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Turnaround time Good rains, export boom and industrial revival will boost economic growth: Indian Express
New Delhi, June 11: After five years of below average growth the Indian economy is set this year to finally move beyond the long-term average rate of the last two decades and once again notch 6 per cent. The rain god, it seems, is likely to smile.
New Delhi, June 11: After five years of below average growth the Indian economy is set this year to finally move beyond the long-term average rate of the last two decades and once again notch 6 per cent. The rain god, it seems, is likely to smile.
But it is not just a “normal” or near normal monsoon that is going to make a difference — exports of non-traditional products like auto components, chemicals, petrochemicals, engineering goods and of services are fuelling an export boom. Investment in the infrastructure sector is stimulating industries like steel and cement. The recent spurt in non-oil imports signals increased import demand, a reflection of industrial revival. Not surprisingly, therefore, the stock market is seeing a revival of sentiment.
The long-term rate of growth of the Indian economy in the period 1980 to 2002 is estimated at around 5.8 per cent. Fiscal 2003-04 will end with more than 6 per cent growth. In 2002-03 the Central Statistical Organisation estimated national income growth at 4.5 per cent. However, most analysts now suggest that revised income numbers for the last fiscal could throw up a rate of growth of closer to 5 per cent. If the rate of growth in 2002-03 is revised upwards to 5 per cent, 2003-04 could end up with 6 per cent growth, if not the lower base of last year will mean a higher rate of growth this year of upwards of 6 per cent.
The mood in Indian industry is upbeat. Most big corporates are reporting higher sales and improved demand, both at home and abroad. Serendipity has had its role. The severe acute respiratory syndrome (SARS) epidemic in China has spurred export growth in the garments sector. The slowing down of economic growth in the United States and Europe has encouraged companies there to shift to lower cost suppliers in India, as part of their cost cutting measures.
Beyond serendipity and the role of monsoons, investment in the infrastructure sector has spurred domestic demand. And, all of this has been made possible without a worsening of the fiscal profile. In fiscal 2002-03 the Union government managed to stick to its fiscal deficit target of 5.9 per cent and at the same time has been able to generate enough revenues to reduce public debt and keep inflation under check. It is no longer news that the external profile of the economy is robust. So are we set on a new course? It’s early to say, but this is turnaround time. The NDA government has had a weak record on the economic front in its first four years in office. After five years of near 7 per cent growth in 1992-97, the average slowed down to around 5 per cent in 1998-2003.
The decline of the rate of growth in 2002-03 to 4.5 per cent has enabled the finance minister of Pakistan, Shaukat Aziz, to claim that Pakistan has emerged as South Asia’s “fastest growing” economy with a rate of growth of 5.1 per cent. When the final accounts come in, India may well catch up and disappoint Aziz, but that is small beer.
The fact is that the economy was not a priority area for the BJP, which has remained obsessed with its traditional social and political agenda. That Prime Minister Atal Bihari Vajpayee has been more of a national security and foreign policy PM rather than an economy PM has not helped either. The easy complacency with which the NDA government repeatedly succumbed to sectional interests and votebanks to “roll back” one reform measure after another has made a mockery of the NDA’s so-called “second generation reforms”. If the Vajpayee government had been more focussed and had breathed life into the policy agenda so eloquently set out in the report prepared by former Reserve Bank of India governor I.G. Patel for the PM’s Economic Advisory Council, the economy would certainly have performed better. Imagine if we had sustained the 7 per cent rate of growth of the mid-1990s in the early 2000s, not only would Shaukat Aziz not have been able to make that tall claim, but more importantly the economy would have been on firmer ground.
In other words, the economy is set to do well this year despite policy failures and political diversions of the government’s leadership. With more focussed policy intervention the record could only have been better. Moreover, while the finances of the Union government are on the mend, state governments are in dire fiscal straits. Worse, while the political leadership in some states remains focussed on development, in others it is busy pursuing narrow social and political agendas at the cost of development. A national campaign cutting across party lines is required to keep political attention firmly focussed on economic development, employment generation and poverty eradication.
If government and the political leadership can do this much, leaving private enterprise to generate wealth and invest productively, chances are India could move on to a new growth trajectory of an average of 7 per cent growth in the next decade. This is a realistic projection. Many fanciful projections of 10 per cent growth have been made by all manner of migratory birds from global consultancy firms and B-schools who come to lecture India in winter. Maybe one day we will get there, but I would be quite satisfied if we delivered a decade of 7 per cent.
This requires, above all, altering the state of expectations. Investment in the modern world is a function of expectations. Countries that manage to move from one growth trajectory to another do so by altering the state of expectations. In the 1980s China made the world believe it was a place worth doing business in and with. It reaped the benefits in the 1990s.
