Economic Survey

India Economic Survey 2010-11

Sustaining the Recovery

GDP Growth (Actual)

8.9%

Forecast: 8.0-8.5%

Inflation (CPI)

10.4%

Consumer Price Index

Wholesale Inflation (WPI)

9.6%

Wholesale Price Index

Fiscal Deficit

4.8% GDP

Union Budget (Actuals)

Key Theme

Sustaining the Recovery

Key Highlights

GDP growth accelerated to 8.9%, above the 8.0-8.5% forecast, driven by strong industrial and services performance
India was the world's second-fastest-growing major economy, closing the gap with China
WPI inflation averaged 9.6% for the year, the highest since 1994-95, driven by food and fuel prices
CPI inflation remained in double digits at 10.4%, with food inflation averaging above 15%
RBI raised the repo rate by 175 basis points during the year in a sustained tightening cycle
The fiscal deficit improved to 4.7% of GDP from 6.5%, a significant consolidation of 1.8 percentage points
FDI inflows reached $24.2 billion as India remained attractive despite inflation concerns
The Commonwealth Games in Delhi (October 2010) were marred by cost overruns and corruption scandals
2G spectrum allocation scam emerged as a major corruption issue, estimated losses of Rs 1.76 lakh crore
Gold imports surged to $40 billion as households sought inflation hedges, widening the current account deficit
Agriculture grew at a healthy 7.9% following an excellent monsoon after the previous year's drought

Policy Recommendations

1 Continue the monetary tightening cycle until inflation expectations are firmly anchored
2 Pursue supply-side measures for food: decontrol sugar, allow FDI in multi-brand retail, invest in cold chains
3 Accelerate fiscal consolidation by reducing the food and fuel subsidy burden through better targeting
4 Implement the Direct Taxes Code and GST to improve tax efficiency and broaden the base
5 Address corruption through institutional reforms: Lokpal, transparent auction-based allocation of natural resources
6 Deregulate diesel prices in a phased manner to reduce the petroleum subsidy bill
7 Strengthen rural infrastructure including irrigation, rural roads, and storage facilities
8 Reform land acquisition through a fair compensation framework that balances development and rights
9 Invest in higher education quality and expand vocational training programmes
10 Develop a coherent urban development strategy to manage the 300+ million urban population

Survey Predictions vs Budget Outcomes

Comparison between Economic Survey predictions and actual Union Budget allocations

Metric	Survey Prediction	Actual Budget	Deviation
GDP Growth (%)	8.0-8.5	8.9	+0.4 to +0.9% — domestic demand proved more resilient than expected
WPI Inflation (%)	5.5-6.0	9.6	+3.6 to +4.1% — inflation proved far more persistent than projected
Fiscal Deficit (% of GDP)	5.5	4.7	-0.8% — strong tax revenue and partial expenditure control beat target
Current Account Deficit (% of GDP)	2.0-2.5	2.6	+0.1 to +0.6% — gold and oil imports pushed the deficit wider
Gold Imports ($ Bn)	25-28	40	+$12-15 Bn — inflation-driven demand for gold far exceeded estimates

