The Hindu : Economic growth scaled down to 4.4 p.c.

Online edition of India's National Newspaper
Friday, Feb 28, 2003

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Economic growth scaled down to 4.4 p.c.

By Our Special Correspondent

NEW DELHI FEB. 27 . The pre-budget economic survey released by the Union Finance Ministry today implicitly backed the Kelkar Committee recommendations on direct and indirect taxes by calling for large-scale rationalisation and simplification of the taxation structure and reiterated the need to prune subsidies so that more resources are available for infrastructure development. This would be necessary for creating the environment for sustainable high growth in the economy, the survey said.

Presenting a dual picture of the economy, the 2002-03 Economic Survey presented to Parliament by the Finance Minister, Jaswant Singh, points to the high foreign exchange reserves, the low level of inflation and the absence of shortages or scarcity of essential commodities. At the same time, the agriculture output has fallen, resulting in an expected low economic growth of 4.4 per cent while unemployment has been rising and the fiscal situation of the Centre and the States has deteriorated.

The Survey states that the 3.1 per cent decline in agriculture and allied services "clouds an across-the-board improvement in the growth performance of industry and services".

The industrial sector, for instance, is expected to grow by 6.1 per cent, almost double the 3.3 per cent growth registered in the previous fiscal while services will be up from 6.8 to 7.1 per cent. This growth recovery in industry and services has been juxtaposed against the several downside risks prevailing in the international and domestic economy since the outlook of recovery in global economic activity and world trade has remained subdued and international financial flows have been affected by the unsettled conditions in Latin America and Turkey.

Besides, geo-political conditions have been highly volatile with the stand-off in Iraq. On the domestic front, the country has been affected by a most telling drought, the survey says.

Credit has also been claimed for the continued macro-economic stability in terms of low inflation (3 per cent level), orderly currency market conditions and comfortable foreign exchange reserves ($ 74 billion, up $ 20 billion in 10 months). The large foodstocks helped stave off the pressure on prices because of drought while there had been no flare-up in prices of other essential commodities.

On the oil front, the transition to a market-based pricing mechanism for petroleum products from a Government-determined pricing system has also happened without disruptions though the fuel group inflation remained below five per cent for most part of the year. The latest Iraq-related uncertainty has caused fuel inflation to touch 6.4 per cent in mid-January this year. However, the Government has said it will be in a position to take care of any increase in oil prices in case of a flare-up. The other positives have been the striking recoveries in steel and cement industries, mostly because of the massive road constructions and the fillip to housing, 68 per cent rise in automobile exports, increase in software and hardware sectors, a 17 per cent growth in telecom, 24 million tonnes of additional petroleum refining capacity along with fresh oil and gas finds, and the record current account surplus on the balance of payments front.

On the agricultural front, the survey notes that foodgrain production in 2002-03 is estimated to fall by 13.6 per cent, brought about by the drought which will bring down `kharif' production by 19.09 per cent and `rabi' by 7.5 per cent. On the employment front, the rate of growth of employment on current daily status basis declined from 2.7 per cent per annum in 1983-94 to 1.07 per cent per annum in 1994-2000, the liberalisation years of the Indian economy.

Furthermore, the decline in the rate of growth of employment during the 1990s was associated with a comparatively higher growth rate in the GDP, indicating a decline in labour intensity of production. Indicating the lack of investment proposals in the Indian economy, the survey revealed that sanctions and disbursements by the financial institutions — which finance large industrial projects — were down by 51.4 per cent and 47.4 per cent, respectively, in the first nine months of the current fiscal.

The survey attributed this declining trend to the reduction in the number of project proposals seeking financial assistance, the weak financial position of the lead institutions such as the IDBI and the IFCI and the financial restructuring of asset portfolios of the financial institutions.

On the deteriorating fiscal situation of the Centre and the States, the survey found the consolidated deficit to be at 10 per cent of the GDP, with the deterioration in State finance being more pronounced.

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