The week in review — Surveying the remains of an economy

The survey offered some depressing figures. In 1997-98, GDP grew by 5 per cent as against 7.5 per cent in 1996-97. With low economic activity, inflation grew by a low 5 per cent. Foodgrain production fell by 5 million tonnes in 1997-98. Subsidies reached Rs 19,644 crore as a proportion of revenue receipts, they grew last year. Gross dissavings by Government rose from Rs 7,380 crore in 1996-97 to Rs 8,572 crore in 1997-98. Gross investment (from Budget funds) fell by around 0.6 per cent ofthe GDP. Its projections for the future were not too cheery either. Like last year, this year’s economic growth is also likely to be poor. And with huge Government dissavings, interest rates will remain high, and will curtail investment growth. The solution it offers is to invest in infrastructure, and to keep Government expenditure under control.

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 anegative growth rate of 1.8 per cent. During 1997, the aggregate number of investment intentions 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.

Rail on track

A sensible Railway Budget was presented after a long gap. For the first time in many years, the Railway Minister resisted the temptation to raise freight rates while keeping the passenger rates the same.

By keeping freight rates almost constant, the Railways hopes to attract around 20 million tonne extra, which will translate into an additional revenue of Rs 1,000 crore for the Railways. Rates have also been adjusted to make them cheaper for long-haul traffic. In keeping with past tradition, commodities like foodgrain, edible oils and salt have been left untouched.

The Budget has put the annual plan size of Railways at Rs 9,500 crore, an increase of Rs 1,200 crore over the previous year’soutlay. The budgetary support has been fixed at Rs 2,200 crore, an increase of Rs 369 crore over the previous year’s level. Market borrowing has been slightly enhanced to Rs 2,900 crore in the Budget, but the figure could prove difficult to achieve given the prevailing market conditions.