Cautious optimism

THE MID-YEAR ECONOMIC Review presents an optimistic picture of the economy even while being realistic enough to lower the GDP growth forecast to between 5 and 5.5 per cent, a full percentage point lower than what was believed to be possible earlier. The RBI in its recent monetary policy review had acknowledged as much. The Mid-Year Review, while not being original, has the merit of not glossing over the inadequacies of the macro economy. Notably, on the perennial weakness of public finance, it again makes a strong pitch for fiscal consolidation. There could be slippages during the remainder of the year: the additional expenditure on drought relief and higher outgo on subsidies can neutralise the gains recorded during the first six months in achieving a reasonable level of financial rectitude. The Centre's gross tax revenues in the first six months have been 16.9 per cent higher, total revenue receipts have grown by 15.9 per cent while the growth in total expenditure has been reined in. Yet, there could be unanticipated pressures on both revenue and expenditure as a direct consequence of the weakening of the growth momentum.

The survey's underlying message is that the economy has fared well in what has been a difficult year. Things could have been worse. The failure of the monsoons, the uncertainties in western Asia and the recessionary trends in the economies of major trading partners have been dampeners. However, the survey feels that the prospects have improved recently belying the earlier gloomy forecasts in the wake of the drought conditions. The GDP growth during April-June 2002 at 6 per cent was higher than the 3.5 per cent recorded during the last quarter of the last fiscal year. There have been many positive features: the success achieved in containing prices despite the failure of the monsoons, the buoyancy in exports and the large accumulation of external reserves (now over $66 billion). Industrial growth during April-September this year at 5.2 per cent is sharply higher than the 2.4 per cent recorded during the same period last year. Core industries such as cement and steel have been faring particularly well, no doubt aided by the impressive growth in housing and road construction. Taking into account the turnaround in capital goods and textiles, the survey anticipates a distinct revival in industrial activity. Even the agriculture sector can turn out to be more resilient than what was expected earlier.

None of the above is strikingly original. Even the survey's articulation of the policy stance is familiar. Structural reforms, infrastructure development, fiscal consolidation and stepping up investment have remained the key tenets of economic policy in recent times and will surely be echoed in the annual budget-eve Economic Survey and the Finance Minister's proposals. Its views on the currently topical disinvestment programme are only a restatement of what has been an integral part of the reform agenda. The current practice of looking at it from a narrow revenue perspective should be discouraged. However, in a year when the realisation from the public sector sale has so far been only a fourth of what has been budgeted those words will appear to be a weak rationalisation.

However, the Mid-Year Review, the first of its kind, aims to achieve certain objectives that go well beyond updating macroeconomic data and policy stance. Presented as an exercise aimed at demystifying the budget and arcane economic matters, the Mid-Year Review seeks to start an informed public debate on likely policy options. There will be a number of benefits, if that approach succeeds. The reform programme will become participative and difficult economic decisions can be taken more democratically. It can enlarge public participation in policy formulation. There would be greater transparency in and less resistance to executing those policies agreed on after a wide public debate. There has been a welcome recognition that both the formulation and monitoring of economic policies are a continuous process. Many of the Review's laudable objectives cannot be achieved immediately but there is every reason to persist with it and depending upon the feedback improve upon it.

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