Differing perceptions of GDP growth

THE INDIAN economy is passing through a peculiar phase of growth and there are different perceptions among economic experts about how the harvesting of bumper food and cash crops in the 2001-02 agricultural season will be helpful in achieving a fairly high gross domestic product (GDP) growth rate as in 1998-99. Even with no significant improvement in industrial output and the likelihood of a reduced contribution of the services sector in the changing situation, it is estimated by the Centre for Monitoring Indian Economy (CMIE) that the GDP will rise by 6 per cent against the original estimate of 6.3 per cent.

The Confederation of Indian Industry (CII) and the National Council of Applied Economic Research (NCAER), on the other hand, have taken a cautious view of the outlook for the economy and estimated that the GDP will increase by only 5.25 per cent. The Reserve Bank, for its part, has not hazarded any guesstimate. It would appear that the precise impact of an all time record agricultural production could not be easily assessed while industrial output has risen by only 2.2 per cent in April-August 2001 against 5.6 per cent comparably. It is even felt that the increase under this head in a whole year may be only 4.6 per cent. The impression has, however, been given by the monetary authorities that the GDP may rise by less than 6 per cent. The International Monetary Fund (IMF) too is of the view that the GDP rise will not be impressive though the performance of the Indian economy has been quite encouraging having regard to the progress in the Nineties. The varying perceptions of the precise effect of a big increase in the contribution by the agriculture and allied industries to the growth in GDP at current prices are perhaps due to the impression that the marketing of bumper food crops remuneratively from the point of view of growers will be challenging. Also, the producers of oilseeds, cotton and sugarcane may not be benefited signficiantly on account of the noticeable rise in output because of the realisation of average prices lower than in the 2000-01 season.

The difficulties of the economy functioning satisfactorily in a period of plentiful supplies of agricultural and industrial products will be evident from the fact that the Union Ministries of Agriculture and Food and Civil Supplies have a daunting task ahead. Even with a drop in output of foodgrains and also cash crops in 2000-01, procurement purchases of both rice and wheat were on an unprecedented scale and buffer stocks of foodgrains rose embarrassingly to 62 million tonnes by the end of June this year from 42.30 million tonnes on the same date in the previous year.

On the industrial front too, similar problems are being experienced, as sugar output in the 2000-01 crushing season has been at a new peak at 185 lakh tonnes and stocks have risen by 17 lakh tonnes to 117 lakh tonnes at the end of September in spite of exports of 12 lakh tonnes.

The producers of cement have not been increasing their sales tangibly though latterly there are reports about an improvement in off-take of this building material at higher prices in many regions in North India. However, the net rise in the whole of 2001-02 may be only around 5 per cent though better than the negative trend of 1.99 per cent in 2000-01.

The manufacturers of passenger cars, commercial vehicles and two- wheelers also are not utilising the facilities created at heavy cost effectively, as an irregular trend in sales of commercial vehicles has been noticeable while there is keen competition among the different producers of passenger cars for securing available business in a market, which is not showing signs of expansion. Those engaged in the consumer electronic products sector have to compete with the foreign entrants in the field for ensuring an erosion in the market share of total sales, which have not been increasing at the desired rate.

Sales of capital goods have, infact, been declining, while the oil refineries are having a lower operating ratio individually because of a spurt in aggregate refining capacity and a near stagnant trend in consumption of petro-products. The experience of others in the petro-chemical, fertilizer and other sectors is no different.

As stated earlier, the services sector, which has been making a handsome contribution to the growth in GDP in the past few years is visualising a slower rise in software exports, a drop even in foreign tourist traffic and inadequate utilisation of the bulging resources of the banking and insurance sectors. The NDA Government has, thus, to formulate policies for kick starting the economy in spite of the slowing down of the U.S. economy and expectations that there may not be any signficant increase in the volume of world trade in the coming months. The preoccupation with developments in Afghanistan should not have an inhibiting effect.

As the Union Finance Ministry will find it difficult to increase outlays on Plan schemes and avoid also an enlargement of the fiscal deficit and many states are finding it problematic even to meet easily current commitments, the emphasis will have to be on the mobilisation of resources for enabling the profitably functioning public sector enterprises to implement expansion schemes.

The enterpreneurs in the private sector and foreign interests too should be enabled to execute projects in those sectors, where shortages have to be relieved.

P. A. Seshan

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