Union Budget 2010-11 Summary

Corresponding budget data to read alongside the Economic Survey Actuals

Total Receipts

11.97 lakh crore

Total Expenditure

11.97 lakh crore

Fiscal Deficit

3.74 lakh crore

Revenue Deficit

1.97 lakh crore

View Union Budget 2010-11 in detail

Detailed Analysis

The Economic Survey for 2010-11, presented by Chief Economic Adviser Kaushik Basu, captured an economy at the height of its post-crisis recovery — growing strongly but increasingly troubled by an inflation problem that showed no signs of abating. GDP expanded by 8.9 per cent, placing India firmly as the world's second-fastest-growing major economy and generating talk about whether the country could challenge China for the top spot. But the good growth headline was accompanied by a less comfortable reality: inflation was running at levels not seen since the mid-1990s, eroding real incomes and creating political pressure that would shape economic policy for the next several years. The growth performance was genuinely impressive when viewed against the global backdrop. While the developed world was still struggling with the aftermath of the financial crisis — unemployment in the United States remained above 9 per cent, and Europe was sliding into its sovereign debt crisis — India was generating broad-based expansion. Manufacturing grew at 7.6 per cent, services at 9.3 per cent, and agriculture, benefiting from an excellent monsoon after the previous year's drought, surged by 7.9 per cent. The recovery in agriculture was particularly welcome because it helped replenish food stocks and, the Survey hoped, would provide relief from the food price pressures that had plagued the economy for two years. That hope was only partially fulfilled. WPI inflation averaged 9.6 per cent for the year — the highest since 1994-95 — and CPI inflation stayed in double digits at 10.4 per cent. The inflation dynamics were complex and, the Survey argued, could not be explained by demand-pull factors alone. Food prices remained elevated even as the agricultural harvest improved, suggesting that structural supply-side constraints — inadequate cold storage, inefficient marketing chains, transport bottlenecks — were preventing production increases from translating into price relief for consumers. Non-food manufacturing inflation was also rising, reflecting demand pressures and rising input costs, particularly for metals and petroleum products. The RBI was now in the midst of the most aggressive tightening cycle in over a decade. Governor D. Subbarao raised the repo rate by 175 basis points during the year, in a series of moves that demonstrated the central bank's determination to break inflationary expectations. However, the transmission of policy rate increases to bank lending rates remained imperfect, and many analysts argued that the RBI was fighting a supply-side inflation problem with demand-side tools, inevitably generating a growth slowdown as collateral damage. The fiscal consolidation achieved during the year was one of its genuine successes. The Centre's deficit narrowed from 6.5 per cent of GDP to 4.7 per cent — a reduction of 1.8 percentage points that the Survey described as the largest single-year consolidation in India's fiscal history. Revenue buoyancy was the primary driver, as the economic recovery pushed up corporate tax, income tax, and customs duty collections. Some expenditure restraint also helped, though the Survey was careful to note that much of the improvement was cyclical and that the structural deficit remained higher than headline numbers suggested. The external sector was becoming a source of concern. The current account deficit widened to 2.6 per cent of GDP, driven by two factors: a surge in oil imports (reflecting both higher volumes and rising crude prices as the global economy recovered) and a remarkable increase in gold imports, which reached $40 billion. The Survey's analysis of India's gold fixation was among its most interesting sections, explaining how the combination of high inflation, negative real interest rates on bank deposits, and cultural affinity for the yellow metal was driving households to invest in gold rather than financial assets. This represented a significant macroeconomic loss — gold imports were widening the current account deficit and the gold saved contributed nothing to productive investment. The political economy had shifted dramatically during the year, though the Survey dealt with this obliquely. The 2G spectrum allocation scam — in which telecom licenses had been issued at throwaway prices, with estimated losses to the exchequer of Rs 1.76 lakh crore — had erupted into public consciousness. The Comptroller and Auditor General's report and subsequent Supreme Court intervention dominated the national discourse. The Survey's response was to advocate for transparent, auction-based allocation of all natural resources, a principle that would have far-reaching implications for coal, mining rights, and spectrum allocation in subsequent years. The Commonwealth Games in October 2010, while competently executed on the sporting front, had been tarnished by widespread corruption in infrastructure construction, cost overruns, and last-minute preparation chaos. The episode reinforced public anger about governance quality and the nexus between government contracts and political patronage. The Survey's discussion of India's investment climate was tinged with concern. While FDI inflows remained healthy at $24.2 billion, there were signs that policy uncertainty was deterring new investment. Land acquisition had become contentious, with several high-profile projects — including the Tata Nano plant's forced relocation from Singur to Sanand — raising questions about whether India could continue to industrialize without a fair and transparent land acquisition framework. Environmental clearances had become slower and more contested, and retrospective tax demands were beginning to worry foreign investors. The Right to Education Act, which came into force in April 2010, represented a landmark commitment to universal elementary education. The Act guaranteed free and compulsory education to all children between 6 and 14 years of age and mandated that 25 per cent of seats in private schools be reserved for children from disadvantaged backgrounds. The Survey welcomed the legislation but noted that the real challenge was quality: enrollment rates were already high, but learning outcomes — as documented by the Annual Status of Education Report (ASER) — were distressingly poor, with over half of Class 5 students unable to read a Class 2 text. The microfinance sector experienced a severe crisis during the year, centered in Andhra Pradesh. A spate of borrower suicides, linked to aggressive collection practices by microfinance companies, led the state government to effectively shut down the industry through an ordinance that restricted collections and new lending. The Survey analyzed the episode as a cautionary tale about the risks of rapid credit expansion to low-income borrowers without adequate regulatory oversight. The sector's assets under management had grown from virtually nothing to Rs 20,000 crore in a decade, and the pace of growth had outstripped both the borrowers' absorptive capacity and the industry's risk management capabilities. The crisis led to a fundamental restructuring of microfinance regulation, with the RBI eventually bringing the sector under its direct supervision. The telecom sector, which had been one of India's great reform success stories, was now at the center of a corruption scandal and a regulatory upheaval. Beyond the 2G scam, the entry of multiple new operators on the back of cheap licenses had created unsustainable competition, with twelve or thirteen operators in some circles competing for a market that could profitably support four or five. The resulting tariff war — while beneficial to consumers — had left many operators financially unviable and had reduced the incentive for network investment. Looking forward, the Survey projected growth of 8.5-9.0 per cent for 2011-12, contingent on inflation moderating and the global environment remaining supportive. It argued that India's potential growth rate was in the 9 per cent range and that achieving it required decisive action on three fronts: controlling inflation through both monetary and supply-side measures, consolidating the fiscal position to create space for productive investment, and pushing through structural reforms that had stalled — GST, land acquisition reform, FDI liberalization, and financial sector modernization. On each of these fronts, the next two years would prove far more challenging than the Survey anticipated.

Source: Official Economic Survey Document

Previous Survey

Economic Survey 2009-10

Restoring Growth and Fiscal Prudence

Next Survey

Economic Survey 2011-12

Growth with Stability

Budget follows the Economic Survey

The Economic Survey sets the context for the Union Budget presented the next day

View Union Budget 2010-11 →