India Heads Fast In Exports
06 Dec 2008 | Category: uncategorized | Author: admin
India Story Just Got Better
Within a week (31 Dec.-7 Jan), the UPA Government has revised the GDP growth estimates for both, the previous fiscal as well as for the current year. The FY04 estimate was raised from an already impressive 8.2% to an even better 8.5%, and the forecast for FY05 was raised from 6-6.5% to 6.9%. The improved performance for the previous fiscal is not surprising, as it was on a low base, and a bumper harvest. But, to have an economy grow at nearly 7% on an extremely high base is just superb. What makes the upward revision in the current fiscal's growth projection even better is that the farm output this year will be much lower than last year's production. Agriculture growth this year will shrink to a negligible 1.1% versus a solid 9.6% in the previous fiscal. Still, the overall impact on the economy will be much lower, thanks largely to the robustness in industrial and services sectors. This is quite a departure from the past, when a significant drop in farm output invariably led to an equally big decline in the manufacturing growth in that year and in the following one. In the decades before the 1990s, total GDP would actually fall on account of poor agricultural growth. That this negative trend has been reversed is definitely a welcome sign for the Indian economy.
The last time the Indian economy went through such a purple patch was in the investment-led boom of the mid-1990s. The latest data too suggests that the ongoing buoyancy in the Indian economy is driven by greater investment. One statistic that puts this in perspective is the growth in the manufacturing sector. It is projected to expand by 8.9% in the year 2004-05, as against a healthy growth of 6.9% in the previous year. Between April-November 2004-05, the Index of Industrial Production (IIP) grew by 8.4% compared with 6.4% in the year-ago period. In October, it grew by as much as 10%. Manufacturing was up a whopping 11.3% in October. Whatever slowdown is being witnessed in the IIP is due to lower growth in mining and construction
dependent on agriculture, whose fortunes are still tied with the southwest monsoon. The Indian economy has become considerably resilient, and can sustain a growth rate of at least 7% without much help from the rain gods
Another side of the Indian economy that looks to be on a roll is the services industry. It now accounts for over 50% of the GDP, and has emerged as the major source of employment generation. Financing, insurance, real estate & business services is likely to grow by 7.1%, unchanged from the previous fiscal year. Trade, hotels, transport & communications sector is expected to clock a growth rate of 11.3%, a tad lower than 11.8% last year. The role of services has assumed a lot of significance even as that of the agriculture has diminished considerably. Together with the industrial sector, the services have become a major driving force for the Indian economy. With both of them doing extremely well and no signs of any big hiccups on the horizon, one can concur that India can maintain a growth rate of around 7%.
That is not to suggest that agriculture is not important for the economy. Though agriculture now comprises just about a quarter of India's GDP, it provides employment to some 70% of its population. All the more reason for the Government to come up with sound policies that will ensure stable and sustainable growth in the farm sector, irrespective of how bad the monsoon is. In light of this, the National Common Minimum Programme (NCMP) devised by the Congress-led regime seems to have its heart at the right place. It calls for large-scale investment in the rural sector and has already committed to boosting credit to the farm sector. Due to time constraint, Finance Minister P. Chidambaram could not implement the NCMP agenda for the rural sector in its entirety. But, he is expected to announce a series of measures in the upcoming budget to give a major fillip to the rural sector. The success of these steps will be crucial for achieving a higher GDP growth rate over a sustainable period of time. That's when India will be really shining.
Summary
The Mid-Year review of the economy has raised hopes and expectations to push the economy to the 10% GDP growth rate. What is needed at this stage is a significant increase in new investments that will accelerate growth, particularly as India has a potential to become a developed nation in the next 10-15 years. The key strategy of the Government therefore should be to create an investment climate favorable for both domestic and foreign investors, promote good governance and continue with the internal tax reforms. The liberalised economic and taxation policy so far followed by the Government has facilitated the Indian industry to restructure and become competitive in the International market. The recent initiative taken by the Government to enter into various Trade Agreements, including duty free trade with selected countries, will provide further opportunities to expand our external trade. In the context of this trend of removing barriers to external trade, it is imperative that effective measures are also taken to remove the tax and other barriers to internal trade and make India a Common Economic Market. We must also remove the cascading effect of taxes on indigenously manufactured goods to make the Indian industry competitive. To accelerate demand, the tax rates should be moderated.
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