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A rosy picture still

On the face of it, the revised estimates of national accounts for 2007-08, released by the Central Statistical Organisation on Friday, give room for optimism. The economy grew by 9 per cent, which is higher than the earlier estimates including the 8.7 per cent predicted by the CSO itself in February. During the fourth quarter of last year — the data for which were released simultaneously — the economy grew by 8.8 per cent. That for three years in a row the econ omy has grown by at least 9 per cent seems to vindicate the assumptions of the Planning Commission, among others. The Eleventh Plan, which began last year, postulated an average growth rate of 9 per cent. It is creditable too, as Finance Minister P. Chidambaram has claimed, that such growth was attained despite the raging inflation and global financial market turbulence. Particularly noteworthy is the performance of agriculture which grew by 4.5 per cent, compared to 3.8 per cent during 2006-07. Manufacturing, however, recorded a much slower pace of growth of 8.8 per cent, as against 12 per cent registered in the previous year. The weakness in manufacturing which, along with services, had propped up economic growth in the recent past was apparent from the monthly figures of industrial production. Its low point was in March when industrial production grew by just 3 per cent. The omnibus services sector grew at a respectable clip. Only construction has slowed down.

Extrapolating past data to arrive at meaningful conclusions for the current year is a difficult exercise for at least two reasons. Despite the 9 per cent growth rate, the picture of the macroeconomy is mixed. The economy has been slowing down since the middle of 2007-08. Even agriculture, which has unexpectedly emerged as a bright spot in the yearly data, slipped to 2.9 per cent during the fourth quarter from 6.0 per cent in the third. A more consistent performance alone will validate official policies that have emphasised inclusive growth in the rural sector. Secondly, while remedial measures to reverse the slowdown suggest themselves, they cannot be pursued at this juncture. Obviously with inflation ruling above 8 per cent, there can be no let-up in official policies to bring down prices. When the choice has to be made between price stability and growth, the authorities have preferred the former. This is evident from not only the monetary policy stance but also from the recent fiscal and administrative measures to ease the supply position of essential commodities. For the current year, with indications of a further slowdown in the industrial sector, almost all forecasts place the GDP growth rate between 8 per cent and 8.5 per cent.

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