Indian economy- the march continues

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Ashok Handoo | 29 Nov, 2010
The forward march of the Indian economy is continuing on the expected lines. The comfortable indicators promise to drive the economy out of the slowdown it faced in 2008-9, when the growth rate dipped to 6.7 per cent, after experiencing a 9 per cent growth for five consecutive years.

The most gratifying is the fall in food inflation which has been coming down consistently for the last five weeks and has now touched the 17 month low of 10.3 per cent. It stood at about 14 per cent in the corresponding period last year.

High food inflation has been a major source of worry to the Government for the past one year as it has been hitting hard the poorer sections of the society. Fall in food inflation is attributed to a better Kharif crop leading to increased supplies of agricultural products in the markets. With the end of the rainy season, disruptions in production and supplies of agricultural commodities have also ended. Economists believe that the stage is now set for food inflation to come down to a single digit soon. It was first witnessed in July this year but that was a brief relief.

The Centre for Monitoring Indian Economy (CMIE) has, in its latest report, estimated a 10 per cent rise in Kharif crop to 114 million tonnes against a 2 per cent decline a year ago. It estimates the Rabi crop to rise by 2 per cent, compared to 1.7 per cent drop in the last season. That should be quite reassuring for the country.

A good monsoon at 102 per cent this year, led to increase in sown area by 7 per cent during the current Kharif season, said the CMIE. It thus predicts an all round rise in agricultural commodities with oilseeds expected to grow at 11 per cent, sugarcane at 15 per cent and food grains at 5.3 per cent.

All this has naturally led to easing of pressure on the headline inflation as well. It has thus come down to a 9 month low at 8.58 per cent in October against 8.62 per cent in September. The Government expects the overall inflation rate to fall to 5-6 percent by the end of this financial year.

It is in this backdrop that forecasters have revised upwards the growth rate for India this year. RBI’s professional forecasters have predicted the growth rate at 8.5 per cent this fiscal. It had put the figure at 8.4 per cent earlier.

Other economic parameters also are showing encouraging trends. FDI inflows during September rose by 40 per cent to $ 2.11 billion. Net capital inflows are expected to reach $ 91 billion by the end of this fiscal. Last fiscal, this figure was only $53.6 billion. The Government expects to touch the target of one trillion dollars in public- private investment in the next five years.

The remarks made by the Chairman of the World Economic Forum Klaus Schwab at the just concluded India Economic Summit in New Delhi, were therefore in line with the ground situation. He said “at a time when the world is searching for a new model of economic development India’s experience as a crucible for new types of economic growth gives it a special role among developing economies.” The conference took note of the fact that amid the slowdown in the world economy, India stood alongside China to register impressive growth rate.

At the leadership summit in New Delhi too, former British Prime Minister Gordan Brown said that the Indian economy will double in size in next 7 years and that achieving a 10 per cent growth is possible. India’s role at the G-20 is ‘absolutely critical’ and is right at the centre of discussion, he said.

India and China provide a huge market to the world. While the US and Europe account for 20 per cent of world’s consumption, India consumes less than 1 percent while China stands at 3 percent.

A fall in food inflation and slackness in industrial production could now perhaps prompt the Central bank to ease its tight money policy which it has adopted to control inflation. Obviously, the bank will look at other indicators as well at its policy review meeting on December 16.

What is of concern is the sharp fall in industrial growth to 4.4 per cent in September, against 8.2 per cent in September last year. This was because of a slackening in the manufacturing sector which forms about 80 per cent of industrial production in the country. But the fact that industrial growth stood at over 10 per cent in the first six months against 6.3 last year, gives confidence that it would improve in the coming months, more so when agriculture is showing a rebound.

The challenge however remains to ensure inclusive growth to enable the marginalised sections of the society to share the fruits of development. As Dr. Manmohan Singh put it at the Leadership Summit, welfare of vulnerable segments of the society, reducing regional imbalances and increasing social and economic opportunities for backward classes, minorities and women remains the key challenge for the country. The Government has taken a number of steps in this direction which should help in achieving the objective. Its flagship programmes like the Mahatma Gandhi National Rural Employment Guarantee Act are doing wonders to reach to the economically weaker sections in rural areas. Similar other programmes need a push to speed up the process.

* The views expressed by the author in this feature are entirely his/her own and do not necessarily reflect the views of SME Times.