Let the good times roll

To add icing to what was already a pretty sumptuous New Year's cake, the GDP estimates for the second quarter (July-September) of 2003-04 indicated that the economy grew 8.4 per cent over the previous year.

This is the highest growth rate ever emerging from quarterly numbers, which were first put out for 1996-97. The 8 per cent mark has been surpassed only once, in the second quarter of 1998-99, which saw growth of 8.2 per cent.

Otherwise, the growth rate has never crossed even 7 per cent. So, for die-hard growth rate watchers, this is certainly an occasion to celebrate.

Yes, a large part of the responsibility for this is the rebound in agriculture, only to be expected after the performance of the monsoons this year.

The sector grew by 7.4 per cent, compared to a decline of 3.5 per cent in the same quarter last year. But, to focus on this great turnaround is to miss the larger message of the growth numbers.

Of great significance is the fact that the manufacturing sector grew by 7.3 per cent during the quarter, on the back of 6.4 per cent last year. This marks five successive quarters of growth above 6 per cent, providing growing indications of an industrial recovery that is consolidating itself.

Such stability and persistence are necessary to persuade business people that investing in new capacity may not be such a bad idea after all. For the growth rate watchers who like a little more nuance to their story, this is the more important outcome.

In cricket, a popular cliche is "form is temporary, class permanent". In looking back over the turnaround in the Indian economy over the last year and a bit, it is useful to make this distinction between the temporary and permanent factors that have been at work.

Growth rates will rise and fall because of favourable or adverse temporary factors, like the monsoons, but the issue of sustainability really revolves around how strong the more permanent drivers of performance are.

If the experience of this year provides any lesson, it is that an environment characterised by low interest rates and revived public capital spending provides a very positive stimulus to industry.

Adding on low inflation and the protection offered by food and foreign exchange reserves to this scenario provides a sense of stability that the economy has not seen before.

This is essentially the recipe for sustained industrial growth driven by buoyant domestic demand. External circumstances matter, of course, but not to the point of domination. Keeping this mix going is critical to reinforcing the momentum that the industrial sector has achieved in these last few quarters.

As simple a lesson as this is, it usually takes governments a long time to learn it. The question is, having learnt it once, can it be forgotten?

In a year that will be driven by political compulsions, the best new year's gift that the country's political parties can give to the people is the assurance that they will do nothing to upset this very favourable equilibrium.