The Hindu : New vistas of economic growth

Online edition of India's National Newspaper
Monday, Jan 12, 2004

Business

Business

New vistas of economic growth

THE PROSPECTS for the Indian economy in 2003-04 and subsequent years are viewed with robust optimism as Y. V. Reddy, Reserve Bank Governor, as well as K. C. Pant, Deputy Chairman of the Planning Commission, are confident that Gross Domestic Product (GDP) growth this year will exceed 7 per cent. This will be facilitated by a sustained rise in industrial output in the remaining three years of the Tenth Plan Period.

The expected sharp rebound in agricultural production by over 8 per cent, step-up in industrial output by 6.5-7 per cent and continuing surge in software exports have given rise to expectations of a strong foundation for future growth.

In earlier years, the GDP had registered a noticeable rise whenever agricultural production recovered smartly from a poor performance in the previous season. There was, thus, a sharp increase in GDP by 7.8 per cent in 1996-97 from 7.3 per cent in the previous year and to 10.5 per cent in 1988-89 from 3.8 per cent earlier.

In the two cases, agriculture, forestry and logging, fishing, mining and quarrying registered a rise of 8.8 per cent and 15.4 per cent respectively.

However, subsequently, there was a flat trend or even a decline under this head as the agricultural sector did not perform equally well. In 1999-2000 too, GDP growth came down to 6.1 per cent from 6.5 per cent despite a new peak in foodgrains output.

Crucial industrial sector

While it is emphasised that the agriculture and allied sectors can grow at 5 per cent yearly only with a distinct improvement in productivity and efficient management in years of inadequate rainfall, it is pointed out that a GDP growth of 8-10 per cent is possible only if industrial output can grow by 10-12 per cent and the services sector maintains its over 50 per cent share of GDP growth.

The euphoria now noticeable is, thus, ascribed to the emergence of new forces that will help increased outlays in infrastructure and core sectors and secure larger revenues from the services sector.

In fact the planners and the Government are looking at a blueprint that will enable the fastest growing economy among developing nations into a developed economy in one and half decades.

Already the NDA Government has been taking measures to encourage the corporate sector to go global and quicken the pace of industrial growth, apart from the concessions announced last week by the Finance Minister in excise and customs duties, which will result in a revenue loss of over Rs. 9,000 crores in 15 months.

Surprise pre-election moves

Against the earlier indication that a full-fledged budget will be presented to Parliament and the elections to the Lok Sabha will be held as scheduled, it is now quite clear that there will be only a vote on account with the presentation of an interim budget.

The reduction in excise and import duties would have been normally attempted, if a full Budget were presented to Parliament.

Obviously, the moves now adopted are to give reliefs to those engaged in tourism, manufacture of electronic products and plant and machinery intended for use in projects in the infrastructure and core sectors.

The Finance Minister seems confident that larger receipts from disinvestment will offset the loss in revenue due to the concessions. With non-plan expenditure exceeding Budget estimates, there should normally be an enlargement of the fiscal deficit.

But the revised figures in the Interim Budget may not disclose any disturbing enlargement under this head.

Surfeit of forex and

rupee resources

With the likelihood of substantial surpluses in current account in the coming years after a small deficit or a surplus in 2003-04 due to an upsurge in non-oil imports and a fairly high level of oil imports, there will not be any dearth of forex or rupee resources for meeting foreign exchange expenditure on new projects.

The favourable developments on the Balance of Payments (BoP) front in recent years have, thus, brought about a spectacular rise in forex reserves to over $100 billion from only $32.49 billion in 1998-99.

Upbeat mood on bourses

With the improved outlook for the economy, the success of the SAARC summit and hopes of a definite improvement in Indo-Pak relations, there is an upbeat mood in the stock markets.

As the tax concessions also came as a surprise, the BSE index touched a new peak of 6250 on January 9 from the previous close of 6108.54. Though there was selling at the higher levels, the finish was slightly better at 6119.59. The net gain in the index since April last year is 98.63 per cent. What is noteworthy is the different pattern of increase in equity values in the present boom as compared to the earlier boom of 1999-2000.

Several scrips are quoting at double or treble the levels recorded in February 2000 and it is now being emphasised that a further increase in values will be on the basis of growth prospects of individual enterprises.

Mr. Jaswant Singh, of course, will have no difficulty over the interim budget as Budget estimates for 2003-04 of revenues from direct and indirect taxes are likely to be realised and the fiscal deficit also may not get unduly enlarged with the efforts now being made to secure the estimated receipts under the disinvestment programme and other non-debt receipts.

If agriculture puts up another good show in 2004-05 and the bullish sentiment in the secondary and primary markets is sustained, there is no reason why the average growth in GDP cannot be at least 7.5 per cent in the Tenth Plan period as a whole, in spite of the slow progress in the first two years.

P. A. Seshan

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