Following the credit crisis, India, like many other developed and emerging economies, resorted to fiscal and monetary stimulus to push growth back to its pre-crisis trend immediately.
This easy approach of loose fiscal and monetary policy did boost growth strongly – but the low productivity dynamic accompanying it meant that the country faced challenges of inflation, the current account deficit and tight inter-bank liquidity.
Investment spending: We do not have good real-time indicators for investment trends, but it appears that investment spending is also beginning to slow, based on the quarterly results of a select few engineering and construction companies for the quarter ending June 2011, and the steel production trend.
Government spending: While state government spending data are not available, the monthly central government spending data indicate that government spending has declined on a year-on-year basis in May and June 2011.
Auctioning of coal blocks: The government has been working on an amendment to the Mines and Minerals (Development and Regulation) Act to allow allocation of coal mining rights on a competitive-bidding basis.
Land acquisition bill: Land acquisition has emerged as a prominent political issue, with farmers complaining about poor compensation and the loss of livelihood subsequent to the land acquisition.
We expect the sum of food, fertilizer and fuel subsidies to be 2.1% of GDP in F2012, up from 1.8% in F2008 (including off-budget expenditure).