Growth - the issue is about quality

By S. Swaminathan

It is not the ``worst case'' scenario of economic growth about to materialise. If the GDP sectoral growth estimates for the second quarter (July-September) for the current fiscal are the pointers, the growth rate for the whole year could exceed 6.5 per cent even if it could fall shorter than the 7 per cent target.

Last week's announcement by the Central Statistical Organisation (CSO) of provisional estimates for sectoral growth performance for Q2 indicates that despite the higher average cost of imported crude oil this year, the economy has managed to achieve a 6 per cent growth during this quarter as against 5.7 per cent in the corresponding period last year.

Taking the first half of fiscal 2000-01, the growth rate has been around 5.9 per cent (as against 6.3 per cent last year).

It is obvious that the main factor behind the deceleration of GDP growth rate has been the disappointing performance of the agriculture and allied sector. As against last year's average growth rate of 4.2 per cent (for the first half year), this year's growth has only been of the order of 1.2 per cent. Last year, agriculture fared miserably for the whole year with a negative one per cent growth.

Will the situation be redeemed this year with a better rabi crop? Should such a turnaround occur, it cannot but have a positive if marginal impact on overall GDP growth.

The tidings from industry have been a medley. Even though the overall performance appears to be at 6-7 per cent growth, sectors such as capital goods, automobiles, steel and cement have experienced a slowdown in demand and a consequent drop in capacity utilisation.

The CSO data now available indicate that overall, the manufacturing sector has clocked a growth rate of about 6 per cent in the first half of 2000-01 as against 6.6 per cent last year.

The data on industrial output released by the CSO for October this year would appear to confirm the expectation that the overall performance of this sector during the second half of the year is bound to improve.

Granted that there is leeway to be made in electricity, gas and water supply in the remaining months, a close study of the data set out in the accompanying Table would suggest that in quite a few sub-sectors within the services sector, there is substantial scope for improvement of efficiency and activity and especially in transport, storage, communication, insurance and construction.

If last year, the services sector recorded a growth rate of around 8.2 per cent, it could be higher this year by at least one percentage point assuming that the Centre and the States eliminate the needless delays in clearances of various kinds which have affected the delivery of new projects.

Over a longer period of four years, 1997-2000, the GDP growth performance for Q1 and Q2 has been improving although not consistently. In 1997-98, the average rate of growth for the first half year was 4.2 per cent. In the subsequent two years, it has been 7 and 6.3 respectively. During the current year, it has hovered around 6 per cent.

A common factor in the slippages in growth rates over the years has been the variations in agricultural output which have not always been derived from eccentric monsoon behaviour. That the agricultural economy has been largely kept out of strategic policy intervention excepting in the form of remunerative price policy support and indiscriminate subsidisation of inputs - water, power and chemical fertilizers - would explain the volatility of performance and the apparent current paradox of glut in production and poor price recoveries by the farming community.

Obsession with growth rates

The debate in the policy domain right now seems to be over two related issues. The first is the near sense of despair over the virtual unlikelihood of the Ninth Plan (1997-2002) yielding the average annual GDP growth rate of 7 per cent. The second is the question of pegging a 9 per cent annual average rate for the Tenth Plan (2002-2007).

The Prime Minister, Mr. Atal Behari Vajpayee, has been floating the 9 per cent rate as if it would constitute the acid test of the country's ability to orchestrate the development effort with conviction.

The Planning Commission, on its part, would appear to be rather challenged by the task of gearing the economy towards a 9 per cent growth trajectory. Both these issues (or the way they are posed) seem to attach too much importance to GDP growth as such.

The difficulty in such an approach is that it reflects poor appreciation of the qualitative dimension of growth. If past experience is any guide, an acceleration of growth (as it occurred in the late 1980s or during the three year period 1994- 97), apart from boosting incomes in industry and the services sectors, could create maladjustments in terms of price and exchange rate stability.

A much greater hazard of higher growth rate is the preponderance of investments financed by debt capital, both in the public and private sectors, resulting in fiscal deficits for Government and erosion of savings for corporate enterprises.

The challenge, therefore, is how to activise sectors in the economy where capacity utilisation is below par, besides channelling investments in infrastructure that is now a contributor to high transaction costs in the economy.

Nor is there much doubt that a higher growth trajectory cannot be sustained without the diffusion of the benefits of growth over the different parts of the country including the backward States.

As between an investment-led growth and an employment-generating process of growth, there need not necessarily be mutual incompatibilities.

Yet the mere quest for a 9 per cent or even double-digit growth without employment being made the central focus, can engender a hazardous polarisation between the haves and the have-nots.

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Section  : Business
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