The Indian economy is on a high of the business cycle. Indian firms are on the verge of a new surge in investment. But you would not know any of this, if you read the just-released Economic Survey. The survey plods on in its usual fashion, reciting statistics about how much coal production grew, without the big picture of the global and domestic business cycle. The Survey reviews developments in the economy in 2004-05 in a cautious manner. The concerns about infrastructure, social sector, employment, health and education remain, as it has always remained. Yet, some things are new. It notes that the economy maintained its growth momentum despite the deficient monsoon. However, it remarks on the declining importance of agriculture in 2004-05. Not only has the share of foodgrains in agriculture declined, the share of agriculture in GDP is also noted to have declined. The increased globalisation of the Indian economy is quietly acknowledged in the finance ministry’s report on the economy when it says that despite the setback in the kharif crop, the outlook for the Indian economy remains robust because of distinct signs of the continuation of global recovery and world output growth. The survey makes an explicit note of the need for foreign investment in the form of FDI and FII. This position is of interest, given that in January this year, the Reserve Bank of India and the ministry of finance had diverging views on capital flows. RBI said that the time had come to evaluate restrictions on FII flows. MoF quickly got RBI to recant on this position. The Economic Survey has many elements of reasoning on the question of capital flows, which shows the thinking of MoF in more detail. The Survey dispels fears about an “FII domination” of the Indian equity market, by pointing out that FII turnover accounts for only 5.8 per cent of the Indian equity market turnover, putting together derivatives and spot market. The survey also dispels the stereotype that all FIIs conspire together, and that $35 billion of Indian equities are held by one big white investor who can then hold India at gunpoint. The Survey points out that there are 637 FIIs and 1,785 FII sub-accounts, and that generally some FIIs are selling and some FIIs are buying every day. The pro-foreign capital and particularly pro-FII stance of the Economic Survey come in striking contrast to the xenophobia that we have seen from RBI.
