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Saturday, Oct 19, 2002

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Unwarranted pessimism

APPARENTLY, THE CMIE (Centre for Monitoring Indian Economy) is being too pessimistic, too early in projecting a low, 3.1 per cent GDP growth for the current year. Also, there are reasons to doubt its basic assumption of farm production dipping in a drought year by 7 per cent. First reports of a severe drought now stand tempered to dryness in certain geographical pockets, and neither the Government nor any statistical agency has the wherewithal to measure the damage beyond crude guesses that may mean nothing.

End-July, the Government was telling Parliament of prices of certain agricultural commodities ruling below the minimum support prices (MSP) at some centres while production costs were moving up. In a predictable response, import duties on farm items have been going up with that on rice up from zero to 80 per cent, on maize from zero to 50 per cent and on apples from 35 per cent to 50 per cent. Bankers are working on the same doubtful premise of severe drought reducing the fund absorbing power of the farmers. Perhaps, this is the best time to push bank funds into the farming sector, and anyway all banks are below the 18 per cent norm for agricultural advances. To top it all there are at least nine major watershed programmes run by the Agriculture Ministry and these can be strongly activated to contain the spread-effects of any drought. In the last Budget, the then Finance Minister, Mr Yashwant Sinha, promised a single market for agriculture along with amendments to numerous other acts. He also suggested linking transfer of Central funds to States with reforms in the farm sector, it being a State subject. As of now, neither the Centre nor the State governments has moved in the matter. But, then, farmers do not dominate the agenda. How many farmers or representatives of the services sector sit on the PM's Economic Advisory Council? Indian economy is somehow equated with the doings and blunderings of the corporate sector alone. Corporates are unsure of growth impulses beating strongly in the coming months. Yet, cement manufacturers in the western region have raised prices (by cutting production) and steel prices seem to be edging up going by the performance of Tata Steel and the market trends. The housing boom is yet to impact consumer durables though some believe supplylines are drying up and that restocking could take place ahead of Diwali.

Mergers could make industry efficient though it may not spur fresh capital investments. Corporates have also become wiser over cash management and at least the better managed have become stingy enough to trim demand for bank funds. Some bankers think interest rates can only go up and that could happen some time in the last quarter of the current year. The sheer lure of a huge market (many dub it the advaitic maya) still tugs foreign investors to Indian shores and many a multinational has prefered to accept huge losses for future profits as it sees Indian roads paved with rupees. The economic trends, despite the Vajpayee Government doing nothing about reforms, could surprise many observers.

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