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Friday, Jul 02, 2004

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Heady growth, but...

WITH A GROWTH rate of 8.2 per cent in output of goods and services in 2003-04, India has lived up to its international billing as the second fastest growing economy, marginally behind China. Certainly, the latest CSO (Central Statistical Organisation) numbers will not hurt India's prospects in emerging, along with China, Brazil and Russia, as one of the new economic powerhouses of the world in half a century, as a Goldman Sachs report claimed recently. But satisfying as these numbers undoubtedly are, even justifying a bit of self-congratulation, there are certain aspects to India's recent economic performance and its context that the policy elite can ignore only at the peril of sacrificing the future well being of the people.

Take the output numbers themselves. It is clear that the growth rates in the manufacturing and services sectors have been broadly consistent with past trends. In the event, the exceptional growth in output was aided largely by a dramatic 9 per cent surge in agricultural output this year in contrast to the more modest rates of growth posted by this sector in the earlier years. But it would be unrealistic to expect agriculture to record similar rates of growth this year or, for that matter, in the years to come unless there is some structural shift in the underlying fundamentals of the agrarian economy, such as a sharp spurt in public outlays or a dramatic technological breakthrough impacting crop yields. But the social imperative of providing opportunities for the ever-increasing numbers entering the job market requires that the nation sustain an 8-plus rate of growth year after year given the existing relationship between incremental output and employment. The question then is: Where is this incremental output going to come from?

Given the existing linkages among various sub-segments of the economy, all the three principal sectors — agriculture, manufacturing and services — have to contribute in proportion to their relative shares in the overall output. Nothing can be further from the truth than the notion that the software and IT-enabled services sector can deliver us from the crippling burden of unemployment and the attendant mass poverty. Equally, there is little doubt that sustaining the current level of growth for any length of time would call for increased public outlays and the simultaneous unshackling of the private sector from constraints that inhibit it from committing resources.

A hike in public outlays in the absence of any structural reforms in the government machinery can only lead to higher deficit spending at a time when there are serious doubts if the current levels are themselves sustainable. As for policy constraints to private investments, a willingness to take on politically the challenges posed by entrenched vested interests is a must. The official confirmation that the year just gone by is a period of exceptional performance by the economy is no doubt an occasion to rejoice. But, equally, it is a moment for the sobering reflection that there is a huge unfinished task as well.

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