Intriguing behaviour of agricultural and industrial sectors

THE PROSPECTS of the economy in the current financial year have to be reassessed in the light of recent developments in the agricultural and industrial sectors. As the monsoon has been erratic in many regions even though the meteorologists assert that it was normal the earlier expectations of a growth in agricultural production by over 3 per cent even on a larger base in 1999-2000 may not materialise. It is now anticipated that the growth will be less than one per cent as compared to 1.3 per cent and 7.2 per cent in the two previous years. The output of foodgrains may yet be around 207 million tonnes while the yields of cash crops, with the exception of cotton, may be quite satisfactory.

With bumper food crops for three seasons in a row and no noticeable increase in offtake from fair price shops as also the open market, even with prices lower than in the public distribution system, buffer stocks have been accumulating.

The purchases of rice in the marketing season ended September were as much as 17.27 million tonnes against 11.79 million tonnes while the quantum of wheat procured out of the last rabi crop was 17.91 million tonnes upto September 11 as compared to 14.14 million tonnes. While aggregate purchases were 35.15 million tonnes against 25.89 million tonnes, the offtake from fair price shops declined by 1.75 million tonnes in April-August.

Buffer stocks thus stood at 40.77 million tonnes on September 1. But they have risen further since then to over 43 million tonnes as State agencies have had to procure sizable quantities. Since rice purchases will have to be on a large-scale upto February next year and wheat procurement intensified in later months, the NDA Government has been anxious to bring about a reduction in stocks with sales in the open market and even exports on a subsidised basis.

Subsidies may rise

The Union Finance Ministry was unwilling to incur higher subsidies on export sales, as its calculations about a reduction in food subsidies have gone awry because of the need to procure also substandard qualities of rice from Punjab and Haryana and incur heavier subsidies on sales in the open market. The expenditure on all subsidies may thus be significantly higher this year as nitrogenous nutrients too will call for larger subsidies in spite of inadequate adjustments in retention prices for producers.

With rising defence expenditure, mounting interest charges and a higher salary bill for government employees, non-Plan revenue expenditure may not come down even with economies claimed in other directions. The Finance Minister, Mr. Yashwant Sinha, has observed that there is no room for a further saving in non-Plan revenue expenditure.

Buoyancy in tax collections

Tax collections in April-October have of course been heartening in the face of apprehensions about a deceleration in industrial growth. Total tax collections were thus higher by 18.22 per cent at Rs. 94,709 crores against Rs. 80,114 crores. Income tax collections increased by 43.70 per cent to Rs. 14,894 crores against the budgeted growth of 18.39 per cent. Revenues from corporate taxes too were higher by 36.63 per cent at Rs. 14,254 crores as compared to the estimated rise of 33.85 per cent in a whole year.

Receipts from excise duties however have improved by only 14.98 per cent to Rs. 36,375 crores in relation to the postulated rise of 16.81 per cent. As excise collections are usually brisk in October-March, the Budget estimate of Rs. 71,252 crores may be exceeded by about Rs. 2,000 crores.

Receipts from import duties however may be lower than the Budget estimate of Rs. 53,572 crores as actual collections in April- October rose by only 4.24 per cent to Rs. 27,039.26 crores. The Budget estimate provides for an increase of 12.08 per cent. The shortfall in customs revenues may not be more than Rs. 1,000 crores.

With larger collections from higher priced oil imports and other items, gross tax revenues may register a net rise of Rs. 8,000 crores even allowing for the shedding of revenues from crude and petroleum products when effecting adjustments in end prices for these items on September 30. The net benefit to the Centre may be around Rs. 5,000 crores as compared to a shortfall of Rs. 5,986 crores in 1999-2000 (revised).

It should be possible for the Finance Minister to formulate the Budget estimate for 2001-02 from a more advantageous position than on the former occasion. But he has indicated that there cannot be any reduction in taxes in the forthcoming budget as the fiscal deficit has to be contracted to the extent feasible. An encouraging trend in respect of tax collections so far has been in evidence in spite of a deceleration in industrial growth and reduced profit margins of the cement, plantation, chemical and other industries.

Travails of auto and cement industries

The automobile producers are actually going through a difficult phase. There are indications that the demand for passenger cars is getting saturated while the offtake of heavy commercial vehicles has been much lower than in 1999-2000.

The cement industry too is unable to maintain production at previous year's levels. The offtake in April-October 2000 has risen by only 5.45 per cent against the much higher 18.36 per cent in the same period in 1999-2000. Even if there is an improvement in January-March, the offtake may not be rising by more than 7-8 per cent. A pick-up in demand can come only from a step up in outlays on projects in different sectors.

The petrochemical, steel, aluminium, software and cotton textile industries are of course faring well. Even so, industrial output has risen by only 5.3 per cent in April-August 2000 against 6.2 per cent comparably and the growth may not be more than 6 per cent in a whole year against 8.1 per cent in 1999-2000. It has been represented to the Centre that unfair competition from imports with no quantitative restrictions and dumping by many countries have been responsible for the woes of particular industries. Anti-dumping duties have been levied on select imports and the assurance has been given to provide legitimate protection.

At the meeting held by the Prime Minister, Mr. Atal Behari Vajpayee, on December 2 with important industrialists and others, it was recognised that the shortfall in investment in many directions in the first three years of the Plan period should be overcome with the formulation of appropriate policies and a step up in investment in the core and infrastructure sectors in the coming months. It has been even indicated by the Prime Minister that the economy should be activated with the adoption of suitable measures and that the objective should be to raise the gross domestic product (GDP) to 8 per cent in 2001-02. However, it is not clear what is the significance of the observation by the Prime Minister that ``difficult decisions will have to be taken'' though the Budget will be ``forward looking''.

New budget should provide lead

The Finance Minister will therefore have to formulate the budget proposals for next year imaginatively. There should not be any hesitation to enlarge the fiscal deficit suitably for increasing plan outlays in the desired directions.

It has thus been suggested that the large amount of Rs. 26,000 crores or $5.50 billion mobilised through the India Millennium Bonds (IMD) should be utilised for meeting expenditure on roads, execution of power projects, increasing capacity of ports and the like. A portion of the funds should also be made available to the private sector for executing its projects.

The Finance Minister has no need to worry about the current account deficit getting enlarged as the trade deficit for the whole of the year may be even lower than in 1999-2000. There has been a contraction under this head in April-October 2000 in spite of a burgeoning oil import bill as additions to export earnings have more than offset the prohibitive increase in the oil import bill. The trade deficit for seven months has actually contracted to $5.26 billion from $5.80 billion. Foreign direct investment can be attracted in a big way and Indian entrepreneurs and foreign interests also helped to secure their resources with the active functioning of the secondary and primary markets.

The growth in industrial output can be even 10 per cent under favourable circumstances. Besides, with the satisfactory functioning of agricultural and tertiary sectors, a higher GDP growth can be realised. Much depends therefore on the happenings in the remaining months of 2000-01 and the imaginative lead provided by the forthcoming Central Budget.

P. A. Seshan

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