'The government is showing good signs'

Jiban K Mukhopadhyay

The year started with expectations, but…

The year started with a lot of expectations, but ended with a kind of disappointment. The Budget brought some euphoria about a high rate of growth. Everyone expected about 6-6.5 per cent growth. But there were a number of rollbacks, so the Budget ended with no impact.

The drought wasn't so bad

Then there was the drought. Initially, it created a lot of negative impact. But then finally, agriculture output was lesser only by 0.5-1 per cent. Everyone says there has been a massive decline in agriculture, but I don't prescribe to that. Even the Reserve Bank of India estimated that the agricultural output would be lesser than 1 per cent. So it is not really that bad. In fact, it proved that the Indian economy ha become monsoon resilient.

PM, FM are not just talking

A large section of the government is aware of the problems the economy is facing. Even the prime minister has stressed the importance of reforms. They are not just talking Thirteen economic legislations have been passed in the winter session of the Parliament and that itself is a good sign.

Divestment will happen over a period of time

The whole Cabinet appears to be divided over the divestment issue. But few things that are sensitive are bound to have oppositions. Some important individuals seem to be too attached to certain oil companies and are earmarking it as sensitive. Ultimately, the political economy is also important. I am not absolutely optimistic about divestment, but it will happen over a period of time. But definitely, divesting non-oil PSUs would be much easier. Nothing seems to have moved much since the 1980s in the area of divestment.

We are doing fine despite the fiscal deficit

In my opinion, the fiscal deficit is not much of a concern since it has been like that since the past 10 years. You and I have been doing fine. Fiscal deficit is seen as the cancer of our society and it is an important issue. If it goes beyond 6 per cent, it can create additional problems. The problem lies in revenue expenditure. One has to wait for the Budget and see how the government handles revenue. Downsizing the government may be one option of cutting down expenditure, but it is very sensitive for the political economy. Political parties have to face people. One has to remember that the middle class is very vocal.

India is not China

Anyone who thinks that we will get massive foreign direct investment is mistaken. India is not China and FDI will not increase. In fact, FDI has been increasing over a period of time. Until now, there was an industrial slowdown. So unless there is an industrial recovery, which has started this year, no FDI will be forthcoming. If our FDI increases to Rs 5-6 billion we should be happy. We should not expect something like Rs 10 million immediately.

Good things are likely to happen

The Index of Industrial Productivity this year is 6 per cent, compared to 2.9 per cent lat fiscal. There has been a revival of industrial output after five years of slowdown. Good things are likely to happen in the industry and the trend is likely to continue for the next five years. It is likely to be more robust in the future. Plus, we don't expect drought next year because usually it doesn't repeat itself. There are quite a lot of strengths in the economy, software is likely to grow by 30 per cent, our foreign exchange reserves are soaring, merchandise exports are going up. Generally, there is an industrial upturn. The manufacturing sector especially automobile, white goods, information technology and telecommunications look promising. In the agricultural sector, particularly fruits and vegetables, which come under the neo-agricultural sector looks promising.

7.5% growth can be achieved

In the next year, we can achieve a 6% growth. Arithmetically, it may not sound too high, but this will for the basis for the 7% growth that we can achieve in the next five years. Later, we can achieve even 7.5 per cent. The intervention by the government is positive. They are coming up with a mechanism by which a higher growth can be achieved. However, if there is a war on Iraq and if it is long lasting, all these numbers will have to be just placed on the table.

J K Mukhopadhyay is Economic Adviser, Tata Services Limited, Department of Economics and Statistics. He spoke to Kanchana Suggu.

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