FE Editorial : Good domestic politics

Written by The Financial Express | Updated: May 31 2009, 04:43am hrs
UPA II can begin its work in earnest backed by an encouraging bit of economic news. The latest figures from the CSO peg GDP growth for 2008-09 at 6.7%, better than most estimates had suggested, although lower than CSOs early estimates. The figure for the fourth quarter was 5.8%, a sign that things have stabilised after the frantic last three months of 2008. If these estimates are an indicator of things to come, then we could end 2009-10 with a growth rate at the upper end of the spectrum of predictions. We may not return to the 9%-plus of the UPAs first four years in power, but we wont fall to sub-5% levels, either. Of course, what the final growth figure for 2009-10 will be is also a function of the governments policies from now on.

There is still no hiding the fact that manufacturing has taken a beating in 2008-09. Compared with a growth rate of 8.2% in 2007-08, manufacturing only grew at 2.4% for the whole of 2008-09. In fact, the IIP has been pretty dismal over the last few months and the positive growth for the whole financial year is courtesy the performance before September 2008. The interest rate regime still remains tight for firms in manufacturing and the new government must do its best to facilitate lower lending rates. It will, of course, be a while before exports pick up, but the early signs of recovery in the US are encouraging. The UPA recorded excellent rates of growth during the first four years of it first tenure; yet, it hesitated to take ownership for that fine performance. But, hopefully, the election result will convince it that growth does win votes as well and, importantly, it helps finance those large pro-poor spending programmes that are also vote-winners. A persistent slowdown in growth will drain the government of resources and lead to a dire situation on the fiscal front. The government will, understandably, be reluctant to cut its social sector spending. Therefore, now is the time for UPA II to ride the agenda of growth and push growth rates up. Some quick reform measures, preferably in the Budget due in Julyincluding disinvestmentwill signal in no uncertain terms a desire to move in that direction.