAs has had a positive
impact on taking health care to and enhancing
awareness of the patient. However, as per the CAG
report, the programme also suffers from certain

Box 11.7 : Achievements under the NRHM

z ASHAs/Link Workers: So far 7.36 lakh ASHAs have been selected, 6.92 lakh trained at least in the first module and
there are 4.95 lakh with drug kits in their respective villages.
z Addition of Human Resources: Under the NRHM, 2,474 specialists, 8,782 MBBS doctors, 26, 253 staff nurses, 46,
296 auxiliary nurse midwives (ANMs), 12,485 paramedics have been employed on contract .
z Conversion of Health Facilities into 24 X 7: A total of 14,716 Additional Primary Health Centres (APHCs), PHCs,
CHCs and other sub- district facilities are functional 24 x 7.
z Janani Suraksha Yojana Beneficiaries: Over 2 crore women have so far been covered under the Janani Suraksha
Yojana (JSY).
z Rogi Kalyan Samitis (RKSs): So far 573 district hospitals (DHs), 4,217 CHCs, 1,111 other than CHC hospitals and
16,568 PHCs have their own Rogi Kalyan Samitis (RKSs) with untied funds for improving quality of health services.
z Village Health and Sanitation Committees: So far 4.41 lakh villages (68 per cent) have their own Village Health &
Sanitation Committees and each has been provided Rs 10, 000/- as untied grant per year.
z Village Health and Nutrition Days(VH&NDs): There have been 35 lakh VH&NDs in 2006-07, 49 lakh VH&NDs in
2007-08, 58 lakh VH&NDs in 2008-09 and 29 lakh VH&NDs so far in 2009-10 to reach basic health services.
z Mobile Medical Units (MMUs): 343 MMUs functional so far.
z Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homeopathy (AYUSH) services have been co-located in 9,608
health facilities and 7,399 AYUSH doctors and 3,110 AYUSH paramedics have been added to the system.
z Programme Management Units: Under the NRHM, 580 District Programme Managers, 577 District Accounts
Managers, 525 District Data Managers, 639 District Programme Management Units (DPMUs), 3004 Block Managers,
3691 Accountants, 2896 Block PMUs have been added.
286 Economic Survey 2009-10
weaknesses which need to be addressed to make
the NRHM more beneficial. These include the
following:
z The NRHM initiated decentralized bottom-up
planning. However, district-level annual plans
were not prepared during 2005-08 in nine States
and in 24 States/UTs, block- and village-level
annual plans had not been prepared at all.
z Village-level health and sanitation committees
were still to be constituted in nine States.
z The RKSs formed at many health centres, aiming
to develop community ownership of the health
care delivery system, were characterized by
weak or absent grievance redressal
mechanisms, outreach and awareness-
generation efforts.
z Funds for local action through untied grants and
annual maintenance grants to health centres
remained mostly unspent. The NRHM adopted
an inter-sectoral convergence approach to health
care. However, the committee on inter-sectoral
convergence did not meet frequently.
z Release of funds to State Health Societies
(SHSs) and consequently to district and block
levels required further streamlining to ensure
prompt and effective utilization of funds. Funds
advanced by the SHSs to lower- level formations
continue to be treated as expenditure by the
SHSs, regardless of whether these have actually
been utilized.
z The Mission has developed the Indian Public
Health Standards (IPHSs) to assist health
centres improve their quality of health care and
thus upgrade the capacity of the health delivery
system. However, the ratio of population to health
centres remained low with the targeted number
of new health centres not being established.
Basic facilities (proper buildings, hygienic
environment, electricity and water supply, etc.)
were still absent in many existing health centres
with many PHCs and CHCs being unable to
provide guaranteed services such as in-patient
services, operation theatres, labour rooms,
pathological tests, X-ray facilities and
emergency care.
z Quick response MMUs, meant to take medical
care to the patient’s doorstep in far-flung regions,
had not been operationalized in many States
even though substantial funds had been released
for the purpose.
z The shortage of service providers at different levels
existed. While contract workers have been
engaged to fill vacancies, there are still
shortages of specialist doctors at CHCs,
adequate staff nurses at CHCs/PHCs and ANMs/
multi-purpose workers at SCs.
z In nine States, stocks of essential drugs,
contraceptives and vaccines adequate for two
months as required under norms were not
available at any of the test-checked PHCs and
CHCs.
Strengthening Primary Health Infrastructure
and improving service delivery
11.39 There has been a steady increase in health
care infrastructure available over the plan period
(Table-11.10 ). However, there is still a shortage of
20,486 SCs, 4,477 PHCs and 2,337 CHCs as per
the 2001 population norm. Further, almost 29 per
cent of the existing health infrastructure is in rented
buildings. Poor upkeep and maintenance and high
absenteeism of manpower in rural areas are the main
problems in the health delivery system in the public
sector. The NRHM seeks to strengthen the public
health delivery system at all levels.
