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A Long Road To Recovery
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Stimulus packages notwithstanding, the impact of the global financial crisis is beginning to tell on the performance of the Indian economy: third quarter GDP growth (October to December) has gone down to and annualised 5.3 per cent — the lowest in six years.
These numbers fly in the face of the advance estimates of GDP growth for 2008-09 (FY09) put out earlier in February, which projected the economy to grow at 7.1 per cent.
Some senior government officials say that they are “not perturbed” by these growth numbers; the chief statistician of India, Pronab Sen is more candid, saying that now the growth for FY09 will be in the region of 6.5 to 6.8 per cent.
The economy grew at an annualised rate of 7.9 per cent and 7.6 per cent respectively (see ‘Dwindling Numbers’) in the first two quarters of FY09.
The latest numbers put out by the Central Statistical Organisation (CSO) show that in the first nine months of FY09 the economy grew by 6.9 per cent; growth for the fourth quarter will have to be around 7.7 per cent to enable an overall growth of 7.1 per cent for the full year.
Such a growth rate does not seem possible, says Sen, given the performance of agriculture and industry, especially exports.
The CSO data is alarming: growth in agriculture and manufacturing is negative: (-)2.2 per cent and (-)0.2 per cent, respectively.
While the contraction in manufacturing has been captured by the slump in the index of industrial production (IIP) last year, figures from the department of agriculture and cooperation were used to work out the third quarter growth numbers — during the kharif season of 2008-09 rice, coarse cereals and pulses recorded growth rates of 3.4 per cent, (-)13.2 per cent, and (-)24.7 per cent, respectively.
Among commercial crops, the production of oilseeds declined by 21.2 per cent during the kharif season of 2008-09; production of cotton and sugarcane is also estimated to decline by 14.4 per cent and 16.6 per cent, respectively during FY09, the CSO says.
But for a growth of 17.3 per cent in the “community, social and personal services” — which according to Partha Mukhopadhyay, senior fellow at the Centre for Policy Research, is largely on account of the implementation of the Pay Commission recommendations — the third quarter growth would have been lower. The very same segment grew at 8.5 per cent-7.7 per cent in the previous two quarters, he says; if that rate had prevailed in the third quarter, the overall growth rate could have been even lower at 4.3 per cent rather than 5.3 per cent.
So where is India’s growth story heading? Just a few days ago, Reserve Bank of India (RBI) Governor D. SubbaRao said in Tokyo that it was “clearly beyond debate” that “this Great Recession of 2008-09 is going to be deeper and the recovery longer than earlier thought”. He also put the past five years in perspective, saying that while “India clocked an unprecedented 9 per cent growth”, things had changed dramatically: the “global crisis will dent India’s growth trajectory as investments and exports slow”.
In January, the Prime Minister’s Economic Advisory Council projected growth in 2009-10 to be “between 7.0 per cent and 7.5 per cent” after factoring in the impact of “monetary easing, fiscal stimulus and other administrative measures including reprioritisation of public expenditure and accelerated implementation of the infrastructural projects in the pipeline”.
But according to Mukhopadhyay, a crucial element of the stimulus accounts for a very administrative measure — that of government spending on rural roads, etc. Given the slowdown in highway/road construction over the past few years, will this actually materialise?
(Businessworld Issue Dated 10-16 March 2009)