Strong economic growth expected only next year: ICRA

By Alok Mukherjee

NEW DELHI, AUG. 23. Independent economists attached to the Investment and Credit Rating Agency (ICRA) have dashed the hopes of the Finance Minister, Mr. Yashwant Sinha, that the economy would turn around substantially in the remaining months of the current fiscal year. On the contrary, a stronger growth is expected only in the next fiscal year, that is, 2002-03, provided governance is not derailed.

In an assessment of the current economic situation, ICRA has said that as of now, ``there are no growth elements left - internal or external - except for that produced by the exertions of the millions of individual households in the country. Faced with adverse external conditions, a policy environment that remains excessively cluttered and discouraging of enterprise, an otherwise fully engaged administration, and a 60 million tonne mountain of grain, it is difficult to see how economic growth will exceed the 5.5-6 per cent level.''

According to the analysis done by the agency, the first quarter growth this current fiscal is unlikely to register a growth much different from that of the last quarter of 2000-01, that is, 3.5 to 4 per cent on the corresponding period of the last year. However, some improvement may possibly materialise in the second quarter from better summer harvests and some recovery in construction and durable consumer products sale.

Further, improvement in the third quarter and a strong growth number in the last quarter - due more to the anaemic base (last quarter of 2000-01) than to any substantive expansion of output - will then be likely to put the full year on a 5.5-6 per cent growth target. But here too, ICRA has put a rider. ``Notably this is likely to happen on a rising curve of growth, in a possible background of recovery in the U.S., which is likely to thus reinforce positive sentiments on a number of counts, increase business confidence and feed itself back to stronger economic activity. Thus, the probability of seeing a better 2002-03 is high, unless governance failures extract an excessive cost,'' the ICRA analysis adds.

As for the industrial sector, the agency has said that the first two months of the first quarter of 2001-02 have surpassed the previous quarter, with growth of 2.6 per cent. This number is unlikely to improve with the release of June output figures and if the past trend holds, annualised growth in June 2001 is likely to lie within the range of 2.2 and 3.5 per cent. That is, a first quarter growth of between 2.5 and 2.9 per cent.

The analysis points out that much of the growth in the recent past has been due to durable consumer goods. In recent months, it would appear that even this source of growth has started to dry up. The expected slowing of manufactured export growth in 2001, owing to demand constrained external environment, is unlikely to help matters. Consequently, with two successive bad quarters, the likelihood of a small recovery in the second and third quarters of the present fiscal is probable and a strong rebound in the fourth quarter a near certainty. On balance, growth for 2001-02 is still likely to be short of the six per cent mark, the agency has said.

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