Still to grow up

The CSO’s revised estimates for GDP growth in 2005-06 have come on top of two years of high growth. According to the estimates released on Wednesday, in 2005-06, GDP is estimated to have grown at 8.4 per cent. Earlier, 2003-04 saw GDP growing at 8.5 per cent, while 2004-05 witnessed 7.5 per cent GDP growth. Agricultural growth picked up sharply from 0.7 per cent to 3.9 per cent. The fastest growing sectors were manufacturing at 9 per cent, construction at 12.1 per cent, trade, hotels, transport and communication, at 11.5 per cent and financing, insurance and real estate, at 9.7 per cent. The data confirms that India continues to be among the fastest growing economies in the world today.

The last three years of high growth have been accompanied by high investment activity. Investment projects outstanding, as measured by the CAPEX data base, today stand at Rs 2,871,016 crore, or 89 per cent of GDP. This bodes well not just for this year, but for the coming years as well. In the absence of a global economic crisis, not only can the growth rate in India be sustained at 8 per cent, it can be increased to 9 per cent sustained growth if the government addresses problems in vital sectors like power and infrastructure.

However, the recent downturn in the stock market, in which Indian indices fell more than in the rest of the world, should not be ignored. The stock market mirrors sentiments about the economy. The bad news that is flowing from the government on quotas, on large scale social welfare programmes, and the hold of the Left on the UPA, have created an image that reforms in India are now on hold. If the UPA wishes to see an 8 to 9 per cent GDP growth trajectory in the next three years, it must give clear signals that reforms are on track. Measures on capital account convertibility, trade liberalisation and the new pension system can go a long way in giving the right signals in the immediate future, as the country continues to grapple with more difficult reforms like labour and land use over the next few years.