Indian Economy Poised to Register Good Growth in 2003-04
S. Sethuraman
For the first time in last three years, the Indian economy seems to be regaining its high growth momentum, on the strength of a good monsoon-led agricultural upswing, the steady recovery in industrial output, partly sustained by the rise in exports, and continuing expansion in the services sector. There has been an impressive revival of business confidence, reflected in the country's stock markets, and global perceptions about India remain buoyant.
Projections for GDP growth in 2003-04 by IMF and the World Bank are above 5.5 per cent while the Reserve Bank of India says its earlier estimate of 6 per cent would be "significantly exceeded". Based on the latest data, growth is expected around 7 per cent. It would mark a return to the high growth of mid-l990s.
India's macro-economic stability has been highly appraised everywhere and the strong fundamentals have imparted resilience in the face of periodic shocks, mainly external. The strengths are food self-sufficiency and stocks (now a little over 30 million tons), low level of inflation (below 5 per cent) and the extraordinary buildup in India's foreign exchange reserves reaching close to 92 billion dollars by November 1, 2003. However, it is recognised that there has to be greater investment, domestic public and private, and international, along with resumption of structural reform process for the country to tap its full potential.
In the current year, foodgrain production is expected to revert to the 2001-02 level of over 210 tons, recovering from a drought year, manufacturing is maintaining a 6 per cent growth and exports are clocking a double- digit growth. The monetary policy has been accommodative for growth with adequate liquidity and soft interest rates which are at their lowest in several years. All these with the benign inflation environment point to a higher level of economic activity being sustained.
In a global perspective, India is one of the major players in developing Asia, the fastest growing region even though the world economy has only just begun to recover. India is getting gradually integrated with world economy in terms of trade and investment inflows but the pace would get accelerated with the growing demand for the country's software skills and other IT-related services through outsourcing by major international firms.
India's share of trade in services is rising faster than goods, and software exports totalling 9.6 billion dollars together with over 14 billion dollars of remittances from Indians abroad in 2002-03, contributed to the surplus on current account of 3.7 billion dollars for the second year in succession.
The brightest spot in the post-liberalisation economic scene is the build up of foreign exchange reserves. Though continuing inflows impact on the exchange rate of the rupee which has appreciated to some extent in relation to the US dollar, the Reserve Bank keeps monitoring currency movements and intervenes when necessary to ensure that there is no undue volatility in the exchange rate movement, keeping in view its competitiveness for exports. RBI says a sufficiently high level of reserves is necessary to safeguard against unanticipated pressures on balance of payments or external shocks.
India's strong position has enabled it to become a creditor to IMF and some external loans have also been pre-paid - three billion dollars in 2002-03 and another three billion being repaid in the current year.
In the long run, what is more important is to strengthen India's position and status in world trade. This explains the recent initiatives by India and other developing countries in the Doha Round at Cancun to secure greater access to the markets of developed nations which are heavily subsidising their farmers and shutting out products of primary concern for poor countries. Although India is yet to hit one per cent as its share of world trade, which is likely to be realised by 2007, exports and imports have risen as a ratio of GDP from 21 to 33 per cent within a decade.
 Foreign direct investments are currently averaging five billion dollars a year including re-invested earnings. With its capacity to absorb large investment flows, given the infrastructure requirements, the policies and procedures are continually liberalised so that India could attract not less than 8 to 10 billion dollars in the coming years. One of the proposals in this regard is raising the cap on foreign investment from 49 to 74 per cent in the telecom sector.
Overall, there is optimism about the medium-term prospects for the economy based on the current thrust given to roads and telecommunications, the reform of the power sector becoming a high priority for both the Centre and the States, the new gas finds and production-sharing investments abroad, and above all, the projected rapid advance in the IT sector, in both software and hardware. There have to be conscious efforts to increase the rates of domestic savings and investment toward the Tenth Plan (2002-07) targets for the coveted eight per cent GDP growth.
As the Prime Minister pointed out in a keynote speech at the Columbia University, New York, in September 2003, India is becoming a production base and an export hub for diverse goods, from agricultural products to automobile components to high-end services. Indian manufacturing firms can be part of global production chains which would enable them to import sub-assemblies and add value and re-export them.
The Government remains fully committed to the process of structural reforms, the Prime Minister said. But it must take note of the debate in the country on the pace and sequence of reforms as well as make efforts to cushion the impact of reforms on the poorer sections of society. 'We have tried to reconcile competing interests and avoid sudden disruptions in our economy. We believe that reforms following a democratic consensus are enduring". Shri Vajpayee added.
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