Table 11.10 : Health care infrastructure
SC/PHC/CHC*(March 2007) 1,73,770
Dispensaries and hospitals 33,855
(all) (April 1, 2008)**
Nursing personnel (2008)** 15,72,363
Doctors (modern system) (2008)** 84,852
* RHS : Rural Health Statistics in India 2008.
** National Health Profile, 2008.
Janani Suraksha Yojana( JSY)
11.40 This 100 per cent centrally sponsored scheme
was launched with a focus on demand promotion for
institutional deliveries in States and regions where
these are low. It targeted lowering of the MMR by
ensuring that deliveries were conducted by skilled
birth attendants. The JSY scheme has shown rapid
growth in the last three years. The increase in
institutional deliveries, coupled with improvement in
infrastructure, manpower and training has resulted
in significant improvement of Institutional deliveries
in all major States except Jharkhand as per the
District Level Household and Facility Survey (DLHS)
III data as compared with DLHS II including in the
five major states of U P, Rajasthan, M P, Orissa and
 Human Development, Poverty and Public Programmes
Bihar. A mid-term evaluation of the Reproductive and
Child Health (RCH) II programme also confirmed
the increase in the number of JSY beneficiaries.
Pradhan Mantri Swasthya Suraksha Yojana
(PMSSY)
11.41 The PMSSY was launched with the objective
of correcting regional imbalances in the availability
of affordable/reliable tertiary health care services and
to augment facilities for quality medical education
in the country. The PMSSY has two components
in its first phase: (i) Setting up of six All-India
Institute of Medical Science (AIIMS)-like
institutions—Under the first phase of the PMSSY,
the Government has decided to set up six AIIMS-
like institutions, one each in the States of Bihar
(Patna), Chhattisgarh (Raipur), Madhya Pradesh
(Bhopal), Orissa (Bhubaneshwar), Rajasthan
(Jodhpur) and Uttranchal (Rishikesh). These States
were identified on the basis of their socio-economic
vulnerabilities. (ii) Upgradation of 13 existing
Government medical colleges/ institutions in ten
States. In most of the colleges, most of the work
is expected to be completed this year, while in the
rest, it would be completed in 2010-11.
National AIDS Control Programme (NACP)
11.42 It was estimated that there were 2.31 million
persons living with HIV/AIDS (PLHA) in India in
2007. While the prevalence of HIV in the general
population is estimated to be 0.34 per cent (HIV
Sentinel Surveillance 2007), it is much higher in
high-risk groups like female sex workers, men
having sex with men and injecting drug users, Single
Male Migrants and Long Distance Truckers are also
vulnerable to HIV/AIDS. In India, the major mode of
HIV transmission is heterosexual which accounts
for 85.6 per cent of cases followed by mother to
child transmission (6 per cent) while injecting drug
use, blood and blood products and homosexual
route account for 1 to 1.4 per cent of HIV positive
cases. Based on the Sentinel Surveillance, 156
districts have been identified as category A districts
where prevalence of HIV amongst antenatal clinic
attendees (proxy for general population) is greater
than 1 per cent; and 39 districts are category B
districts where prevalence amongst high-risk
population is greater than 5 per cent. These districts
are given high priority in the implementation of the
Programme. The NACP-III is being implemented for
the period 2007-12 with an investment of Rs 11,585
crore.. Major achievements during 2009-10 include
scaling up of targeted interventions for high-risk
287
groups to 1,281,counselling and HIV testing 91.9
lakh persons including 38.8 lakh pregnant women
and providing anti-retroviral treatment to around 2.88
lakh patients as of November 2009. New strategies
initiated during the year include setting up of the
District AIDS Prevention and Control Unit (DAPCU),
scheme of link workers in rural areas of category A
and B districts, collaboration with the NRHM and
other National Health Programmes, preferred private
provider scheme for management of sexually
transmitted infections among high risk groups and
setting up of link anti-retroviral (link ART) centres
to facilitate ARV drug dispensing.
11.43 Other programmes like the Revised National
Tuberculosis Control Programme (RNTCP), National
Vector Borne Disease Control Programme
(NVBDCP), National Programme for Control of
Blindness (NPCB) and National Leprosy Eradication
Programme have also been strengthened.
11.44 Mainstreaming of AYUSH under the NRHM
received topmost priority during the year. AYUSH
facilities were co-located with 1, 834 PHCs; 128
CHCs; and 29 District Hospitals. Keeping in view
the strengths of the AYUSH systems, new public
health campaigns including Control of Maternal
Anaemia through Ayurveda, Yoga for Health and
Unani for Skin Diseases have been launched.
