GDP down, but survey plays down political uncertainty

Though it was too early to assess implications of sanctions following India’s nuclear tests, the survey said the negative reactions of some countries had rendered external economic environment less friendly and urgent steps were required to ensure macro economic stability and rapid and sustainable growth.

The Survey, however, has played down the impact of political uncertainty and mid-term elections on the industrial growth. The growth as measured by index ofindustrial production during April-February 1997-98 was 4.6 per cent as against a healthy 7.7 per cent in the previous year. This was contributed to by a mere 4.2-per cent growth in manufacturing during 1997-98. The previous year manufacturing had grown by 9.3 per cent.

While ascribing the reasons for the slowdown, the survey mentions uncertainty in the domestic arena at the end. The main reasons for the slowdown put forward by the survey are excess capacity build up in some sectors in earlier years; tight monetary policy during 1995-96 and associated high real interest rates; slump in capital markets which hurt fund mobilisation efforts; decline in exports and; uncertainty in international arena.

The drop in industrial growth was also a result of meagre growth of 0.7 per cent and 3.9 per cent in mining and electricity generation, respectively. Domestic investment suffered and capital goods sector performed poorly with a negative growth rate of 1.8 per cent. During 1997, the aggregate number of investmentintentions filed were down to 4194 compared to 5347 in 1996. The proposed investment committed under them was about 40-per cent lower in 1997 at Rs 61,907 crore compared to over Rs 1,03,210 crore last year.

Foreign investment on the other hand showed an upward trend. FDI worth Rs 12,036 crore came in 1997 compared to Rs 8440 crore in 1996. Also infrastructure area accounted for over 57 per cent of the FDI approved since 1991.

Foreign currency assets increased by $ 3.6 billion to attain $ 26 billion reserve by march 1998. Total foreign exchange reserves including gold and SDR’s amounted to $ 29.4 billion till March 98. But increase in foreign currency assets was less by about $ two billion as it was $ 5.3 billion in 1996-97, it said.

The Balance of Payments situation remained sound in 1997-98 but the stability of the rupee was disturbed in the last week of August 1997 when the currency market experienced a contagion effect of the currency turmoil in South East Asia.

The Survey doesn’t give the latestperformance figures of public sector units but underlines the efforts to give them autonomy. It notes the recommendations of the Disinvestment Commission on 41 PSUs and says that these are under various stages of implementation.

Giving the performance figures of select industries during last year, the Survey notes that the production of crude oil was up marginally while that of steel fell as compared to last year. Crude oil production was 30.9 million tonnes against 29.9 million tonnes last year while steel produced was 22.6 million tonnes compared to 22.7 million tonnes.

Fabric production was up by 6.8 per cent while production of processed fruits and vegetable rose by 13 per cent.

Despite a slowdown in export growth, the current account deficit is expected to be 1.5 per cent of GDP. While exports decelerated to 2.6 per cent in 1997-98 from 5.3 per cent in 1996-97, import growth too decelerated to 5.8 per cent as against 6.7 per cent in the previous year.

The survey said the economic fundamentalswere reasonably strong unlike the East Asian countries which were rocked by the currency crises as India’s current account deficit was much below their average level of five per cent.