The Hindu Business Line : Growing well

THE ADVANCE ESTIMATES OF GDP growth for 2004-05 vindicate the growing all-round optimism on the economy. The Central Statistical Organisation's data released on February 7 indicate that this year the economy will grow at 6.9 per cent. Just two weeks ago the CSO had revised its GDP growth estimates for 2003-04 from 8.1 per cent to 8.5 per cent. Hence, the estimated growth for this year is on top of a particularly impressive performance last year. The `base effect' — which can take the gloss off even a reasonably good performance in a period following an extraordinary year — has been overcome.

The projected GDP growth rate of 6. 9 per cent comfortably exceeds most official and private forecasts .The Reserve Bank of India had lowered its projections to 6-6.5 per cent, in its mid-year review of the Credit Policy last November. In May it had been upbeat with a forecast of 6.5-7 per cent. The Finance Minister, Mr P. Chidambaram, in his Budget speech last July, had talked of an ever higher growth rate of 7-8 per cent but his forecast, along with most other official ones, was weighed down by an erratic South-West monsoon and the oil shock. The economy did slow in the first half of the year, from a 7.4 per cent growth in the first quarter to 6.6 per cent in the second. The inflation rate, which rose to a high of 8.25 per cent in August, also upset growth calculations. Fortunately the price situation has since been brought under control without major contractionary measures.

But what is particularly gratifying is that economic growth seems broad-based as it is spread across all the three sectors. Agricultural growth at 1.1 per cent may seem modest vis-à-vis industry and service forcasts. But, then, the farm sector was expected to fare worse following a deficient monsoon. Most analysts had predicted a negligible or even negative growth. Also, in 2003-04 agriculture was rebounding with a spectacular 9.6 per cent growth. Monsoon failures the previous years had dragged down agriculture, and along with it the overall growth rate which was just 4 per cent. For the third year in a row manufacturing growth is expected to be robust. The estimates for this year, at 8.9 per cent, reinforce the perceptions of a strong and sustained industrial recovery. The services sector continues to be the growth engine though the estimates for this year at 8.9 per cent are marginally lower than its actual performance last year (9.1 per cent).

A number of related developments corroborate the view that the economy has achieved a degree of momentum. The stock market, fuelled by record inflows from overseas investors, has been buoyant. After a long time the primary market seems to be reviving and that augurs well for capital formation. Banks have been disbursing loans in greater amounts and not just to the retail sector. There is a debit balance in the current account. While the oil import bill has been higher, other imports too have grown, indicating heightened industrial activity. For the momentum to be maintained, however, certain well-known constraints such as on infrastructure will have to be removed. But there is no reason to assume that economic growth this year will be lower than the CSO estimate.

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