Further, a National Yoga School Programme has
been launched in more than 100 schools in the
country. The Government has also given priority to
implementing the National Mission on Medicinal
Plants. A National Campaign on Amala was
launched recently. Eight States have been covered
so far under this programme. The Government has
also taken steps to accredit hospitals and
educational institutions to improve their standards
in collaboration with the Quality Council of India
(QCI). To improve the quality, safety and efficacy of
Ayurveda, Siddha and Unani drugs, a programme
for voluntary certification was launched from October
1, 2009 in collaboration with the QCI. Around 5,000
AYUSH practitioners were reoriented and trained so
far this year. Public-private partnership (PPP) has
been promoted as an important strategy in the
AYUSH sector. A number of new projects including
tele-medicine projects in Homoeopathy in Tripura
and Bihar have been taken up. In order to promote
the AYUSH as well as provide employment
opportunities to people, especially women, in rural
areas of the country, ten AYUSH industrial clusters
have been taken up at a proposed investment of Rs
100 crore in different parts of the country. The
288 Economic Survey 2009-10
Government has granted recognition to the Sowa
Rigpa (Amachi) system practised in the sub-
Himalayan regions of the country in order to help
improve health care as well as the economic
conditions of the people of the area.
Women and Child Development
11.45 The Integrated Child Development Services
(ICDS) Scheme, was launched in 1975 with 33
Projects and 489 Anganwadi centres (AWCs). It
has been continuously expanded to uncovered areas
and has now been universalized with the
Government of India approving 7,076 projects and
14 lakh AWCs including a provision for 20,000
AWCs on demand. The Scheme has also been
revised with respect to cost norms, feeding norms
and the sharing pattern between States and the
Government of India. Alongside gradual expansion
of the Scheme, its budgetary allocation has
increased. The Annual Plan outlay for 2009-10 for
the ICDS was Rs 6,705 crore which was enhanced
to Rs 8,162 crore (RE). During 2009-10, an amount
of Rs 5,299.53 crore has been released under the
ICDS to States/UTs up to January 14, 2010. Of
the total number of 7,073 sanctioned ICDS projects,
6,196 were operational by September 30, 2009.
Of 13,56,027 sanctioned AWCs/mini-AWCs,
10,78,973 were operational as on September 30,
2009.
11.46 Two schemes are being implemented for the
development of adolescent girls, namely the Kishori
Shakti Yojana (KSY) and the Nutrition Programme
for Adolescent Girls (NPAG). The KSY is an
intervention for adolescent girls and aims at
addressing the self-development and nutrition and
health status needs, literacy and numerical skills
and vocational skills of adolescent girls in the age
group 11-18 years. The scheme is currently
operational in 6,118 ICDS projects. The NPAG is
being implemented in 51 identified districts across
the country to provide 6 kg of free foodgrains per
beneficiary per month to undernourished adolescent
girls (11-19 years) irrespective of financial status of
their families. Both the schemes are currently being
implemented through the ICDS infrastructure. They
will now be subsumed within a new scheme for
adolescent girls, namely the Rajiv Gandhi Scheme
for Empowerment of Adolescent Girls also named
SABLA. The new Scheme aims at empowering
adolescent girls along with an improvement in their
nutritional and health status and upgrading of
various skills like home, life and vocational skills
(for girls aged 16 and above).
11.47 The Rajiv Gandhi National Creche Scheme
for Children of Working Mothers provides for
supplementary nutrition, emergency medicines and
contingencies to children in the age group 0 – 6
years. Up to March 31, 2009, 31,718 creches with
approximately 7,92,950 beneficiaries had been
sanctioned to the implementing agencies. . The
financial norms have been enhanced from Rs 18,480
to Rs 42,384 per creche per annum. The
honorarium to creche workers has been enhanced
from Rs 800 to Rs 2000 per month for two creche
workers. The supplementary nutrition component
has been raised from Rs 1.05 to Rs 2.08 per child
per day for 25 children for 26 days in a month. The
Integrated Child Protection Scheme (ICPS)
launched in 2009-10 provides a safe and secure
environment for comprehensive development of
children in the country who are in need of care and
protection as well as children in conflict with the
law. The ICPS brings several existing child protection
programmes under one umbrella with some new
interventions. The scheme is now being
implemented by the State Governments. The Central
Government is providing funds in a pre-defined cost-
sharing ratio to the State Governments for setting
up and running the various programme components.
The budget allocation for the scheme during the
Eleventh Plan period is Rs 1,073 crore. A number
of States have so far agreed to implement the
scheme by signing memorandums of understanding
(MOUs) with the Government of India. The Scheme
for the Welfare of Working Children in Need of Care
and Protection provides for non-formal education,
vocational training, etc. to working children to
facilitate their entry/re-entry into mainstream
education. There are 121 projects currently being
funded under the Scheme, covering 12,100 children.
