The Hindu Business Line : Economic Survey — Upbeat, but tinged with caution

The Economic Survey 2007-08 is both a document on the prescriptive policies that should push India into a higher economic growth trajectory, as well as a diligent examination of the pace and pattern of growth of the past fiscal, broadly, till December.

This is likely to be a momentous year for the economy, which is slated to cross the $1-trillion mark at current market exchange rate and is poised to battle recession in major economies of the developed world. This in the backdrop of the strengthening rupee, which has affected exports and distorted trade deficits, and the steady upward sweep of crude oil prices triggering firm trends in the inflationary spiral and unhealthy fluctuations in the capital market amidst talks of de-coupling.

Evaluating the performance of the current year, the Finance Minister, Mr P. Chidambaram, said that the 8.7 per cent growth perceived for the current year should be viewed with optimism and caution.

This note of caution is manifest in the trade deficit as international crude prices continue to scale new highs. The toll on the exporters was aggravated by the strengthening of the rupee, which has appreciated 8.9 per cent (April-February 2007-08) against the dollar. This has also had a cascading impact, widening the trade deficit further.

Re-energising agriculture

As food production has not been on expected lines, food-grain prices have continued their relentless climb, strengthening the inflationary spiral. Regarding agriculture, the Survey notes with concern that “there has been a loss of dynamism in the agricultural and allied sectors in recent years.

A gradual degradation of natural resources through overuse and inappropriate use of chemical fertilisers have affected the soil quality, resulting in stagnation in yield levels.” It suggests a second green revolution, especially focusing on rain-fed areas as the solution to increasing productivity and returns to the people dependent on fringe areas for their livelihood.

However, the note of optimism is strong when evaluating the industrial scene, services, and financial and capital market achievements of the current year. The Survey notes that substantial irrigation potential has been created in the country and the benefits are becoming evident as non-food crops have exceeded their production targets.

Industrial growth

The industrial sector has shown ebullient growth, attracting accelerated growth in Foreign Direct Investments, and has achieved 70 per cent growth in the export sector for the year. Bank credit is up and the capital market was sizzling at all-time highs till recently.

Taking per capita income and per capita consumption as the broad parameters to measure growth in public welfare, the Survey states that the per capita income is projected to grow by 7.2 per cent and per capita consumption by 5.3 per cent in 2007-08.

Foodgrains

However, the Survey noted with caution that the rate of growth of foodgrain production has decelerated to 1.2 per cent during 1990-2007, which was lower than the annual growth of population at 1.9 per cent. Though this need not necessarily translate into a Malthusian nightmare for Indian agriculture, it has resulted in a decline in per capita availability of cereals and pulses for the population.

The per capita consumption of cereals has fallen to 412 grams per day, indicating a decline of 13 per cent, while pulses consumption declined to 42 grams per day, a 33 per cent fall.

However, the government was hopeful that the increased area under irrigation would turn the tide in favour of agriculture through increased production and productivity. But it has also realised that, to sustain and accelerate the pace of economic growth, greater financial inclusion is a primary tool to bring rural India at least close to urban India.

Economy

On the broad macro-economic canvas, the Economic Survey assures that the India growth story can proceed briskly as the revenue and fiscal deficits appear to be within reach. But there is a note of caution when it states that revenue buoyancy is in part the performance of an economy well-knit into the global economy.

Global developments have an even greater bearing on India now then ever before. And this caution comes in the back-drop of a major slowdown expected in some of the world’s major economies.

While suggestions like setting up private agricultural banks in rural areas with substantial foreign investment have cropped up, it is a far cry from the realities of rural India. To make such suggestions constructive and realistic, the rural environment has to change dramatically.

There has to be an innate demand for credit, which should be deployed in productive pursuits and bank deposits that reflect the rural surplus, which is still not quite in evidence.

This demand would be the natural outcome as rural India and Indian agriculture mature and become more productive and sustainable activities.

Suggestions apart, foreign investments into rural India, whether in banking or insurance, will come in only when investors perceive that there is a legitimate demand and when their investments yield returns. Even the existing banks in rural India often find the going tough.

Given the political arithmetic that the Government is handicapped with, the prescriptive policies spelt out in the Economic Survey are likely to remain a wish-list this year as well. Suggestions to allow foreign equity in retail trade, allowing private sector into coal and phasing out of controls on sugar, fertilisers and drugs are most likely to fall through.