The Hindu : Opinion / Editorials : SUSTAINING THE MOMENTUM

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Friday, Dec 17, 2004

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SUSTAINING THE MOMENTUM

THERE IS NOTHING surprising in the Government's admission in its mid-year economic Review that it may not be able to contain the revenue deficit this year to Rs.76,171 crore or 2.5 per cent of the Gross Domestic Product. In just six months, the revenue deficit has climbed to more than 78 per cent of the annual target, and this has made it infeasible for the Centre to reduce the revenue deficit by 1.1 percentage points of the GDP as envisaged earlier. But a 0.5 percentage point reduction may yet be within grasp. Government spending has been reined in, its rise curtailed to just 5 per cent, while gross tax revenues yielded by a buoyant economy have spurted by over 20 per cent. Maintaining the momentum in economic growth is therefore the obvious prescription to rejuvenating the Centre's financial health.

Everyone knew that the 8.2 per cent economic growth achieved in 2003-04 was always going to be a tough act to follow. Farm output could not be expected to grow as smartly for the second year running. But what ought to be worrying is that foodgrain production this year may not even match last year's. Kharif output in a monsoon that delivered 13 per cent less rainfall is down by almost 8 per cent. While the Government is hoping that the rabi harvest will at least partly make up for the shortfall, field reports suggest that the area sown till November is less than what it was last year. At a policy level, the Review emphasises the urgent need to promote a common national unified market for farm produce, but this is an admission that after a decade and a half of economic reform the Government is still groping to fulfil such a basic need. With agriculture unable to break out of stagnation, economic growth will be down to 6 per cent this year. Despite that, the Review argues, India will continue to be one of the fastest growing economies of the world. Factored into this forecast is confidence that the growth in industry and services will be remarkably robust but that assumption could easily go wrong. Although domestic industrial activity remains buoyant, there is evidence of stress. The unprecedented rise in global oil prices poses a threat to both price stability and the structural reform of the petroleum sector. While petroleum prices have softened over the past fortnight, none will bet on the economy regaining the benefits of cheap oil. And then, will infrastructure keep pace with the rapid growth required of the industry and services sectors?

Investment as a proportion of GDP is low in India compared with what it is in China even though the requirement is higher, particularly for infrastructure. The bottleneck to infrastructure investments is not a shortage of funds but a lack of clarity on regulatory issues. Unless this is sorted out investments will remain choked. The Golden Quadrilateral highway project, which ought to have been completed, is just half done. Ports are struggling to cope with increased trade volumes, as slow policy making crimps new investments. Air passenger traffic has risen 22 per cent, leaving airports inadequate; yet procedural hitches have meant that neither the expansion of existing airports at Mumbai and New Delhi nor the green-field projects at Bangalore and Hyderabad have got off the ground. Months after the Electricity Act 2003 was passed in Parliament, the Government has not been able to put together the National Electricity Policy that promises to infuse competition and efficiency into a sector that has under-performed for many decades. Sadly, the mid-year Review can only say the preparation of the policy is under way.

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