11.48 A conditional cash transfer scheme,
Dhanlakshmi, for the girl child was launched as a
pilot project in March 2008. The scheme provides
for cash transfers to the family of a girl child on
fulfilling certain specific conditionalities relating to
birth and registration, immunization and enrolment
and retention in schools up to Class VIII. The
scheme is being implemented in 11 blocks across
seven States. An amount of Rs 5.95 crore was
released during 2008-09, which is expected to
benefit 79,555 girl children in identified blocks of
Andhra Pradesh, Chattisgarh, Orissa, Jharkhand
and Punjab. At present, 56 ministries/departments
have set up Gender Budget Cells and 28 ministries/
departments have reflected allocations for women
 Human Development, Poverty and Public Programmes
in the Gender Budget Statement of the Union
Budget in 2009-10.
11.49 The Support to Training and Employment
Programme for Women (STEP) seeks to provide
updated skills and new knowledge to poor women
in 10 traditional sectors for enhancing their
productivity and income generation. During the year
2008-09, 31,865 women have benefited from the
scheme. Up to December 31, 2009 11 new projects
have been sanctioned and 12,866 beneficiaries
covered under STEP in 2009-10. As of December
31, 2009, 318 Swadhar homes and 237 helplines
are functioning across the country under the
Swadhar Scheme which aims to provide the primary
needs of shelter, food, clothing and care to
marginalized women/ girls who are without any
social and economic support. The Scheme also
seeks to provide them emotional support and
counselling and to rehabilitate them socially and
economically through education, awareness, skill
upgradation and personality development through
behavioural training. Ujjawala, a comprehensive
scheme for prevention of trafficking and for rescue,
rehabilitation, re-integration and repatriation of
victims of trafficking for commercial sexual
exploitation, was launched in December 2007.
During the current year, up to December 31, 2009,
financial assistance was provided for 17 new
projects to NGOs, taking the total number of
approved projects to 96. The total number of
rehabilitation centres under these projects went up
to 58 as compared to 48 in 2008-09, creating
capacity for care and rehabilitation of 2,900 victims
of trafficking.
Welfare and Development of SCs, STs,
OBCs and other weaker sections
11.50 Programmes for educational development,
and economic and social empowerment of socially
disadvantaged groups and marginalized sections
of society are implemented through State
Governments, UT Administrations, and NGOs.
Public Private Partnership approach is also one of
the strategies for attaining the objective of
development of the targeted groups.
Scheduled Castes (SCs)
11.51 The Government is committed towards the
educational development of SCs. A number of
schemes are being implemented to encourage SC
students to continue their studies from school to
higher education level. During the year 2009-10,
289
the physical target under the Scheme of Pre-Matric
Scholarships was about 6.60 lakh beneficiaries/
students. Against an allocation of Rs 80 crore, an
amount of Rs 60.99 crore was released to State
Governments/UT Administrations for providing
scholarships to SC students during the year upto
December 31, 2009. The rates of scholarship,
annual ad hoc grant, pattern of funding and eligibility
criteria have been revised with effect from April 1,
2008. Under the Scheme of Post Matric
Scholarships the physical target was 38 lakh
beneficiaries during 2009-10. Rs728.91crore was
released to State Governments/UT Administrations
against a revised allocation of Rs 830 crore up to
December 2009 during the financial year. The earlier
centrally sponsored scheme of hostels for SC boys
and girls was revised and renamed Babu Jagjivan
Ram Chhatravas Yojna with effect from January 1,
2008. As part of this revision, Central assistance
for the construction of girls hostels was raised from
50 per cent to 100 per cent. During 2009-10, the
physical target under the scheme was to construct
44 hostels for girls and 30 hostels for boys. Rs 5.98
crore was released under the scheme against an
allocation of Rs 90 crore up to December 2009
during the financial year. During 2009-10, an
amount of Rs. 80 crore was released by December
2009 as against the revised allocation of 105 crore
under the Rajiv Gandhi National Fellowship for SC
students for 1,333 new fellowships and 5,332
renewals for SC students pursuing M Phil and Ph
D courses.
11.52 The Scheme of Top Class Education for
Scheduled Castes(SCs) provides financial
assistance for quality education to SC students up to
degree/ post degree level without any burden on the
pupil or his/her family. SC students who secure
admission in the notified institutions are awarded
scholarships. During 2009-10, the amount released
up to December 2009 was Rs 2.83 crore to assist
about 1,520 SC students studying in institutions like
the IITs and IIMs as against a revised allocation of Rs
10 crore. The Scheme of National Overseas
Scholarships for Scheduled Caste Candidates
provides financial assistance to finally selected
candidates pursuing master-level courses and Ph.Ds
in engineering, technology and sciences abroad.
