Financial Daily from THE HINDU group of publications
Friday, Oct 10, 2003
Industry & Economy
8% growth target difficult without reforms: NCAER
New Delhi , Oct. 9
THE National Council of Applied Economic Research projects the growth of gross domestic product (GDP) at 7.1 per cent in 2003-04.
It contends that it is difficult to achieve a targeted growth of 8 per cent in the Tenth Plan "without reforms", even as the Government is quite optimistic of achieving 8 per cent economic growth rate in the Plan period in general and in the current fiscal in particular.
In its latest quarterly review of the economy, the council said that agriculture and services emerge as the major drivers of growth in the 7.13 per cent GDP estimate scenario for the current fiscal.
Agriculture is estimated to grow at 7.05 per cent over last year's decline of 3.1 per cent. Services growth (trade, financial services, business services and public administration) is expected to be 8.01 per cent. Infrastructure (electricity, gas, water supply, transport, storage and communication) is likely to grow at 6.54 per cent. Manufacturing is expected to grow at 6.21 per cent and mining and construction at 5.89 per cent.
Stating that the average GDP growth for 2003-04 to 2007-08 is likely to be 7.05 per cent, the council said the GDP growth in the next fiscal is expected to decline from its level in 2003-04, as agriculture growth would decline. However, services, infrastructure and manufacturing would be main drivers of growth after 2003-04.
Expressing doubts over the 8 per cent GDP growth postulated in the Tenth Plan, the council said that "with the derailment of the disinvestment process it is almost certain that reforms would remain on the backburner till the general elections in 2004".
Prices are expected to increase in the current fiscal by 4.3 per cent and 4.4 per cent respectively for wholesale price index and consumer price index.
Inflation this year is likely to be higher as compared to 2002-03 and during 2003-04 to 2007-08 it is expected to be around 4.5 per cent.
The council said exports are expected to grow by 9.85 per cent in rupee terms, consistent with the present year's target as far as the medium-term export strategy goes.
But, an upturn in industrial activity is likely to spur imports and imports are likely to grow by 20.61 per cent in rupee terms this fiscal, it said adding that this would result in a current account deficit (0.6 per cent of GDP) this fiscal, after two years of current account surplus. But in the medium-term, on average, the current account might turn surplus.
The Government finances might improve slightly. On average, during 2003-04 to 2007-08, the fiscal deficit of the Centre is expected to grow by 11.32 per cent.
But due to a higher GDP growth, the average fiscal deficit to GDP ratio might decline to 5.3 per cent, as compared to 5.9 per cent in 2002-03.
The council is of the view that the bumper crop is not expected to depress the prices to the extent that it might hurt growers because food stocks are down and the Government would increase procurement.
Food Corporation of India is planning to open 100 new procurement centres in States where farmers are currently not getting the benefit of the minimum support price scheme.
Thus as rural income improves, industrial segments having high rural market exposure might well make further inroads into the countryside.
But the downside of this could be an increase in the fiscal deficit as the food subsidy grows more than expected, the council cautioned.
On industrial growth, the council notes that while a consolidation of the current turnaround of Indian industry in the short run is very much on the cards, its continuance in the medium term is still "a question mark in view of lack of investment demand and the poor fiscal scenario at the Centre".
On the recent Cancun Ministerial of the WTO, the council said its failure has come as a major disappointment.
"The only possibility of resuscitation of multilateralism within the WTO lies in the belief that 148 members would act sensibly to reach a meaningful consensus by December 15, at Geneva. Given that there were only about 90 days between Cancun and Geneva, this looks unlikely", the council said in a note.
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