THE PUZZLE ABOUT the depth of the recovery in the Indian economy remains unsolved after the latest release of official statistics on industrial production. The index of industrial production has registered a growth of 5.8 per cent in the first half (April-September) of 2003-04 and the manufacturing sub-sector has grown by 6.3 per cent during the same period. These are not small rates of expansion, but they are also not exceptional as they should have been if one were to go by the present mood of optimism within the Government about the state of the economy. Indian industry is no doubt growing more rapidly this year than in 2002-03. But the acceleration thus far can at best be described as mild. Indeed, going by the monthly trends, the manufacturing sector grew more slowly in September 2003 than in September 2002 (6.8 per cent versus 7.6 per cent). There are a number of other contradictory trends in the economy. The industrial growth rate has not accelerated to any substantial degree but the stock markets are booming. Excise duty collections have registered only a modest growth but corporate results have been excellent. When all these trends are put together, it does seem that it may be too early to be uncorking the champagne to celebrate an economic revival.

There is no denying that the Indian economy will be growing faster this year than in 2002-03. The Reserve Bank of India last week predicted that India's GDP would register a growth of 6.5 per cent to 7 per cent in 2003-04. But there would be something seriously wrong with the Indian economy if growth in a post-drought year were to be less than 6 to 7 per cent. When a "normal monsoon" year follows a "poor monsoon" year, it is to be expected that as agricultural production recovers the GDP growth rate too would accelerate. An additional momentum for GDP growth comes from the higher demand for industrial products and services which accompanies the faster growth in farm production. The situation may well change in the second half of 2003-04, but the trends in the first half of the year are cause for puzzlement, indeed for some worry, rather than any celebration of an economic turnaround. First, we have industry recording only a modest acceleration in production in the first half of the fiscal year. We do not as yet have companies announcing major investment plans, as they would be doing if they felt a revival was taking place. The boom in the secondary stock market is a poor barometer of the immediate prospects for Indian industry since the current spike is being driven more by foreign buyers. There have also been few new equity issues — another indication that Indian industry is not yet ready to embark on making additions to existing capacity.

Secondly, the situation is no different in Indian agriculture. The kharif (monsoon) food crop of 2003 has been placed at nearly 20 per cent more than the drought-afflicted harvest of 2002. Substantial as this year-on-year recovery is, it will not take production beyond the peak scaled in 2001. The rabi (winter) crop may be much larger than in 2002, but the growth may be moderated by the fact that a number of food-producing tracts have received less than normal rainfall. With both agriculture and industry currently showing signs of only a modest acceleration in production, it is likely that 2003-04 will not turn out to be an exceptional year for the Indian economy. This is reflected in the tone of cautious optimism that underlined the RBI's recent assessment of the state of the Indian economy.