Thirty awards are given per year. During 2009-10, the
amount released was Rs 0.81 crore as against an
allocation of Rs 5 crore up to December 2009.
11.53 Special Central assistance is given to the
Scheduled Caste Sub-Plan, a major scheme for
290 Economic Survey 2009-10
economic advancement of SCs. During 2009-10, the
physical target was to cover 6 lakh beneficiaries.
An amount of Rs 381.60 crore was released to
State Governments/UT Administrations against a
revised allocation of Rs 480 crore up to December
2009. The National Scheduled Castes Finance &
Development Corporation provides credit facilities to
SC beneficiaries who are living below double the
poverty line. During 2009-10, an amount of Rs 44
crore was released to the Corporation upto
December 31, 2009 to enhance its equity to Rs
1,089 crore. The Corporation has the target of
providing loans to about 29,453 beneficiaries during
the year. The National Safai Karamcharis Finance
& Development Corporation provides credit facilities
to safai karamcharis, scavengers and their
dependants for income-generating activities through
State channelizing agencies. During 2009-10, Rs 30
crore was provided to enhance the equity of the
Corporation to Rs 260 crore. The target of the
Corporation is to benefit 23,270 persons during the
year.
Scheduled Tribes (STs)
11.54 For the welfare and development of the STs,
an outlay of Rs 3,205 crore has been provided in
the Annual Plan for 2009-10, which is 33.82 per
cent higher than the outlay of Rs 2,121 crore for
2008-09. The 2009-10 outlay has a Rs 900.50
crore component provided as Special Central
Assistance (SCA) to the Tribal-Sub Plan (TSP),
which includes Rs 100 crore for development of
forest villages. An Additional Central Assistance
(ACA) of Rs 500 core was also provided during
2009-10 for a special initiative of providing residential
education to tribal children in Schedule V and
Naxal-affected areas. The SCA to the TSP is a
100 per cent grant extended to States as additional
funding for family-oriented income-generating
schemes, creation of incidental infrastructure,
extending financial assistance to self-help groups
for community-based activities, and development
of forest villages. Grants-in-aid under Article 275
(1) are also being provided to States with an
objective to promote the welfare of the STs and
improve administration to bring them on par with
the rest of the States, and to take up such special
welfare and development programmes which are
otherwise not included in the Plan programmes.
Under the Scheme of Post-Matric Scholarships, 100
per cent financial assistance is provided to ST
students whose family income is less than or equal
to Rs 1.08 lakh per annum to pursue post-matric-
level education including professional and graduate
and postgraduate courses in recognized institutions.
The Scheme of Top Class Education for STs
provides financial assistance for quality education
to 625 ST students per annum to pursue studies
at degree and post degree level in any of the 125
identified institutes. The family income of the
beneficiary ST students from all sources should
not exceed Rs 2.00 lakh per annum. Financial
assistance is also provided to 15 eligible ST
students for pursuing higher studies abroad in
specified fields at Masters and Ph.D level under
the National Overseas Scholarship scheme.
11.55 Economic empowerment of the STs by
means of extension of financial support through the
National Scheduled Tribes Finance and Development
Corporation (NSTFDC) continued. Financial support
is being extended to ST beneficiaries/ entrepreneurs
in the form of loans and micro-credit at
concessional rates of interest for income-generating
activities. The Tribal Cooperative Marketing
Development Federation of India Limited (TRIFED)
is engaged in marketing development of tribal
products and their retail marketing through its sales
outlets. The responsibility for implementing the
Scheduled Tribes and Other Traditional Forest
Dwellers (Recognition of Forest Rights) Act vests
with the State/UT Governments. As per information
collected from the States till December 31, 2009,
more than 26.63 lakh claims have been filed and
more than 6.88 lakh titles have been distributed.
Around 37, 000 titles are ready for distribution.
There is great emphasis on the education of ST
girls, especially in the low literacy areas and a
scheme for Strengthening of Education among ST
girls in Low Literacy Districts to bridge the gap in
literacy levels between the general female population
and tribal women is being implemented.
