A K Bhattacharya: Predicting 2006 and beyond

NEW DELHI DIARY

The year was 1989. P N Dhar, an economist and a distinguished economic administrator with vast experience, was asked to forecast the way the world would evolve in the 1990s.

The Berlin Wall had just fallen. The Soviet Union would take two more years to disintegrate. Mikhail Gorbachev was at the helm ushering in reformist policies of glasnost and perestroika, although these were causing some internal turmoil. China had begun its economic reforms a few years prior to that, but the massive pro-democracy movement by its students and the manner in which it was crushed raised a few uncomfortable questions about the Asian giant and its future.

Prof. Dhar did not take long to respond to the question and outline his thoughts on the way he saw the future. It would be very difficult for Gorbachev to manage both glasnost and perestroika at the same time, said Prof. Dhar. China, he said, was wiser. It knew glasnost could roll back the process of perestroika. So, China had a better chance of succeeding than the Soviet Union, which could face problems on the way.

In retrospect, Prof. Dhar's forecast was nothing but prophetic. The Soviet Union disintegrated by December 1991 and China continues to march along on its path of higher growth and economic prosperity.

Forecasting is indeed a difficult task and not everyone can be as prophetic as P N Dhar. In spite of that, as 2005 draws to a close, it might be interesting to look back and wonder if any one of us could have correctly predicted in December 2004 where the Sensex would rest a year later or how the foreign institutional investors would behave during 2005 or whether the Doha Development Round discussions convened by the World Trading Organisation (WTO) would succeed in breaking the deadlock over agricultural subsidies.

For the record, the BSE Sensex has spurted by 2,700 points in the last 12 months (a rise of about 40 per cent). The FIIs pumped in over ten billion dollars as investment in Indian stocks, almost 30 per cent more than what they invested in 2004. Five years ago, they had invested only a little more than a billion dollars. And when everyone had predicted through 2005 that the multilateral trade talks were doomed to failure, the WTO ministerial meeting that just concluded in Hong Kong early this week has hammered out an understanding that will take the Doha round forward. This too is a pleasant surprise.

There are many more such surprises. The Indian economy grew by 8.5 per cent in 2003-04. Riding on the "India Shining" campaign based on that magic number, the BJP-led National Democratic Alliance (NDA) went to the general elections in 2004. That the NDA lost is not because the growth numbers were false. There were other political reasons responsible for the NDA's defeat. But it is also true that the NDA's loss made the successor government""led by Manmohan Singh""a little defensive about claiming or projecting higher growth.

Could India's gross domestic product (GDP) maintain a similar high growth rate in 2004-05 as well? That was the big question then. But proving the sceptics wrong, India's GDP grew by 6.9 per cent in 2004-05. In January 2005, when the reality of two successive high growth years dawned on the Manmohan Singh government, nobody was betting on a third successive year of high growth.

Much of the current calendar year was, thus, spent speculating on whether the GDP growth rate in 2005-06 would be below 7 per cent or even lower. But the growth rates in the first two quarters of the current financial year have made everybody relook the numbers and 2005-06 might well clock a growth rate of 7.6 per cent, according to some estimates.

That might raise average annual GDP growth in the first four years of the current Tenth Five-year Plan to 7.4 per cent. This may still be lower than the Tenth Plan target growth rate of 8.1 per cent. But who knows what may happen in 2006? The optimism generated by the first two quarters' growth figures in the current fiscal has already made the planners' task more difficult. A target of 8 per cent growth for the Eleventh Plan starting 2007 does not appear to be exciting any more. There is a demand for fixing a growth target of ten per cent. Will anyone forecast 10 per cent growth for the Eleventh Plan?

At the start of 2005, even the die-hard optimists had concluded that the Left's stiff stance on the question of disinvestment had put an end to any further offloading of government equity in public sector undertakings (PSU). Much to everyone's surprise, disinvestment is back on the government's agenda today. Year 2006 is set to see more PSUs, some of them even profitable, offloading their government-owned shares in the market.

The hard truth is that no one can forecast with any certainty what 2006 has in store for us. Will the investment rate of 26 per cent of GDP go up to sustain higher growth? Will the infrastructure sector be able to attract at least part of the $150 billion of investment that the Prime Minister had talked about a year ago? And will India's IT and BPO industries be on track to boost their annual earnings to $60 billion (up from $18 billion now) in the next five years?

These are important questions. For, whatever happens in 2006 might well define the India that you will see in the next decade.