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Indian economy on recovery path, say economists

Shahid K Abbas in New Delhi

A short-duration debate on the state of the Indian economy organised by the Confederation of the Indian Industry, in New Delhi on Thursday, stressed the need for accelerating the reform process to achieve and sustain a higher growth rate.

The participating economists agreed that Indian economy is set to grow at a higher trajectory as there are clear signs of recovery.

Dr Shravan Nigam, economic advisor, ministry of commerce and industry said that the prospects of economic revival were indeed good with the GDP expected to grow at 6-6.5 per cent this fiscal.

"The increase in the agricultural growth by 6.9 per cent in 2001-02 would give a boost to the agro-based industries," Nigam said, while pointing to the growth in rural demand, and maintained that with the development of roads and infrastructure given a priority, outside producers will find accessing rural market much easier.

"With major sectors showing signs of recovery, India's exports have registered a growth of 10 per cent in the first two months of the current financial year as compared to last year's negative growth," said Nigam, adding a rapid growth in the manufacturing sector would give a boost to the overall industrial output.

Elaborating on various factors that were responsible for the revival of the economy, Nigam said the divestment process initiated by the government provided a level playing field for the private sector participants and the interest rates, which have been high in India, would come down with the Reserve Bank of India following a soft interest rate policy.

Referring to the effect of the inflow of cheap imports, especially from China, Dr Nigam said Indian corporate should improve their efficiency and productivity to survive in the global competition.

Nigam insisted that Indian entrepreneurs should produce low-priced goods so that even those living below the poverty line could afford them, and added that there was a vast potential for growth in the segment of low-priced goods.

Dr Bibek Debroy, director, Rajiv Gandhi Institute for Contemporary Studies, felt that "the drop in the poverty level in the national data from 36 per cent in 1993-94 to 26 per cent in 2001-02, the sharpest since independence, was an indicator of the fact that Indian economy was on an upward trend.

The improvement in the literacy rate, which had gone up to 65 per cent in 2001-02 as against 52 per cent in 1991 was also a positive feature, he added.

The third factor in India's favour, Debroy argued, was the slowing down of the population growth to 1.9 per cent at present. It is further expected to come down to 1.5 per cent in the next decade.

He was however of the opinion that GDP growth would be stuck in the 5.5 per cent to 6.5 per cent band, unless the reform process was accelerated. The fiscal deficit would also vary between 5 per cent to 6 per cent and unless reforms in the agricultural sector takes off, it would be difficult to sustain a higher GDP growth, as two-thirds of the country's population was employed in the agriculture sector, Debroy pointed out. The reform in the agricultural sector, he felt, should be in the areas of procurement, food supply and distribution process.

Prof Subhashish Gangopadhyay, head of the Centre for Research for Economic and Social Studies, CII, said that the government, instead of following other economic models, should evolve its own model suited to Indian conditions.

Gangopadhyay felt that there should be a change in the mindset and the divestment and privatisation process should be aimed at putting in place an efficient economy, and not raising resources to bridge the fiscal deficit.

In order to achieve higher growth, he identified governance, infrastructure and the social sector as the three most critical areas. A lot of good capital, he said, was tied up in bad industry. He also disputed the notion that growth was kicked off by large industries and said it is generated only in small and new enterprises.

Sunil Kant Munjal, chairman, CII Economic Affairs Committee and managing director, Hero Corporate Services Ltd, said in his welcome address that low inflation rates, soft interest rate regime and large stocks of food grain, were some of the indicators of an economic revival.

"Indirect tax collections are on the upswing, in the last three months, indicating that industrial activity has increased and activity on the infrastructure projects, has also increased. For the first time in 23 years, India has recorded a current account surplus (of $1.35 billion) as against a deficit of $2.58 billion in 2000-01," he emphasised.

However, there was still a huge unfinished agenda and the actual strength of this revival and the ability to sustain it over a long period would largely depend on the speed with which the government resolves these issues, he added.

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