The Hindu Business Line : Growth pangs

For the final year of its term, the UPA government must accept a lower growth with an emphasis on the distributive aspects of a partly prosperous economy.

Ironic as it may seem, the last year of the United Progressive Alliance (UPA) Government in office is witnessing records of a kind it could do well without. Inflation, at 7.6 per cent and rising, is at a 42-month high. After sustained manufacturing growth, March produced a shocker with industrial growth falling to 3 per cent, a six-year low. The rupee dropped to a 13-month low on fears of a widening current account and an increased demand for dollars occasioned by oil pric e spurts. For the Reserve Bank of India, a stronger dollar means lower liquidity and lesser headaches, but what impact the weaker rupee will have on food imports and overall prices is another matter.

How much should policymakers set store by March’s niggardly industrial output growth? Pitted against 14.8 per cent in the same month of 2007 and considering the almost 80 per cent share of manufacturing in the Index of Industrial Production, a dip of this kind, even after accounting for the “base” effect, should be a matter of concern. The slowdown in industrial activity has been evident since October last and far too many sectors are slowing down than is good for a repeat of the nine per cent growth story. Is it any wonder that consumer durables, one of the drivers of peak performance till fiscal 2006, have fallen from a depressed 3.8 per cent in March 2007 to 2.1 per cent this year? Factor in the lagged effects of the RBI’s recent monetary tightening on top of the probable impact of a weaker rupee on import prices and domestic inflation, and the prospect of even an 8 per cent growth seems dim. Not before time, voices are being heard for a scaling down of growth forecasts. Recently, the former RBI Governor and Rajya Sabha member, Mr Bimal Jalan, hinted that a lower growth of around 7 per cent is more probable with inflation control. Moody’s similarly pegs current year growth at around 7.7 per cent. For the final year of its term, the UPA government must accept a lower growth with an emphasis on the distributive aspects of a partly prosperous economy.

Obviously, inflation fighting is paramount. So is financial inclusion whose skimpy coverage leaves many of the poor and needy in the moneylenders’ clutches. If 81 per cent of India’s villages do not have a bank within 2 km or if 41 per cent of the population does not have a bank account, clearly, that is, as Mr Chidambaram confessed on Wednesday, frightening because it means that the five-year dream run of the economy has left untouched a lot of Indians.

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