The feel-good factor in the Indian economy has now been changed to the feel-very-good factor with the government today projecting a 7 plus growth rate for the GDP during the current year. The Mid-Year Review of the economy announced by the Finance Ministry today put forecast for industry to grow at over 6% during 2003-04, agriculture to grow at over 8% and robust growth in the services sector. The economy seems to be basking in the after glow of a good monsoon and low interest rates every in the last three decades. The Finance Ministry’s projections are more optimistic than what the Reserve Bank of India’s forecast of GDP growth at 6.5-7% for the year had stated just over a week ago. If the new forecasts translate into reality by March as expected, India could be the new South Asian tiger with the fastest growing economy in the region. The review, however, pointed to two main areas of concern: major subsidies including food subsidies, interest payments and bailout of financial institutions which pushed up the subsidy bill by Rs 17,444 crore in the first half of the current year compared to the previous year besides a slowdown in export growth.Exports which grew at 22.3% in the April-September period last year grew at 4.9 per cent during the same months this year. While the review mentioned these concerns, it glossed over some other areas. While stating its commitment to reign in fiscal deficit from last year’s 5.9% of GDP to 5.5% this year, the review pointed out that fiscal deficit — or what simply means excess government expenditure over its income — up to September 2003 had surged to Rs 81,014 crore, 52.7 per cent of the current year’s Budget estimate compared to 42.6 per cent last year. Interest payments and major subsidies had increased in absolute terms, their rate of growth over the previous year had come down. This could be a positive trend if it is maintained till the end of the year but it was the growth in the pension bill which was alarming — from 1.8% growth in the first six months last year to 13.3% this year. Another cause for concern is how the food subsidy burden has risen from Rs 2,800 crore in 1992-93 to Rs 27,800 crore this year. The other bad news is that FDI inflows which were at $1.56 billion during April— September last year were down to $ 0.99 billion this year. Also, while industrial growth is good news, a close look at the segments of industry show that other than consumer durables and the manufacturing sector, growth rates in other sectors like mining, electricity production, basic and capital goods and consumer non-durables had decelerated. Highlighting its commitment to structural reforms, the review says that ‘‘a reform of regulatory regime was essential not only for accelerating growth of investment and output but also for promoting adequate employment, enhancing efficiency and maintaining macro-economic stability.’’ Listing the reform initiatives in several areas the review said: • Financial sector reforms with commencement of interest rate derivatives • Securities Contracts Regulation Amendment Bill to facilitate demutualisation and corporatisation of stock exchanges. • SEBI has started bringing corporate bond market under modern standards of transparency, anonymity and disclosures. • National highway development programme largely on schedule. • Passage of Electricity Act would place the sector on a sound market-oriented footing • Reforms in telecom sector have ‘‘increased competition and choice.’’ Cellular mobile tariff for 400 minutes per month dropped 59% between December 2000 and June 2003. • For the first time in three years, current account deficit of $1.2 billion. Good news since it meant higher imports, reflecting sharp revival in industrial activity. • Forex reserves close to $93 billion. Its recommendations include: • Top priority to review limits on foreign direct and portfolio investments • Labour reforms, SSI reservations and administered interest rates on small savings schemes. • Stable export policy sustained only if domestic price of foodgrain aligned with international prices. • Need to consider allowing private exporter directly procuring foodgrain from farmers to encourage competition and efficiency.