Minorities
11.56 Five communities, namely Muslims,
Christians, Sikhs, Buddhists and Parsis, were
notified by the Government as minority communities
under section 2(c) of the National Commission for
Minorities Act 1992. As per the 2001 Census,
minority communities constitute 18.42 per cent of
the total population. For the development of
minorities, the Plan outlay was raised from Rs 1,000
crore in 2008-09 to Rs 1,740 crore in 2009-10. Three
scholarship schemes have been launched
exclusively for the minorities with a total provision
of Rs 450 crore in 2009-10 as against Rs 305 crore
in 2008-09. A multi-sectoral development programme
 Human Development, Poverty and Public Programmes
to address the ‘development deficits’, especially in
education, skill development, employment,
sanitation, housing and drinking water, in 90
minority-concentration districts (MCDs) has been
launched from 2008-09. The outlay for this
programme was Rs 990 crore in 2009-10. The
corpus of the Maulana Azad Education Foundation
(MAEF) has been enhanced from Rs 100 crore in
2005-06 to Rs 425 crore in 2009-10 to expand its
activities for implementation of educational schemes
for educationally backward minorities. The
authorized share capital of the National Minorities
Development & Finance Corporation (NMDFC) has
been raised from Rs 650 crore in 2006-07 to Rs
1,000 crore in 2009-10 for expanding its loan and
micro-finance operations to promote self-
employment and other economic ventures among
backward sections of the minority communities.
Three new Plan schemes, namely (i) the Maulana
Azad National Fellowship for Minority Students, (ii)
Computerization of records of State Wakf Boards
and (iii) Leadership Development of Minority Women
have been launched during 2009-10.
Other Backward Classes(OBCs)
11.57 The Government provides central assistance
to State Governments/UT Administrations for
educational development of OBCs. During 2009-10,
under the Scheme of Pre-Matric Scholarships for
OBCs, it was proposed to provide scholarship to
10.80 lakh OBC students. An amount of Rs19.32
crore was released against an allocation of Rs 30
crore to the State Governments/ UT Administrations
up to December 2009 during the financial year.
Under the Scheme of Post-Matric Scholarships for
OBCs, it was proposed to provide scholarship to
9.35 lakh OBC students. An amount of Rs 124.48
crore was released against a revised allocation of
Rs 180 crore to the State Governments/ UT
Administrations up to December 2009 during the
financial year. In order to provide hostel facilities
to OBC students studying in middle and secondary
schools, colleges and universities to enable them
to pursue higher studies, during 2009-10 an amount
of Rs 8.58 crore was released against a revised
allocation of Rs 30 crore for construction of 160
hostels, out of which 53 are for girls. The National
Backward Classes Finance & Development
Corporation extends credit facilities to persons
belonging to backward classes for undertaking
various income-generating activities including
agricultural and allied activities, artisanal and
traditional occupations, technical trades, self-
employment, small-scale and tiny industry, small
291
businesses and transport services. During 2009-
10, Rs 35 crore was provided as equity support to
the Corporation enhancing its equity to Rs 765
crore. During the year, the Corporation aims to
assist about 1.06 lakh persons.
Persons with Disabilities
11.58 A large number of programmes are
implemented through national and apex institutes
dealing with various categories of disabilities. These
institutes conduct short-term and long-term courses
for various categories of personnel for providing
rehabilitation services to those needing them. Under
the scheme of Assistance to the Disabled for
Purchase/ Fitting of Aids and Appliances (ADIP),
approximately 2 lakh persons with disabilities are
provided assistive devices every year. During 2009-
10, an amount of Rs 23.02 crore was released to
implementing agencies up to December 2009
against a revised allocation of Rs 70 crore for
providing assistive devices to persons with
disabilities. The target is to cover 2 lakh persons
with disabilities. Rs 6.79 crore has been released
up to December 2009 against a revised allocation
of Rs 92.99 crore during 2009-10 under the Deen
Dayal Disabled Rehabilitation Scheme to voluntary
organizations for running special schools for children
with hearing, visual and mental disability, vocational
rehabilitation centres for persons with various
disabilities and manpower development in the field
of mental retardation and cerebral palsy.
11.59 The Scheme of Incentives to Employers in
the Private Sector for Providing Employment to
Persons with Disabilities was launched with effect
from April 1, 2008. Under the Scheme, the
Government will have to make payment of the
employer’s contribution to the Employees Provident
Fund and Employees State Insurance for the first
three years as an incentive for every employee with
disabilities appointed on or after April 1, 2008 with
monthly emoluments up to Rs 25,000. During 2009-
10, an amount of Rs 1 crore was released up to
December 2009 against a revised allocation of
Rs 3 crore under the scheme.
11.60 The National Handicapped Finance &
Development Corporation provides credit facilities
for economic empowerment of persons with
disabilities with family income not exceeding Rs 2
lakh in urban areas and Rs 1.6 lakh in rural areas.
The Corporation provides loans at concessional
rates of interest to about 5,000 persons with
disabilities annually. During 2009-10, an amount of
Rs 9 crore was released as equity support to the
292 Economic Survey 2009-10
Corporation. The target of the Corporation is to
provide loans to 7,000 persons with disabilities and
training to 555 persons with disabilities during the
financial year.
