The Hindu Business Line : Govt sees growth at close to 5.5% — Mid-year review downplays drought impact

THE Finance Ministry has sought to paint a robust picture of the economy, which, it says, will register a growth of "close to 5.5 per cent" this year, notwithstanding the widespread monsoon failure and uncertainties arising from tensions in West Asia and a generally sluggish global trade environment.

"Prospects for the current year appear brighter than the initial, rather subdued, estimates that followed in the aftermath of a seriously deficient monsoon," the Mid-Year Review, tabled by the Finance Minister, Mr Jaswant Singh, in Parliament today, has stated.

The Review has essentially tried to underplay the impact of drought, which, at most, has only "weakened the growth momentum" observed from around the latter half of 2001-02 to the first quarter of the current fiscal. In fact, GDP growth during April-June 2002, at six per cent, was markedly higher than the 3.5 per cent rate recorded in the first quarter of the previous fiscal.

While noting that this upswing in growth had been somewhat dampened by the "harsh" drought in 14 States, the Review has, however, contended that "the negative sentiment witnessed towards the end of August, subsequent to poor monsoon, has since waned."

The reasons for this are the several "positive developments" in the economy, particularly the success in containing prices, which, in the past, have generally tended to spiral rapidly after monsoon failures. But this time, the inflation rate has been restricted to just about three per cent, with foodgrains, which constitute the wage-goods for the poor, registering little or no price increase.

The other plus points are buoyant exports (up 13.5 per cent in dollar terms during April-September 2002), accumulation of foreign exchange reserves to over $66 billion and a revival in industrial growth (5.2 per cent in April-September 2002 against 2.4 per cent in April-September 2001).

The Review has drawn special attention to the impressive growth rates notched up by core industries such as cement and steel (9.3 per cent and 7.3 per cent, respectively during April-October 2002), apart from the turnaround in the capital goods and textile sectors. Capital goods production has been 8.9 per cent higher during the first half of the current fiscal, suggestive of "a distinct revival in industrial activity."

In the case of textile products (including wearing apparels), the output has surged by 17 per cent during April-September, this year, with exports growing by 6.7 per cent and thereby rendering the $15-billion target set for the fiscal attainable. Further, over 6,000 shuttleless looms have been installed in the first six months of the fiscal, "underlining the upbeat sentiments of domestic investors in textiles."

The Review has attributed the "resurgence" in this industry to the "textile package" announced in the 2002-03 Budget, which includes a five per cent concessional five per cent customs duty regime for 159 critical textile machinery items.

The impressive growth performance of cement and steel has been traced to the higher demand forthcoming from housing and road construction activities. While housing has revived owing to the decline in interest rates and tax concessions granted in successive Budgets, the impetus to road construction has come from the National Highway Development Project, launched in October 1998.

"The NHDP is currently generating daily employment for 2.5 lakh construction workers and 10,000 supervisors," the Review has pointed out, adding that a total length of 5,846 km under the Golden Quadrilateral (linking the four metros) is scheduled for completion by December 2003.

The Review has also claimed that tourism has staged a pick-up of late, with increased foreign tourist arrivals of 2,12,191 in October 2002 against 1,81,605 in October 2001. The underlying source has been the revision of travel advisories by Australia, Britain, France, Japan and the US and the fiscal reliefs provided in the Budget.

All these positive features, the Review has emphasised, are clear indicators of the "resilience that the economy has exhibited in the current year despite several and simultaneous adverse factors," demonstrating its "intrinsic strength."

Even with regard to agriculture, the Review has implicitly challenged the Agriculture Ministry's assessment of a 21 million tonne (m.t) drop in kharif foodgrain output. The estimate of a 13 m.t decline in rice production is especially "somewhat tentative," more so in the light of the marginal jump in market arrivals and procurement so far relative to the levels of last year. According to the Review, the impact of drought has seemingly been limited to rainfed areas and crops such as coarse cereals, pulses and oilseeds.

"If the agriculture sector turns out to be more resilient than what was initially apprehended and the decline in foodgrains production is limited to around 10 m.t, the overall GDP growth in the current year may be close to 5.5 per cent," the Review has added.

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