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NEW DELHI, June 18

THE National Council of Applied Economic Research (NCAER) has projected the real GDP (gross domestic product) growth rate during the inaugural year of the Tenth Plan at 5.5 per cent, as against the eight per cent growth rate per annum for the five-year period outlined in the Approach Document of the Planning Commission.

In its latest review of the economy encompassing the first quarter (April to June, 2002), the Council said a combination of normal monsoon, a drop in nominal lending rates by 0.5 percentage point, depreciation of the rupee by 5 per cent, changes in tariff and tax rates and the expenditure programme as indicated in the Union Budget and the global economic outlook suggest a growth of real GDP in 2002-03 by 5.5 per cent.

The inflation rate measured by wholesale price index (WPI) is estimated at 4.5 per cent higher than the prevailing rate. Industrial output is projected to recover to 5.9 per cent. Export and imports are projected to show a modest increase of about 8.5 per cent and 7.6 per cent respectively.

It said the main interest in the current fiscal year's economic scenario towards the end of the first quarter is in the prospect of a revival of industrial activity, though a shadow of uncertainty from security concerns linger. The policy framework for the year contained in the Union Budget, Monetary Policy and Exim Policy suggests an objective of fewer major changes in policy as the approach appears to be one of consolidating the process of financial sector liberalisation and providing greater push for exports.

However, the Council took note of the fact the recently announced "accounts'' estimates of revenues for the year 2001-02 have turned out to be lower than the revised estimates of the Budget by almost Rs 10,000 crore raising the estimated fiscal deficit of the Union Government to close to 6 per cent of GDP. The Council said investment activity is yet to show evidence of upturn, though recovery in exports and rural consumer demand are likely to revive aggregate demand.

Reduction in real interest rate and sustaining reform process would be the factors that would sustain investment activity.

The Council noted that agricultural output growth is projected at 3.5 per cent for 2002-03. But the agricultural price policy presents "a serious dilemma requiring urgent steps to prevent wasteful outcome of large foodgrain stock''. Though some changes in the cropping patterns were expected after the liberalisation of farm trade, the problem is that a great deal of the changes that have been witnessed in the recent past is the result of government-induced price policy which is inconsistent with the international price regime.

"The possible solutions to deal with this situation area more balanced and objective approach, particularly in announcing support prices, fixing need-based targets for procurement, taking up food for work programme on a more extensive sale, pushing open market and export sales more effectively'', the Council argued.

On capital markets, it said restoring confidence in the Indian financial sector to provide adequate returns and to ensure protection from scamsters would be essential for the revival of the domestic capital markets. Delays in providing this assurance would impact on the performance of the economy, the Council cautioned adding that dispirited capital markets raise the cost of capital to new investments, besides reducing the wealth of shareholders affecting consumption as well as investment.

Finally the Council said that leading economic signs provide "mixed signals'' but recent trends in production of core infrastructure sectors, tax collection and exports are encouraging and industrial growth is critical for fiscal health.

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