The Hindu Business Line : Economy on song, but...

THE ECONOMY HAS started the financial year rather well, with a sterling first quarter performance. Indeed, it is the best first quarter growth in eight years. Weather gods permitting, a high growth in the first quarter usually helps the economy end the year on an even more robust note. All available evidence suggests that this could well be the case. The South-West monsoon has performed quite satisfactorily. The levels in the major reservoirs are substantially better than last year. A strong agricultural performance, without the cushion of a low base of output, thus seems a distinct possibility.

But unprecedented or not, the current performance does nothing to alleviate the larger concerns about the state of the economy. For, there is nothing to suggest that the phenomenon of a volatile and monsoon-dependent performance, which has been its characteristic all these years, has disappeared and that the economy is set on a sustainable high growth path. The manufacturing and services sectors, which together account for roughly 75 per cent of the total output, are still far too dependent on the domestic disposable household incomes, the software and IT-enabled services sector's export performance, notwithstanding. Since the bulk of the population lives in the rural areas and depends on agriculture and allied activities one way or the other, the performance of the farm sector is crucial for reasons that are perhaps not quite evident from a mechanistic analysis of the data on sector-wise composition of the national output. Clearly, the rural household incomes have to be scaled up sharply. The Government faces a daunting task. With a large landless workforce and a big chunk of even those who own some land falling under the `small' and `marginal' farmer category, securing stable incomes would require a complex web of policy initiatives.

Conventional thinking on a strategy for fostering economic growth has typically two components. One, it envisages improving farmers' access to credit so that more land can be brought under assured irrigation or through community programmes of micro-irrigation or rain water harvesting. This would be supplemented by such initiatives as better extension service, improved post-harvest practices, agricultural marketing reform, industry-farm interface for food processing and so on. In more recent times, commercial cultivation of bio-fuels has been identified as a way to enhance rural incomes. The last one holds tremendous promise and, what is more, bids to divert to rural homes money flowing out as payments for imported fossil fuel. The country needs a focused national common minimum agenda of development action that cuts across many shades of political opinion. Until that is achieved, the gains from a dramatic rise in output would be nothing more than statistical oddity in a sea of mediocre growth rates.

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