• PAGE ONE
• INDEX
• HOME

Tackling slowdown

WITH THE FINANCE MINISTER, Mr Yashwant Sinha, finally conceding that the GDP growth this year would drop by one percentage point to six per cent, the economic slowdown is official.

Other monitoring agencies, such as the National Council of Applied Economic Research (NCAER) and the Centre for Monitoring Indian Economy (CMIE), have already lowered their GDP growth forecasts for 2000-01 to 6.1 per cent and 5.8 p er cent respectively. Now that everyone is agreed on a slowdown, what about the measures to tackle it and bring the economy back on the high growth path?

While the one percentage point drop in GDP growth by itself need not be a cause for alarm, there are other indicators that suggest a prolonged slowdown. Among the more worrisome factors are the marked deceleration in industrial produ ction, and the halting investment flows in crucial sectors such as infrastructure and agriculture, and the decline in the savings and investment ratios. Not surprisingly, the NCAER's business confidence index witnessed its second-largest fall in four years for the quarter ended September 2000. Moreover, while the confidence erosion was only marginal in the previous quarter, it is much sharper in July-September.

The depression was accentuated by the downgrade by Standard & Poor's of India's long-term foreign currency rating, the zooming oil prices and the upward pressure on inflation and interest rates. The rupee has been under considerable pressure fo rcing the country to go for raising the hard currency through the relatively costlier India Millennium Deposit route once again.

According to Mr Yashwant Sinha, the Government proposes a four-pronged strategy to reverse the trend: Contain fiscal deficit, increase exports, speed up reforms, and ensure transparent public administration. The strategy is unexc eptionable but some of the recent actions of the Government do not gel with it. For instance, while advocating financial discipline and cutting down subsidies, the Government decided to shell out Rs 350 crore more to procure substandard paddy from Punjab farmers. This political decision has led to similar demands from other States at a time when the Food Corporation of India (FCI) is bulging with wheat and rice stocks.

The public sector reforms have failed to take off mainly because of the failure of successive governments to formulate a viable exit policy for sick enterprises. The recent Textile Policy failed to abolish the Handloom Reservation Act and the h ank yarn obligation. It has also left hanging the question of privatisation of sick mills under the NTC. There is persistence with reservation of several products for the small-scale sector though all quantitative restrictions (QRs) on imports are slated to go by end next March. Now there are reports of the Government considering a partial rollback of petroleum products prices to appease Ms Mamata Banerjee.

If the Government really means business, it should swiftly move ahead with the so-called second generation reforms. If a beginning is made with the decontrol of the oil sector, privatisation of civil aviation and Maruti Udyog sell off, it would send the right signals to domestic and foreign investors. Large-scale privatisation of PSUs will also relieve the pressure on public finances and enable the Government step up public sector investments in agriculture and infrastructure sect ors, thus helping to improve the overall investment climate.