The Hindu Business Line : Poised for faster growth?

On the prospects for the economy during the year, the Mid-Term Review cites the scaled-down growth range of the RBI (6 to 6.5 per cent) for 2004-05 and says that "even at a relatively lower growth rate of 6 per cent plus for the current year, India will continue to be one of the fastest growing economies of the world". Admittedly, the farm sector's growth prospects have been doused a bit by a less-than-abundant monsoon. But, even so, the overall growth outlook for the economy "has been strengthened by the resilience displayed by industry and services".

THE Mid-Term Review of the Economy — the conduct of which is a statutory obligation on the part of the government under the Fiscal Responsibility and Budget Management Act 2003 — comprises the official view on what has transpired in the economy over the first six months of 2004-2005 and what is in store for it in the remaining part of the year.

The overall objective is of course to keep watch over the progress made or the slip-ups that have taken place in attaining the FRBM Act's stipulations, the basic thrust of which is to keep the fiscal deficit under control. So what does the latest such exercise have to say about economic performance and prospects till March next year?

During the first six months, according to the Review, agriculture was beset with an abnormal South-West monsoon which was 13 per cent in deficit. Consequently, the kharif crop is faced with a marginal shortfall which, however, is likely to be offset by a good rabi performance, the overall result being that the farm sector output "can be expected to be flat or only marginally lower in the current year".

This will no doubt be an important influence on the overall growth rate because of the crucial role agriculture plays in the wider Indian economy.

Even so, the review feels that the adverse effects of the unsatisfactory performance on the farm front will be more than compensated by the growth notched up in the industry and service sectors, the overall outcome for the year being "reasonably bright".

Statistically, in the first quarter of 2004-05, all three sectors — agriculture, services and industry — recorded higher growth of 3.4 per cent, 9.5 per cent and 6.8 per cent, respectively, against 0.1 per cent, 7.4 per cent and 6.0 per cent in the corresponding period of 2003-04.

As for GDP, the economy grew by 7.4 per cent against 5.3 per cent in the two periods being compared. If comparisons have to be made with the growth performance in other economies, the review takes pride in stating that the Indian economy would continue to be "one of the fastest growing economies in the world in recent years".

In the sphere of agriculture, the Review provides some details on the kharif and rabi performance, but focuses on the stock situation and a gradual revival of the open market trade in grains.

It says that though the foodgrains stock level at the beginning of the year opened at a level that was 12 million tonnes less than that a year ago, actual stocks during the first six months of 2004-2005 were "consistently above" the buffer stock norm of 18.1 million tonnes (in October it was around 20 million tonnes).

The comfortable stock situation was the result of good procurement and lower offtake during the period in question. As for the growing signs of a revival of market trade in foodgrains, the Review says that this has been the result of a concerted effort on the part of the authorities to restrain "the increase in the minimum support prices of principal cereals in the last three seasons combined with the success in bringing down the stock of foodgrains to levels commensurate with the buffer requirements".

Thus, one result of this has been that the market price of cereals and paddy have consistently remained above their MSPs (minimum support prices) in different parts of the country in 2004-2005.

Industrial performance in the first six months has been consistently higher than in the corresponding previous period with the manufacturing sector registering a growth of 8 per cent in each of the six months (except for May).

Similarly, the Index of Capital Goods Production and the consumer durables output maintained a steady double-digit growth over the performance of each month in 2004-2005 (except for May with regard to consumer durables).

The performance of the automobile sector has been specially cited, exports going up by 35.3 per cent during the first six months (passenger cars 41 per cent, commercial vehicles 90 per cent and two-wheelers 35 per cent). The increase in the inflation rate compared with 2003-2004 has been commented on with the burden of responsibility being squarely put on the fuels and metals sectors.

An erratic monsoon and the truck strike have been cited as reasons for the rise in the price of essential commodities since August 2004.

On the state of the Centre's finances, the Review says that the fiscal deficit was Rs 53,235 crore in April-September 2004 against Rs 81,014 crore in the corresponding period of 2003; the revenue deficit was Rs 59,951 crore against Rs 65,427 crore respectively; and there was a primary surplus of Rs 2,164 crore against a primary deicit of Rs 29,208 crore respectively.

On the revenue side, the net tax revenue of the Centre was Rs 77,860 crore during April-September 2004, that is, Rs 12,803 crore more than the April-September 2003 figure. The Plan expenditure was Rs 53,274 crore (37 per cent of Budget Estimate 2004-2005) against Rs 46,890 crores (39 per cent of BE 2003-2004) in the respective periods.

The Review says: "While it is a matter of satisfaction that the pace of Plan expenditure accelerated in vital sectors like agriculture, education and rural development as well as in physical infrastructure like roads, the slow pace of expenditure in the energy sector is a cause of concern".

As regards non-Plan expenditure, it was Rs 1,42,299 crore (or 43 per cent of BE 2004-2005) during April-September 2004 against Rs 1,70,211 crore (54 per cent of BE 2003-2004) during April-September 2003.

If the unbudgeted capital expenditure under the Debt Swap Scheme of last year is excluded, non-Plan expenditure in the respective periods was 42.8 per cent and 43.3 per cent of the 2004 and 2003 Budget Estimates.

Turning to the prospects for the economy during the year, the review cites the scaled-down growth range of the RBI (6 to 6.5 per cent) for 2004-2005 and says that "even at a relatively lower growth rate of 6 per cent plus for the current year, India will continue to be one of the fastest growing economies of the world".

Admittedly, the farm sector's growth prospects have been doused a bit by a less-than-abundant monsoon. But, even so, the overall growth outlook for the economy "has been strengthened by the resilience displayed by industry and services".

Singling out the petroleum sector, the Review says that threat to price stability and structural reform of the sector from the phenomenal rise in world crude prices persists, "but perhaps with reduced intensity".

The Review concludes with a call for the continuation of sustained efforts at further structural reforms and fiscal consolidation. No doubt, the signals in the industrial and services sector augur well for the economy, but agricultural diversification is a must "not only for directly benefiting the large majority of the people dependent on agriculture but also (for the benefit of) the industrial revival through forward and backward linkages".