November 20, 2002
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Money > The Economy: Mid-Year Review - II November 20, 2002 |
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A rebound seems a distant possibilityBS Economy Bureau in New DelhiThe growth rate of gross domestic product in the second half of the nineties has been fluctuating at less than its full potential though neither the two typical constraints of food supply and foreign exchange has been a problem for the economy. The quarterly data on growth rates in the economy show that it is also not a case that investment rate has been low in this period compared with the earlier period. But overall, the resilience of the economy in spite of the global slowdown shows that there is a strong possibility of the country being able to take advantage of any rebound in the external environment. However, in its review of the quarterly trends of GDP, the Reserve Bank of India says the peaks and troughs are influenced by the trend in agriculture. For instance, it says, "Coincident peaks Q2 in 2000-01 and Q4 in of 2001-02 and troughs Q3 and Q4 of 2000-01 in real GDP suggest that fluctuations in agricultural activity set the pattern for the overall GDP growth path." But according to the tenth plan document the GDP growth rate of about 5.35 per cent recorded during the Ninth Plan shows that, while the direct role of agriculture in the growth rate of the economy has declined, that of agricultural income in affecting the demand side of the economy has risen sharply. It adds that in future as agricultural income increases this will have a bigger impact on manufacturing sector as rural India will spend more on these products than on food. The document also adds that savings rate is not a constraint for investment in the economy and consequent growth of GDP. Correspondingly in spite of a rise in the investment activity in the country during the period from 1997-98 to 2001-02, to 26.3 per cent against 24.9 per cent in the Eighth Plan, the economy recorded a lower GDP growth rate. Year on year, the GDP growth rate has however been one of the fastest in the world in this period. During this period, the economy has faced several external shocks including the lingering impact of the east Asian crises, the oil price increase of 2000-01 and the recent world economic slowdown. The last has been exacerbated by the impact of the 11 September, 2001 impact. On the domestic front the adverse security environment which led to a sharp hike in defence related spending, natural disasters including the Gujarat earthquake and the Orissa cyclone were also compounding factors. In the past two years the economy has also had to wrestle with the impact of two poor agriculture years. In this context the healthy growth rate of GDP in the first quarter of the current fiscal, can be considerably slowed by the drought. The quarter was immune to that as the kharif crop had not come in, but in the second quarter and more importantly in the third quarter the impact would be more. The impact can be tempered by the end of the financial year as the economy would switch on its coping mechanism. The quarterly GDP growth rate also shows that in only one quarter, i.e. Q2 of 1998-99 did the economy achieve an 8 per cent growth rate. The next best of 6 per cent came only on 6 occasions out of 21 quarters. This puts in perspective the recently announced target of 8 per cent annual growth rate for the economy by the government. An economic rebound in this circumstances seems a difficult phenomena, especially as the high rates are also largely dependent on the services sector, which has been consistently outperforming the other sectors. But that trend has also been affected by the slowdown in tourism, business and social services and even transport. Powered by ALSO READ:
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