The Hindu : Economic outlook in 2003

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Thursday, Jan 02, 2003

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Economic outlook in 2003

THE DATA RELEASED by the Central Statistical Organisation (CSO) at the fag end of the year for the second quarter of fiscal year 2002-03 gives room for cautious optimism on the immediate course of the economy. The Gross Domestic Product (GDP) grew by 5.8 per cent during July-September 2002, up from the 5.3 per cent recorded during the same period the previous year. Quite impressive has been the recovery in the manufacturing sector, which recorded a 6.4 per cent growth, sharply higher than the 2.6 per cent recorded at the same time the previous year. Services grew by 7.6 per cent. Other impressive performers during the period have been construction (7.2 per cent against 2.7 per cent) and mining and quarrying (5.1 per cent against just 0.7 per cent). In fact, with the exception of agriculture and power, most other sectors have seen reasonable growth on a comparative basis. All these are encouraging no doubt but it would be naive to be too optimistic at this stage. For one, the CSO data themselves need revalidation. Although they are broadly in line with the other official estimates, the forthcoming budget and the Economic Survey that will precede it will obviously be seen as more authentic even in gauging the broad economic indicators such as the GDP growth.

There are other reasons for advocating circumspection. The CSO data covering each quarter can sometimes be misinterpreted. For instance, the rate of GDP growth during the second quarter looks impressive when compared to the previous year but is actually below the 6 per cent growth recorded during the first quarter. In fact, the RBI and later the Mid-Year Economic Survey have already lowered the economic growth forecast for the year from the initial 6 to 6.5 per cent to 5 to 5.5 per cent. The lacklustre performance of agriculture — the CSO data speak of zero growth during the second quarter — can be explained by the failure of the monsoons and the drought situation. There has been a sharp decline in the production of both food and commercial crops during the kharif season. The failure on the agriculture front will have untoward consequences for other sectors dependent on farm incomes and the rural economy. It will take some time before these are felt. Infrastructure growth has been spurred largely by the success of the national highways project. Most of the key infrastructure industries, notably petroleum, are at the halfway stage of their reform agenda. The power sector, perpetually bogged down by policy issues, has recorded only a modest growth of 5.1 per cent during the first six months of the year. With international oil prices shooting up over the threat of war in Iraq, there are bound to be tough decisions in India on the sensitive energy issues. For an oil-importing nation, the near term outlook does not look good. Besides, the worries over the fiscal situation remain. The Mid-year Survey has reiterated the warning on fiscal deficit. There are doubts as to whether the budgetary targets for tax collection will be met.

On the brighter side, the point has already been made that few other economies are capable of achieving a growth rate of above 5 per cent year after year. Global comparisons are flattering in other parameters too. The country's external reserves are nearing $70 billion and the rupee has been strong and stable. Export performance has recently perked up and is seen driving growth — no mean achievement considering the persistent gloom in the major export markets. Integration with the outside world has resulted in Indian companies adopting global benchmarks and improving their efficiencies. Interest rates have been at unprecedented lows and liquidity constraints have all but vanished. Corporates ought to face no obstacles in funding projects. Already several surveys have pointed to an imminent corporate recovery, with many companies posting impressive sales and profit growth during the second quarter. Perhaps the best way to read the often conflicting economic data is to measure them against a well-publicised benchmark. The Tenth Plan is predicated on an 8 per cent growth. The current year is the first year of the Plan and the target rate will not be achieved.

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