The Hindu : INDIA'S ECONOMY SURGES AHEAD

Online edition of India's National Newspaper
Thursday, Feb 12, 2004

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INDIA'S ECONOMY SURGES AHEAD

IT IS NOW official. India is among the best performing economies in the world; only China is doing better than India in terms of the annual rate of growth of the gross domestic product (GDP). The Central Statistical Organisation's advance estimates of a GDP growth rate of 8.1 per cent in 2003-04 end months of speculation on what the real pace of expansion will be. It is even higher than Union Finance Minister Jaswant Singh's own projection, made just last week, that economic growth in the current fiscal year will be between 7.5 and 8 per cent. This is the best performance since 1988-89 when the growth number was 10.1 per cent. The CSO had earlier estimated that growth in the first half (April-September) of the fiscal year was 7 per cent. The latest projections imply that the economy has been expanding by a scorching 8.6 per cent during the second half (October-March). The improvement this year has cut across sectors. Agriculture, of course, has performed very well, but so have manufacturing and the sub-sectors of trade, transport and communications. It is only the mining sector and the CSO economic group of electricity, gas and water supply that have registered growth rates of under 6 per cent.

While the Indian performance is hugely impressive, it is necessary to reiterate a couple of caveats on the rebound. First, the acceleration of 2003-04 is very much a recovery from the low of last year; it is being driven by the good monsoon of 2003. There has been in the past a spurt in growth whenever an agriculturally good year has followed a drought. The double-digit expansion of 1988-89, which came after the 1987 drought, was one such event. It is therefore premature to claim that the economy has broken through the growth barrier that has operated since the late 1990s. Secondly, irrespective of the nature of the monsoon this June-September, there must be some questions about the good run extending into 2004-05 on account of the fact that the rate of investment has not risen in most sectors of the economy. Construction and telecom are the only two areas where a measure of new capital expenditure is taking place. The economy is doing very well more because it is experiencing a greater utilisation of unused capacity than because there has been a major increase in investment in agriculture, industry and services. The CSO's statistics have placed the gross domestic capital formation in 2002-03 at 23.3 per cent of GDP at current market prices, only a marginal increase from the 2001-02 level of 23.1 per cent. This is still well below the investment rates of 26 to 27 per cent during 1995-97, which came in the midst of a 7 per cent plus annual growth rate that was maintained over three years.

The CSO's advance estimates require a couple of statistical qualifications as well. One is that in recent years, with the availability of more information, the CSO has had progressively to lower its GDP estimates. This has happened for 2001-02 and 2002-03, for which the GDP growth rates have been brought down by 0.4 percentage points each year, and the revision has not yet been completed. It is possible that there will be a similar scaling down for 2003-04. The second qualification is that just a fortnight ago the CSO reduced its estimate of last year's GDP. This has naturally given an upward statistical bias to the spurt of the current year, making the present economic performance look rather better than it is. While there is reason to celebrate the extraordinary pace of growth of the Indian economy, a certain sobriety in the cheering will be in order.

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