An economy in trouble

THERE IS NO end to the flow of negative news on the economy. While the growth rates in industrial production and exports have both plummeted in the first couple of months of the current financial year, the Central Statistical Organisation's revised estimates have slashed growth in 2000-01 to 5.2 per cent from the figure of 6.1 per cent that was contained in the advanced estimates put out last February. A growth in the gross domestic product (GDP) of 5.2 per cent - 3.5 per cent in per capita terms - is an extremely disappointing performance and is a substantial deceleration from the 6.5 per cent recorded in the preceding two years. It is also the slowest pace of expansion since 1997-98.

The CSO is usually criticised for putting a gloss on the economy by steadily revising upwards its estimates of annual GDP. This year the opposite has happened and the reason for this is the sharp deceleration in a number of areas in the fourth quarter (January-March) of 2000-01, about which information was not available when the CSO made its advance estimates. GDP growth in the last quarter was just 3.8 per cent, the lowest in two years and the decline across a number of sectors. More than the contraction in agricultural GDP in the last quarter (which was known since the 2001 rabi crop was smaller than in 2000), it is the substantial slow-down in the manufacturing sector (3.5 per cent growth compared with an expansion of at least 6 per cent in the previous three quarters) which pulled down growth so sharply last year. In services too there was a slackening of the pace of growth, noticeably in the electricity and construction sub- sectors. This adds up to confirmation that the current slow-down took root in the previous financial year and is more widespread - affecting agriculture, industry and, naturally, services - than was earlier forecast. The only good news recently comes from the Reserve Bank of India's estimates of the balance of payments (BoP) in 2000-01. The current account deficit of the external sector in 2000-01 was $2.3 billion, half the gap the previous year. However, this was largely the result of a slower growth of imports, though exports did grow considerably and private transfers (remittances from Indians abroad) continued to provide major support to the current account. In any case the single most important cause for the appearance of health in the BoP was the successful issue of the expensive India Millennium Development Bonds late last year. In this connection, the substantial defence imports last year of at least $6 billion - as suggested by the large difference between the import data of the Commerce Ministry and the RBI - should be a potential source of concern.

Dissatisfying as a GDP growth of 5.2 per cent may be, it is not something to be frowned upon because there are not many countries which clock a five per cent rate of growth. But what is worrying is that this slow-down was not a one-off phenomenon. The deterioration in economic performance in 2000-01 shows no sign of being reversed in 2001-02. The most recent statistics of the Controller-General of Accounts, albeit covering only the first two months (April-May) of 2001-02, show that far from recording any increase, tax revenue is less than last year and so is the case with total revenue receipts. Any hope of economic revival springing from public investment must be given up for now because Plan revenue and capital expenditure were both lower than in April-May 2000. All this news comes at a time when the Government has just approved grandiose plans for accelerating the annual growth to 8 per cent and more. As the country marks the passage of a decade since the introduction of liberalisation, the Government has few ideas about how the economy can be lifted itself out of the present sluggishness.

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