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As regards growth prospects for the current fiscal, the RBI has struck an optimistic note, with the present climate for industrial revival mirroring a "distinct improvement" and the agriculture sector appearing set to rebound from an absolute decline in output last fiscal.

Mumbai , Aug. 27

IS the Indian economy becoming `weather-proof'? Yes, to a certain degree, feels the Reserve Bank of India (RBI).

For, despite the supply shock delivered by the debilitating drought to the agriculture sector in the last financial year, the growth of real GDP has been 4.3 per cent. This, the RBI feels, is "symptomatic of the resilience and a degree of weather-proofing of the economy."

The RBI annual report, which was released on Wednesday, has pointed out that it was the broad-based revival in industrial activity and resurgence of growth in the services sector that sustained economic activity during the last fiscal.

With a prolonged dry spell cutting a deep swathe in production of foodgrains and non-foodgrains in 2002-03, the index of agriculture production recorded the steepest decline since 1979-80. Foodgrain production fell from 212 million tonne in 2001-02 to 182.6 million tonne in 2002-03 — while rice production dipped from 93.1 million tonne to 75.7 million tonne, wheat production plummeted from 71.8 million tonne to 69.3 million tonne, coarse cereals from 33.9 million tonne to 26.2 million tonne and pulses from 13.2 million tonne to 11.3 million tonne during this period. "Sharp fluctuations in agricultural activity in India have characterised the past decade with agriculture making a negative contribution to real GDP for the fifth year since 1990-91," the RBI report points out.

According to the RBI, the inadequacy of private investment in filing capital requirements of agriculture has raised concerns over the widening gaps in rural infrastructure, which "could become binding constraints on growth." The current scenario of rural infrastructure is "far from encouraging", with about 40 per cent of the net cultivated area being covered by irrigation and about 60 per cent of India's villages being connected by all-weather roads.

The RBI feels that it was important to explore new frontiers in technology, focussing on evolving location-specific and economically viable varieties of agricultural and horticultural crops by leveraging developments in the field of bio-technology.

On the industrial front, the RBI report has pointed out that the index of industrial production rose through the first half of 2002-03, boosted by rural demand, before levelling off in the second half of the year. The manufacturing sector, which dominates India's industrial performance, manifested a distinct improvement, which actually led the industrial recovery, contributing 86.2 per cent of the growth in the overall industrial production. And leading the upsurge in manufacturing were the five industry groups, comprising beverages, tobacco-related products, basic metal and alloy industries — these industry groups contributed 75.3 per cent of the growth in the manufacturing sector.

In regard to the services sector, the RBI has pointed out that services had "regained their role as the principal driver of the Indian economy, accounting for 89.4 per cent of the real GDP growth in 2002-03." The share of services in GDP moved up to 56.1 per cent in 2002-03 from 54.6 per cent in 2001-02. This was caused by a surge in construction, financing, insurance, real estate and business service activities — in fact, this had outweighed the deceleration in the growth of trade, hotels, transport and communication services, which constitute a little less than half of the services sector.

India, the RBI report points out, maintained its internationally competitive edge in the production and exports of IT services, with revenues from this stream surging by 26 per cent in the last fiscal. IT-enabled services grew at 65 per cent during the year, primarily on account of increased outsourcing by US firms to cut costs and to improve bottom lines.

On savings and capital formation, the RBI report has thrown light on a "major area of concern," which is related to the "unprecedented deterioration" in the rate of public sector saving. From a high of 2 per cent of GDP in 1991-92, the public sector saving has slipped to the other side of the fence, recording a negative saving of 2.5 per cent in 2001-02, posing a constraint on growth.

As regards India's growth prospects for the current fiscal, the RBI has struck an optimistic note, with the present climate for industrial revival mirroring a "distinct improvement" and the agriculture sector appearing set to rebound from an absolute decline in output that was recorded last fiscal.

While describing the targeted average annual growth of 8 per cent envisaged in the Tenth Five Year Plan as feasible, it, however, cautioned that the future growth strategy would hinge on a combination of increased investment and improvement in efficiency, apart from rapid dismantling of policy constraints, procedural rigidities and price distortions. "In these efforts, achieving a growth rate of 6 per cent in 2003-04 becomes a critical minimum," the RBI report has pointed out.

The overall industrial growth in the first quarter of the current fiscal has been 5.3 per cent, as against 4.3 per cent that was recorded a year ago. The cardinal indices of industrial activity indicate a "stable growth ahead," with expectations of fresh capital investments in existing projects, increase in capacity utilisation and stabilisation of inventory levels. The financial performance of the private corporate sector also reflects a "substantial improvement" in terms of sales and profitability, according to the report.

Things look bright on the export front, with export demand expected to pick up during the next six months, bolstered by a "realistically valued exchange rate.

However, notwithstanding the increased focus, the infrastructure sector has not delivered bright tidings, with growth in this sector touching 4.1 per cent in the first quarter, as against 6.2 per cent recorded during the corresponding period of last financial year. Further, the basic chemical and chemical products sector has also shown a decline, as also the basic goods segment on account of the mining sector.

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