India: Hopes for Eight Per Cent Growth Are In Stark Contrast to Reality

2003

Assistant Professor D. Tripati Rao

A countrywide survey by India Today-ORG-MARG highlighted unemployment and inflation as major concerns. Unemployment is the by-product of jobless growth and a decade of reforms, which have failed to generate long-term sustainable employment opportunities. The Planning Commission reported an increase in the rate of unemployment between 1993-2000. Over the 1990s the economy’s employment elasticity declined from 0.53 per cent to 0.15 per cent. It is estimated that the total number of jobs created during the Ninth Plan was only 6.5 million as against a projected 53 million people joining the labour force. The private sector failed to meet the expectation that it would absorb the surplus labour force backlog of around 23 million, not taking into account the additional labour force squeezed out of public sector. Overall, the employment generation has been stagnating for a long time.

Inflationary expectations were fuelled by supply side failures – dismal agricultural performance due to monsoon irregularities; increases in global crude oil prices and uncertainty in the lead-up to the Iraq war; and a move away from low levels of inflation. Inflation has been moving consistently upwards - crossing the ‘feel good’ 5 per cent mark, and in all likelihood may continue. Agricultural growth has seen a sustained deterioration and, for the first time in post-independence history, it has dipped below population growth. The 1990s saw a record low level of decadal growth. The later half of the 90s averaged a mere one per cent reaching to a nadir of a negative 3.1 per cent in 2002-03 with a sharp decline in public investment in agriculture. Entrapped in painful restructuring, industrial performance has been pitiful. Whilst consuming considerable time in political rattling within the NDA coalition on ‘whether or not’ to allow the levers of PSUs to go to the private sector through disinvestment, public investment is shamelessly heading towards a full demise.

Against these distorting developments, suggestions of a possible 8 per cent growth is in stark contrast to reality. The revised GDP growth for 2002-03 is estimated to be no more than 4.4 per cent. Fortunately the monsoon has brought a fair amount of rain to India, which could be a saving grace for most of the 17 states, which were officially declared as drought-affected last year. The most optimistic projections for the year ahead are for a GDP growth rate of no more than 5.5 to 6 per cent. This is because the Indian economy needs (i) a significant and sustained rise in capital formation, especially through public investment in agriculture, in order to reap the benefit of the recent rainfall, and (ii) it needs to be seen how, in the next two quarters, whether any rise in agricultural production will alter the pent-up aggregate demand and lead to a sustained recovery in industrial growth.

WATCHPOINT: A crucial factor for growth in 2003 will be how robust (broad based and sustained) will be industrial growth so that it can perform notwithstanding a sluggish US economy?

 

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