The storm has passed, now all hands on deck

This year’s Economic Survey dwelt st some length on the “signs of strain” on the balance of payments (imports demand remained resilient because of continued high global crude prices). Although the record-high CAD (4.6% of GDP in the first half of this fiscal) has lately been financed by capital inflows, there has been high dependence on volatile portfolio investments and external commercial borrowings. This would make capital account vulnerable to a “reversal” and sudden stop of capital especially in times of stress. Roughly two-thirds of exports slowdown could be explained by external factors, Rajan said.

Poring over why high inflation has persisted so long, the survey reiterated known assumptions – a “secular decline in expenditure on food relative to that in other commodities and services due to rising income levels,” especially rising rural wages and increase in MSP which inflated input prices. Highlighting the shift in composition of private final consumption expenditure (towards education and healthcare, recreation and away from food), the survey said that this “desirable shift” was the result of an increase in income. “A thrust on (production of) horticulture products and protein-rich items is required for enhancing per capita availability of

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