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New Indian Survey Signals Concern About Investment, Inflation

  • Kurt Achin

Indian Finance Minister Pranab Mukherjee listens to a question during a press conference in New Delhi, India, January 25, 2011

Indian Finance Minister Pranab Mukherjee listens to a question during a press conference in New Delhi, India, January 25, 2011

India's government says the nation's economy is growing briskly, but expresses concerns about inflation, a drop in foreign investment, and a potential skills and innovation shortage in the future. Those details are part of an annual economic survey.

Indian Finance Minister Pranab Mukherjee submitted the survey to lawmakers Friday as a prelude to Monday's submission of the national budget. The survey warns the country may face a slowdown in foreign investment unless it streamlines the management of its land and natural resources for industrial and commercial use.

Anjan Roy, an economist with the Federation of Indian Chambers of Commerce and Industry, points out foreign direct investment plays a secondary role in India's overall growth story.

"The bulk of investment in the economy comes from domestic sources, and that is on the upbeat,” Roy said. “The economic survey says that our investment and savings rates are going up. And on that basis, we are supposed to grow by above nine percent next year."

Roy notes the survey indicates a slowdown in Indian industry and manufacturing, and says reversing that trend will require plenty of direct investment in the country's human capital.

"The survey points out that skill formation and skill innovation should be encouraged as drivers of India's economic growth,” Roy added. “In that context, the survey also underlines the importance of reforms in the universities and higher education sector."

One of India's key national challenges is to stem the rise of inflation - particularly in food - without dampening the momentum of the country's overall growth. Indian officials say robust growth is needed to pull hundreds of millions of Indians out of desperate poverty and to provide basic public services like electricity and sanitation.

In Monday's budget, India is expected to seek investments in improving the supply side of its agricultural sector, including better storage and transport of basic food staples.

Roy points out, India is keeping a close eye on unrest in Libya and around the Middle East, a key source of its energy imports.

"India imports almost 75 to 80 percent of its oil requirements,” he said. “So any Middle East problem which pushes up oil price would be a matter of concern."

India is widely expected to be the world's third largest economy by 2050. The survey predicts its exports will exceed $200 billion next year.

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