If investors expect a nation to remain stuck in the morass of political and social instability and tension, their expectations will remain bearish and therefore investment rates will remain low. Low growth then comes out of the wash. If the NDA government has a correct appreciation of the economic turnaround underway and adopts economic and political policies that alter expectations positively, it can push the economy up.
If, on the other hand, the ruling alliance remains obsessed with divisive agendas it can nip a recovery in the bud. The politics of divisiveness cannot be pursued alongside the economics of growth.
The long-term rate of growth of the Indian economy in the period 1980 to 2002 is estimated at around 5.8 per cent. Fiscal 2003-04 will end with more than 6 per cent growth. In 2002-03 the Central Statistical Organisation estimated national income growth at 4.5 per cent. However, most analysts now suggest that revised income numbers for the last fiscal could throw up a rate of growth of closer to 5 per cent. If the rate of growth in 2002-03 is revised upwards to 5 per cent, 2003-04 could end up with 6 per cent growth, if not the lower base of last year will mean a higher rate of growth this year of upwards of 6 per cent.
The mood in Indian industry is upbeat. Most big corporates are reporting higher sales and improved demand, both at home and abroad. Serendipity has had its role. The severe acute respiratory syndrome (SARS) epidemic in China has spurred export growth in the garments sector. The slowing down of economic growth in the United States and Europe has encouraged companies there to shift to lower cost suppliers in India, as part of their cost cutting measures.
Beyond serendipity and the role of monsoons, investment in the infrastructure sector has spurred domestic demand. And, all of this has been made possible without a worsening of the fiscal profile. In fiscal 2002-03 the Union government managed to stick to its fiscal deficit target of 5.9 per cent and at the same time has been able to generate enough revenues to reduce public debt and keep inflation under check. It is no longer news that the external profile of the economy is robust. So are we set on a new course? It’s early to say, but this is turnaround time. The NDA government has had a weak record on the economic front in its first four years in office. After five years of near 7 per cent growth in 1992-97, the average slowed down to around 5 per cent in 1998-2003.
The decline of the rate of growth in 2002-03 to 4.5 per cent has enabled the finance minister of Pakistan, Shaukat Aziz, to claim that Pakistan has emerged as South Asia’s “fastest growing” economy with a rate of growth of 5.1 per cent. When the final accounts come in, India may well catch up and disappoint Aziz, but that is small beer.
The fact is that the economy was not a priority area for the BJP, which has remained obsessed with its traditional social and political agenda. That Prime Minister Atal Bihari Vajpayee has been more of a national security and foreign policy PM rather than an economy PM has not helped either. The easy complacency with which the NDA government repeatedly succumbed to sectional interests and votebanks to “roll back” one reform measure after another has made a mockery of the NDA’s so-called “second generation reforms”. If the Vajpayee government had been more focussed and had breathed life into the policy agenda so eloquently set out in the report prepared by former Reserve Bank of India governor I.G. Patel for the PM’s Economic Advisory Council, the economy would certainly have performed better. Imagine if we had sustained the 7 per cent rate of growth of the mid-1990s in the early 2000s, not only would Shaukat Aziz not have been able to make that tall claim, but more importantly the economy would have been on firmer ground.
In other words, the economy is set to do well this year despite policy failures and political diversions of the government’s leadership. With more focussed policy intervention the record could only have been better. Moreover, while the finances of the Union government are on the mend, state governments are in dire fiscal straits. Worse, while the political leadership in some states remains focussed on development, in others it is busy pursuing narrow social and political agendas at the cost of development. A national campaign cutting across party lines is required to keep political attention firmly focussed on economic development, employment generation and poverty eradication.
If government and the political leadership can do this much, leaving private enterprise to generate wealth and invest productively, chances are India could move on to a new growth trajectory of an average of 7 per cent growth in the next decade. This is a realistic projection. Many fanciful projections of 10 per cent growth have been made by all manner of migratory birds from global consultancy firms and B-schools who come to lecture India in winter. Maybe one day we will get there, but I would be quite satisfied if we delivered a decade of 7 per cent.
This requires, above all, altering the state of expectations. Investment in the modern world is a function of expectations. Countries that manage to move from one growth trajectory to another do so by altering the state of expectations. In the 1980s China made the world believe it was a place worth doing business in and with. It reaped the benefits in the 1990s.
If investors expect a nation to remain stuck in the morass of political and social instability and tension, their expectations will remain bearish and therefore investment rates will remain low. Low growth then comes out of the wash. If the NDA government has a correct appreciation of the economic turnaround underway and adopts economic and political policies that alter expectations positively, it can push the economy up.
If, on the other hand, the ruling alliance remains obsessed with divisive agendas it can nip a recovery in the bud. The politics of divisiveness cannot be pursued alongside the economics of growth.