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The latest report card

By C. Rammanohar Reddy

There have been so many revisions and counter-revisions by official and non-state agencies of the economic prospects in 2002-03 that we have to keep our fingers crossed about the final outcome.

THE WORST drought in 15 years and yet the Indian economy is expected to grow by close to 5.5 per cent in the fiscal year 2002-03. Compared to the gloomy predictions that were being made just a couple of months ago of the gross domestic product (GDP) expanding this year by just 4 to 5 per cent, the Finance Ministry's "Mid-Year Review", the first of its kind, is now cautiously optimistic about the immediate economic outlook. If there is one central observation in the new official document it is that India now has a resilient economy that is not weakened as it used to be by a severe nationwide drought.

It is still, as the psephologists-cum-newsreaders on TV tell us, early days for a final verdict on the Indian economy in 2002-03. Much of the Government's optimism is based on just a couple of trends. One, the modest pick-up in industrial (especially manufacturing) growth that has been noticed in recent months will be maintained. In manufacturing, the Finance Ministry report points to the positive developments in steel and textiles. The upturn in the steel industry was known. However, the recovery in textiles — attributed to the textile package of the Union budget for 2002-03 — is something new. The second factor that underlies the new optimism is that the effect of the 2002 drought on agriculture will not be as severe as earlier feared. Indeed, based largely on the size of initial market arrivals and rice procurement from the kharif crop the Finance Ministry has been persuaded to place growth of the agriculture sector at one per cent this year.

This is an insignificant rate of growth. But compared to what the earlier (Agriculture Ministry) estimates of a 13-million-tonne decline in kharif food production in 2002-03 would have implied, even a very modest positive growth in agriculture would be quite an achievement. Incidentally, the agriculture sector experienced negative growth in 1995-96, 1997-98 and 2000-01 and in none of those years was there a nationwide meteorological drought. Comforting as the latest predictions of GDP growth this year are, there have been so many revisions and counter-revisions by official and non-state agencies of the economic prospects in 2002-03 that we have to keep our fingers crossed about the final outcome.

The projections for this year apart, the Mid-Year Review is less than forthcoming about addressing two important features of the economy that are cause for worry. One is acknowledged but the implications are not fully addressed, the second is ignored altogether.

There has been a consensus for some years now that what has been holding the economy back is a sluggishness in investment. Private investment, especially in manufacturing, has been sluggish because final demand has not been booming. And public investment, though modestly growing in the past couple of years, has been held hostage to the Government's weak attempts at fiscal consolidation. The Mid-Year Review acknowledges that the slowdown in new investment is a problem. It notes that disbursals by the all-India financial institutions in April-September have been less than what they were in the corresponding period of last year by as much as 46 per cent, and new capital issues in the first six months collected just over a third of what was mobilised in the same period last year. Both are indicative of what the Review calls a "soft" investment demand. Since a more rapid growth in the economy depends in large measure on higher levels of investment, the immediate solution should surely be some kind of expanded public investment. The National Highway Development Programme (NHDP) gives some indication of what higher public investment could do. The Finance Ministry's own statistics suggest that the accelerated implementation of this programme is yielding employment for 2,50,000 construction workers and 10,000 supervisors. If these figures are correct, then the first round effects of investment in the NHDP show what accelerated public investment in infrastructure can achieve if similar programmes are taken up in the Railways, power and other sectors. But public investment is not to be spoken of and the Mid-Year Review is no different in this respect. Indeed, the Finance Ministry has now floated the balloon of cutting back on Plan expenditure on the ground that if such outlays do not yield an adequate return and if the programmes are implemented poorly then they contribute to fiscal deterioration. Poorly implemented Plan programmes do little for the economy. But to think of doing away with them without seriously asking what can be done to improve implementation is to only hold back growth further, not to mention what it will mean for investment in social and human capital. What the alternative of "public-private partnership" means for India is not known. This is a concept that has been put into practice recently in the U.K., but not with some success in the provision of public services.

The second and more worrying feature of the Mid-Year Review is the complete silence about the reports of starvation deaths that are occasionally (but with some regularity) coming in from different parts of the country. An accompanying silence is about what can be done to prevent such events and more generally alleviate distress this year with the food mountain that is still with the Food Corporation of India. These stocks will, if the Review is correct, grow once again with procurement from the fresh kharif crop. Food stocks were down, in early October, to 51 million tonnes. This is still a mountain of cereals but the stocks have been run down from the 60 million tonnes plus level of early this year. This has been the result partly of higher offtake from the PDS, partly of larger allocations for welfare schemes and quite substantially due to larger exports of highly subsidised grain. But what has not been done — here the States are more at fault — is to better use these stocks in welfare schemes such as the Antyodaya Anna Yojana to prevent starvation deaths in any of the States experiencing the effects of the poor 2002 monsoon. Where the Centre is more at fault (about which there is no mention at all in the Mid-Year Review) is in its inability to use more of these stocks as part of a larger public investment programme for improving rural infrastructure. For instance, while the NHDP is attracting considerable positive attention, the rural roads programme launched with similar fanfare two years ago has been all but forgotten. The Mid-Year Review has unfortunately been put out by the Government well after the mid-point of the financial year has passed and just a couple of months before the annual and more detailed Economic Survey is published. The improved timeliness and regularity with which the Central Government now releases monthly economic data also reduces the value of such a mid-term survey. Indeed, no sooner was the Review published this week that more information poured in; some pointing to a different trend (a slowdown in Central tax collections) and some reinforcing the trends in the first half of the year (a continued and surprisingly strong growth of exports). All said and done, this attempt to present a report card in the middle of the year is to be more than welcomed. The gaps in analysis may be quite a few and some of the information may be dated, but the new Mid-Year Review is still a step forward in putting out more information and offering the Finance Ministry's perspective on the short-term outlook for the economy.

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