The Hindu Business Line : The slowdown

More than pious intentions and identification of plan projects are needed to reverse the alarming trend of decline in manufacturing and core sector growth.

The GDP estimates of 7.6 per cent for the second quarter (July-September) confirm that the economy had begun to slow down even before the global financial turmoil and the domestic liquidity famine of the past two months began to apply their own brakes. That does not augur well for the number that will measure the pace of growth for the full year for which there have been at least three forecasts by different policymakers. Mr P. Chidambaram, the Finance Minister had been mo st optimistic with 7.9 per cent; Mr Montek Singh Ahluwalia had pegged it lower at 7 per cent and the Prime Minister’s Economic Advisory Council smack in the middle at 7.5 per cent. All of them could well prove to be over-optimistic.

The break-up of the second quarter performance data reveals some worrying cracks. While, as in the previous year, services once again bolster the economy with construction growing at a healthy 9.7 per cent and hotels, transport and communication at 10.8 per cent, the slippages have come in manufacturing that grew at 5 per cent, just at half the pace it clocked this time last year. Given the distinct gloom that has descended on industry since October, the next two quarters may just confirm apprehensions of an annual expansion far below the most modest forecasts of policymakers. Those fears are not unfounded if one looks at core sector indices. Growth in mining and quarrying and in electricity have slipped consistently; while the former has dropped to 3.9 per cent from 5.5 per cent a year ago, the growth of electricity, gas and water together has virtually halved from 6.9 per cent to 3.6 per cent. These are primarily publicly funded sectors and offer eloquent proof of just how weak the base for future growth has become. In the light of a growing expectation that governments all around the world have to pump up their respective economies with public investments, what will the policymaker have to show in the face of this sorry record?

They may say one swallow does not make a summer but the CSO data show a steady decline in manufacturing and core sector development. The slow growth of electricity may have also contributed to the sluggish expansion of agriculture at around 2 per cent, far below 11th plan expectations of around 4-5 per cent. To reverse the alarming trend in those critical sectors something more than pious intentions and identification of plan projects will be required; and the sooner the better.

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