The moderate inflationary expectations may continue through 2002-03
The Economic Survey has presented a weak recipe for growth. Although it acknowledges that "the key problem facing the economy is the reinvigoration of growth in the current decade", it has hardly suggested any strong measure for catapulting India into the high-growth orbit."The momentum achieved in the 1990s must not be lost," says the Survey, stressing the need for policy initiatives and deepening of reforms in the areas of infrastructure, industry and agriculture to stimulate growth.
The survey, however, feels that recovery in the world economy along with India's renewed policy focus on agriculture reforms, introduction of private insurance companies and pension funds, rapid take-off of liquidity and continuation of reforms will help reinvigorate the economy.
The recovery in the world economy in the current calendar year would expand international trade and rejuvenate Indian export growth. As the world economy picks up, the deflationary trend in commodity prices and manufactured products would also reverse resulting in improved profitability for the Indian manufacturing sector.
The introduction of private insurance companies and pension funds will ensure greater institutional participation in the privatisation and disinvestment process. It would also help remove some of the difficulties in the capital market.
The equity derivatives market is an important new milestone in offering a new set of vehicles for risk management and speculation to all economic agents in the country. The successful market design, the Survey feels, can now be extended to other areas, ranging from interest rates and currencies to commodities and bullion.
The renewed policy focus on agriculture has led to greater emphasis on agricultural diversification through reforms like removal of licensing, stock limits and movement restrictions. This would provide fresh impetus for value addition in agricultural products and generate additional demand for agricultural workers.
"A key issue of focus, therefore, is the achievement of a higher growth path, which would be employment intensive, particularly in rural areas," the Survey says Financial sector reforms would also enable the real economy to benefit from a modernised financial sector that exhibits high productivity levels and greater diversification of the sector.
The implementation of reforms on various fronts along with the upturn in the global economic environment is likely to help in regeneration of economic activity in the future.
RIPOSTE
Growth hurdles
Even India's current growth rates may be difficult to sustain without significant changes. The first concern is the possible slowdown in productivity growth in agriculture, associated with environmental problems.
Also, environmental degradation arising from inefficient and distortionary energy, water and fertiliser subsidies adversely affects the economy's capacity to grow. A second concern is the apparent slowdown in growth in poorer states. Continuance of these trends will slow the growth of overall factor productivity and the rise in incomes, as well as push up the relative prices of agricultural commodities, to the detriment of poor consumers.
Macroeconomic stability and vulnerability to internal and external developments are also important issues in sustaining India's growth. India's large fiscal deficit and the increasing use of borrowing to finance public sector consumption, notably inefficient subsidies that often probably increase inequality, raise concerns.
Key elements in increasing growth and reducing poverty will be: further cut in India's high protection, liberalisation of internal markets, particularly agriculture and labour markets, improved infrastructure to better the links between domestic and external markets and widespread improvement of social services.
Source : India: Reducing Poverty, Accelerating Development. The World Bank.