Social Defence Sector
11.61 Under the Scheme of Integrated Programme
for Older Persons, grants- in-aid are given to NGOs
for running old age homes (OAHs), day-care centres
(DCCs) and mobile medical units (MMU). The
scheme has been revised with effect from April 1,
2008. Besides an increase in the amount of financial
assistance of existing projects, several new projects
have been made eligible for financial assistance under
the revised scheme. During 2009-10, Rs 8.80 crore
was released upto December 2009 against the
allocation of Rs 22.00 crore. The Scheme targets to
provide support to 0.35 lakh beneficiries. The
Maintenance and Welfare of Parents and Senior
Citizens Act 2007 was enacted in order to ensure
need-based maintenance for parents and welfare
measures for senior citizens. The Act has been
notified by 22 States and six UTs so far. Section 19
of this Act enjoins State Governments to establish
at least one old age home for 150 indigent senior
citizens per district.
11.62 Keeping in view the changes in the drug abuse
scenario all over the world, the Scheme for Prevention
of Alcoholism and Substance (Drugs) Abuse has
been extensively revised and merged with the
Scheme of Assistance to Voluntary Organisations for
General Grants-in-aid in the Field of Social Defence.
The new Central Sector Scheme of Assistance for
Prevention of Alcoholism and Substance (Drugs)
Abuse and for Social Defence Services has come into
effect from October 1, 2008. One of the salient
features of the Scheme is introduction of the provision
of food in the Integrated Rehabilitation Centres for
Addicts to persons below the poverty line. The
honorarium to service providers has also been
improved. During 2009-10, Rs 10.15 crore was
released up to December 2009 against a revised
allocation of Rs 25 crore during the financial year. The
scheme targets benefiting 1.2 lakh persons. For
effective implementation of social defence
programmes, personnel engaged in delivery of
services in this area are being trained under various
training programmes being organized by the National
Institute of Social Defence. During 2009-10, an
amount of Rs 5 crore was released up to December
31, 2009 to the Institute against an allocation of Rs
6 crore.
CLIMATE CHANGE
Status of Climate Change Negotiations
11.63 Climate change has emerged as a highly
debated and controversial subject in recent times.
Climate change by affecting the livelihood and health
of the people is intricately connected to human
development and poverty issues.The United Nations
Framework Convention on Climate Change
(UNFCCC) 1992 and its Kyoto Protocol 1997 have
laid down the existing international regime for
addressing climate change. The UNFCCC requires
the industrialized countries listed in Annex I of the
Convention to reduce their emissions from 1990
levels. The Kyoto Protocol mandates Annex I
countries to reduce their emissions by 5.6 per cent
over 1990 levels by 2012. The UNFCCC also
recognizes that the extent to which developing
country parties will take action to mitigate emissions
will depend on the effective implementation by
developed country parties of their commitments
relating to provision of financial resources and transfer
of technology.
11.64 Despite the commitments made by
developed countries as inscribed in the UNFCCC
and its Kyoto Protocol, the available data show that
emissions in most of the Annex I countries, except
a few European countries, have been rising since
1990. In recognition of the fact that climate change
is irreversible and that the developing countries are
likely to be impacted most if it is not urgently
addressed, the 13th Conference of Parties (CoP) to
the UNFCCC held at Bali in December 2007 adopted
the Bali Action Plan (BAP) to enhance the
implementation of the Convention. The BAP
expected the developed countries (including the
Kyoto Protocol Parties and the US) to undertake
commitments to reduce emissions and encouraged
the developing countries to take nationally
appropriate mitigation actions as supported and
enabled in terms of finance and technology provided
by the developed countries. The BAP had mandated
the parties to reach an agreed outcome on all its
elements at the CoP 15 at Copenhagen in December
2009 (Box 11.8).
Actions taken by India on climate change
11.65 India’s total CO2 emissions are about 4 per
cent of total global CO2 emissions. India’s per capita
emissions, even with 8-9 per cent GDP growth every
year for the next decade or two, are likely to be well
below developed country averages. Its energy
 Human Development, Poverty and Public Programmes
Box 11.8 : CoP 15 at Copenhagen
The Copenhagen conference on climate change was held
from December 7-18, 2009 to discuss and reach an outcome
on climate change issues. At the Copenhagen conference,
the Danish Presidency of the CoP15 had invited some of
the Parties for a discussion on the relevant aspects of
climate change and presented the results to the CoP in the
form of a “Copenhagen Accord”. The talks centred on
issues relating to a shared vision for long-term cooperative
action of the Parties including a long-term emission
reduction goal to address climate change, mitigation
actions of the Parties including specific measures needed
to reduce deforestation in developing countries and
support conservation and sustainable forestry
management, sectoral approaches to mitigation actions
including market and non-market based measures,
adaptation to climate change, finance and technology
required to address climate change, and the necessary
mechanism needed to facilitate the flow of such support
to the developing countries. An outcome could not be
reached at Copenhagen. The CoP did not adopt the results
of the discussion and only took note of the “Accord”. It
has been decided to continue the negotiations with a view
to concluding them at the next CoP scheduled in Mexico
from November 29 to December 10, 2010.
intensity of production has been falling with
improvements in energy efficiency, autonomous
technological changes and economical use of energy.
