The macroeconomic fundamentals are fairly strong, too. Despite the drought, the GDP growth this year is estimated at between 5 and 5.5 per cent, against 5.4 per cent for 2001-02. Agricultural output has taken a hit and growth rates are put variously between a marginal growth of 0.5 per cent to a decrease of less than (-)1 per cent. But this has been offset by strong performance in the services and industrial sectors, which kept overall GDP figures buoyant.
Industrial growth rate picked up to 5.5 per cent during April-October 2002 against 2.5 per cent during the same period in 2001. The growth in the industrial economy was spurred by the strong performance of the consumer non-durables segment, followed by capital goods and textile products. The big question now is whether industrial recovery can be sustained in the coming months. Going by current trends, it should be. The external sector rebounded during the year, with merchandise exports clocking a growth of 13.7 per cent in the first seven months of the year; the trend should pick up further momentum now. This, together with the larger earnings from services exports, have helped to sustain a surplus in the current account in the first quarter of the year. This is all the more creditable because oil imports bills increased by 15 per cent during the year, with international oil prices hardening substantially for a good part of the year.
So, here we have a major breakthrough. I would emphasise these figures particularly to demonstrate the resilience of the Indian economy: We have rising exports and a current account surplus in a year when we faced a major drought and international oil prices went up sharply. A couple of decades back, such a deadly combination of developments would have wrecked havoc in India. Compared to that, today, forex reserves are at an unprecedented high of $67 billion, foodgrain stocks at 51 million tonnes and we have an inflation rate of 2.7 per cent (up to November). The mood is certainly upbeat and the stock markets are showing signs of coming back to life.
The current state gives rise to expectations that the government will carry forward with its economic reforms programme. Because, despite the comfortable situation now, we cannot let up on our efforts to introduce the pending reforms. In fact, going by indications given in the Mid-Year Review of the Economy released by the Union finance ministry, there are some areas of concern that must be addressed immediately. The Review talks of the governments resolve to initiate some structural reforms and there could not have been any better time than now to push ahead these measures.
Two areas remain major concerns: slow pick up in investment demand and fiscal management. Though higher investments in some areas have boosted overall demand for capital goods, there is little major fresh investment to add new capacity. The Review has noted this, observing: Sustained growth of output and employment requires a step up in domestic investment. Streamlining regulations further, particularly in the states, will play a critical role in augmenting investment. In this context, the recent moves to attract more FDI is the right approach to supplement domestic savings.
The other area that needs greater effort is fiscal consolidation. This is somewhat related to the performance of the overall economy. The Review pointed out that as much as 40 basis points in slippage in fiscal deficit was on account of GDP under-performance. Hence, an approach to push up growth rate along with a greater emphasis on expenditure control should help in fiscal consolidation. Here again, it is important to pull up our socks not only in Central finances, but also in the states. If anything, the latter requires more determined effort. Once again, this is the best time to start.
There is reason to believe that the government will carry forward the reforms agenda. During the current session of Parliament, a number of critical bills have been passed. Amidst all this, however, it is important to remember the exact context in which Indian industry is operating and calibrate the entire reforms programme in that light.
Dr Mitra is secretary general, Ficci.