The Hindu Business Line : Stagnation amid growth

It is that time of the year to pause and review; and this exercise is especially interesting this time around. It is only three months for the end of yet another Plan period, the Tenth Five Year Plan, one that undoubtedly propelled India onto the global centre-stage. The UPA Government is half way through its five-year tenure. The economy is doing rather well, going by GDP numbers and such indicators as the Sensex, investments and foreign exchange reserves. Yet, concerns abound — of lopsided growth, inflation and pervasive poverty.

These problems demand strong remedial action. Yet the Mid-year Review of 2006-07 not just defended the robustness of economic growth but dismissed fears of over-heating as "more imaginary and less real". More important than the debate on over-heating, are we doing the right things to ensure there is no over-heating? No doubt the Review is a neat report card that highlights economic performance and points to euphoria in some sectors; but it is poor consolation for large masses directly affected by shortages of essential food products, and the rising prices. Inflationary pressures are dismissed as temporary phenomenon created by "commodity-specific supply problems related to products like wheat and pulses". It may be a statement of fact, but the truth goes beyond temporary supply setbacks. Recent policies and programmes have failed to inject vigour into the sluggish farm sector and to put much-needed incomes in the hands of more than half the population — the workforce engaged in agriculture and related activities. The contrast is stark — double-digit growth rates in manufacturing and services sectors, and less than 2 per cent in agricultural and allied areas. Indeed, with farm ouput and population growth rate almost equal, it effectively means no growth in the per capita availability of farm produce.

The country cannot afford to ignore the emerging big picture and underlying threats. Inflation concerns are here to stay. Despite claims to the contrary, there are uncertainties over Rabi crop production, including that of wheat, pulses and oilseeds. International grain and vegetable oil markets are in a bullish fervour. Conditions point to a further rise in prices of food products. Weather aberrations and rising biofuel demand combine to tighten the availability of many food crops. Besides the tight fundamentals, geopolitics can any time cause a spike in crude oil prices. India's policymakers need to recognise the risks and find solutions proactively. On the supply side, instead of initiating long-term measures, the country is constantly engaged in fire-fighting. There are lessons to be drawn from the experience of this year when the government, despite signals, failed to anticipate inflationary problems and delayed initiating remedial measures. There is strong need to hone government's commercial intelligence capability.