Its climate modelling studies show that its per capita
emissions will be around 2-2.5 tonnes of carbon
dioxide equivalent by 2020 and around 3-3.5 tonnes
of carbon dioxide equivalent by 2030, as compared
to around 1-1.2 tonnes presently. India has conveyed
that its per capita emission levels will never exceed
the average levels of developed countries.
11.66 While engaging constructively with the
international community on the issue, India has also
pursued a strong domestic agenda for addressing
climate change. It recognizes that a strategy for
addressing climate change has to be based on
sustainable development. This is reflected in many
of the major programmes addressing climate
variability concerns. Current Government expenditure
in India on adaptation to climate variability exceeds
2.6 per cent of the GDP, with agriculture, water
resources, health and sanitation, forests, coastal
zone infrastructure and extreme events being specific
areas of concern.
11.67 As part of its international obligations under
the UNFCCC, India periodically prepares the National
Communication (NATCOM) that gives an inventory
of the greenhouse gases (GHG) emissions in India,
and assesses the vulnerability and impacts and
makes appropriate recommendations regarding
293
social, economic and technological measures for
addressing climate change. NATCOM I was
presented in 2004. The Government is engaged in
preparing NATCOM II, which will be presented to the
UNFCCC in 2011. An expert committee set up by
the Government of India has studied the impact of
anthropogenic climate change on India and has come
out with its first set of findings and the research
agenda that the ministries need to follow and
implement in order to address India’s vulnerability to
anthropogenic climate change impacts.
11.68 India has prepared a comprehensive National
Action Plan on Climate Change (NAPCC) with a view
to achieving sustainable development with co- benefit
in terms of climate change. Eight national missions
in the areas of solar energy, enhanced energy
efficiency, sustainable agriculture, sustainable
habitat, water, Himalayan eco-system, increasing
the forest cover, and strategic knowledge for climate
change form the core of the National Action Plan.
Besides, there are several initiatives envisaged in
the sectors pertaining to energy generation,
transport, renewable energy, disaster management
and capacity building that are to be integrated with
the development plans of the ministries. The Prime
Minister’s Council on Climate Change, set up in June
2007 monitors the preparation of the national
Missions and coordination and implementation of
climate change-related actions in India.
11.69 India’s Five Year Plans include a strategy
for sustainable growth resulting in low-carbon
sustainable development. The Eleventh Five Year
Plan includes an indicative target of increasing energy
efficiency by 20 per cent by 2016-17. The National
Mission on Enhanced Energy Efficiency
implemented by the Ministry of Power through the
Bureau of Energy Efficiency seeks to pursue this
goal. Planning Commission estimates suggest that
India’s emission intensity has declined by 17.6 per
cent between 1990 and 2005 and that a 20 to 25 per
cent reduction in emission intensity between 2005
and 2020 is possible. This will require that necessary
actions in specific sectors are undertaken to reduce
emission intensity with necessary provisions of
financial and technological resources including
domestic and international support for achieving low-
carbon sustainable development.
CHALLENGES AND OUTLOOK
11.70 The Government strategy of inclusive growth
in recent years is reflected in programmes like Bharat
Nirman aimed at improving the quality of life of people
294 Economic Survey 2009-10
living in rural areas. Besides, schemes like the
NREGS have ensured that the rural poor are left with
sufficient purchasing power for their basic
requirements, especially food, through guaranteed
employment. The recent revamp of the SJSRY
reflects the Government commitment towards
alleviation of urban poverty also. However, the
Government needs to look into further convergence
of schemes. There is also need to reduce the overlap
between schemes being implemented by different
departments at the Centre and in the States as well
as between those implemented by the Centre and
States.
11.71 In spite of increased Government outlays in
the social sector in recent years, lack of identity
proof results in harassment and denial of services to
the poor and marginalized. As a result, there are
still leakages in the programmes/schemes and the
benefits do not reach the intended target groups of
individuals/people in full. Providing identity proof to
the poor and the marginalized through the UIDAI will
enhance their access to Government services, both
at State and Central levels, and will enable smoother
delivery of direct benefits to the poor and underserved.
Specifically, it will improve the delivery of the flagship
schemes of the Central Government. This will also
prevent leakages as well as wastages in the
implementation of these schemes. Success in
reaching this objective can be further assured through
involvement of local communities and PRIs.