The inflation rate measured by the movement of wholesale price index (WPI) would be around 6% in March, 2010. Initial signals of price inflation problem have been noticed with 13% annualized increase in overall WPI index, 33% increase in primary food index in the first half of 2009-10 fiscal year. Retail prices of commodities are ruling high and they were also so when the overall price inflation rate measured by WPI was hovering around zero. Sharper rise in all the four consumer price indices (CPIs) also confirm such an apprehension Global price inflationary pressures will be high, particularly with rising fossil oil and commodity prices.

The Economic Advisory Council to the Prime Minister consisting of DR Rangarajan, Suman K Berry, Dr Saumitra Chaudhari, Dr M Govinda Rao, Dr VS Vyas, Jayant Dasgupta, Padma Iyer Kaul and Ms Seema noted global recession which has caused higher household savings and demand contraction in developed economies is adverse for export growth. Though there are encouraging signs of revival of capital flows, a further negative shock to the global financial system and the global price inflationary trend could threaten the growth in Indian economy.

According to the think tank growth rate in agriculture would turn negative (-2.0%) in 2009-10 as compared with 1.6% in 2008-09. The growth rate in industry including construction industry would be 8.2% as compared to 3.9% in 2008-09. The manufacturing sector would post a growth of 7.7%. Services sector would witness a growth of 8.2% as compared to 9.7% in 2008-09.

Investment rate would remain unchanged at 36.5% and is likely to pick up with improvement in domestic conditions, while savings rate would increase to 34.5% in 2009-10 as compared to 33.9% in 2008-09.

Rainfall deficiency of 22.7% in the South-West Monsoon season leading to drought in different parts of the country led to a decline (about 5 million hectare) in acreage under kharif (summer) foodgrain crops, particularly rice. Hope hinges on farm production in rabi (winter season), particularly that of wheat and rice. The projected foodgrain production in 2009-10 would be 223 million tonne as against 234 million tonne in 2008-09. The think tank, however did not account the largescale damage to property, livestock and crops due to recent floods in South India.

For the fiscal year 2009-10, with exports projected at $188.9 billion, imports projected at $306 billion, merchandise trade deficit projected at $117 billion or 9.4% of GDP, net invisibles projected at $92.2 billion and with hopes of services exports and remittances reviving, the current account deficit in 2009-10 would remain negative ie -2.0% of GDP as compared to -2.6% of GDP in 2008-09.

With capital inflows of $57.3 billion likely in 2009-10 as compared to $9.1 billion in 2008-09, the net accretion to reserves would be $31.6 billion in 2009-10 as compared to -$20.1 billion in 2008-09.

According to the think tank bank credit remained sluggish till September 2009 but corporate sector raised large amount from domestic capital market through debt and equity issuance. The Reserve Bank of India helped through its “highly accommodative” monetary policy. Calibration of monetary measures will depend on growth and price inflationary pressures. Recovery in international loan and equity markets with lower LIBOR/CDS spreads also lend for improvement in domestic financial system. The think tank also says about the possibility of strengthening of Indian rupee.

The consolidated fiscal deficit of the government is likely to be 10.09% in 2009-10 as compared to 8.6% in 2008-09. Higher revenue and primary deficit would persist. The debt of the Union and state governments as a ratio of the GDP is projected to increase to over 77% in 2009-10. In this situation, the think tank suggest the need to return to fiscal discipline.

As a short-term measure, the think tank suggests the need to protect and enhance rabi (winter) crop production and strengthening of the public distribution system (PDS) to reach foodgrains to different domestic markets and locations and facilitate import of rice with to deal with food price inflationary trends.

For a medium-term strategy, the think tank suggests improving farm productivity and energy security.#