Last year, the gross domestic product (GDP) touched 5.6 per cent thanks to a good agriculture production. However, this year, because agriculture production has gone down, GDP too is estimated at a low 4.4 per cent. A good agriculture year followed by a bad one has become common, putting the economy in an uncomfortable position.
One positive factor is the recovery in industrial production in the current year. But in the last few weeks, this growth seems to have plateaued out. The Economic Survey does suggest this in two-three lines.
I have a feeling that industrial recovery is going to come under threat. The question is whether we will be able to achieve the Bharatiya rate of growth of 5.7 per cent in 2003-04 which is the average growth rate of the last 23 years.
Agriculture is expected to pick up in the coming year, but I am not sure about industry. We are somehow not able to move above the Bharatiya growth rate. However, one thing is sure: The GDP growth in 2003-04 will be higher than the advance estimate of 4.4 per cent for the current year.
As pointed out by the Survey, two areas where the economy is doing well is the external sector and inflation control. The government has been successful in bringing about some reforms in the external sector which has led to convergence of interest rates. Exports, too, have picked up after a slowdown experienced last year.
Although, the finance ministry resumed tariff reforms in the last Budget, it remains to be seen whether it sticks to the earlier statement of reducing peak rates to 25 per cent.
Another thing not clear from the Survey is what the FM would do in the foreign direct investment (FDI) front. There are no suggestions on sectoral ceilings. Since the finance ministry has now been given charge of the foreign investment promotion board (FIPB), there are indications that the Budget would have something on FDI liberalisation.
But we dont know how far the FM would go.
While the Survey talks about the importance of industrial growth and investment growth, it does not provide any clear policy linkage. One way in which industrial growth can come about is through opening up the FDI front. While this would give a boost to particular sectors opened up, it would have a positive effect on industry in general.
The Survey observed that a reduction of 475 basis points in the interest rate has not increased credit off-take. What it has not noted is the fact that the reduction has not been fast enough. If reduction is too slow, its impact will not be there. If the government wants to have results, it should bring down interest rates faster.
It has also been noted that the gap between deposit rates and lending rates has gone up as loan rates have come down very little in real terms. But the Survey doesnt mention that government oligopoly in the sector is actually responsible for this. The simple solution of introducing competition in the sector has not been provided by the Survey.
(The author is Director, Indian Council for Research on International Economic Relations. He was till recently senior economic adviser, ministry of finance. He spoke to Amiti Sen.)