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ECONOMIC HIGHLIGHTS
New Delhi, 14 October 2005
Growth Prospects of
Economy
NEED FOR INVESTMENT
OPPORTUNITIES
By Dhurjati Mukherjee
The growth rate of the Indian economy had for long been a matter
of concern. But lately there has been a
paradigm change in the situation. It has
grown by more than 7% in the past two years and has averaged more than 6% over
the past decade. This obviously speaks
of a dramatic change since the early 1990s.
In the current year also, the National Council for Applied Economic
Research (NCEAR), the Reserve Bank of India and some other organizations have
projected a growth of around 7%, which has boosted the confidence of planners
and economists. The Planning Commission
is now thinking of setting a target of 8% during the 11th Plan
period.
While industrial buoyancy has helped in maintaining the
growth rate, it is the service sector which has contributed the most and is
expected to grow by over 8.5% this year. As is well known, the service sector comprise
trade, transport, hotels, communications, business and financial services
etc. Recent years have witnessed
increasing growth in most southern States.
For instance, Karnataka, Tamil Nadu and Andhra Pradesh have seen
increasing levels of capital investment.
These States account for 21% of overall amount of project investments in
the country as of June 2005.
Also, a majority of economic activity in the service sector
driven Mumbai gives a lot of economic prominence to the west. Almost every enterprise has some kind of
operation in the Metropolis, which is rightly considered as the financial
capital of India. Even a number of other western cities like
Pune, Surat and
Ahmedabad have been the centre of a number of service sector enterprises.
It is thus quite obvious that the southern and western zones
account for around 50% of the GDP though they have only 32.5% of the
population. The remaining 67.7%
contribute the remaining 50% of the country’s GDP. The eastern, north-eastern and central
regions have a lot of dependence on the agricultural sector. This explains their poor contribution to the
GDP as the agricultural sector has been a slow and unreliable performer. The only really good performing agricultural zone
is the northern region and specially the states of Punjab
and Haryana.
Infrastructural bottlenecks coupled with problems like
inflexible labour laws, incidence of indirect taxes and multiplicity of
procedures in starting operations have been holding up India’s
attractiveness as a manufacturing base or export platform. However, for the country to maintain or
accelerate the growth rate, the following challenges have to be seriously
considered: greater private sector investment; part disinvestment of PSUs for
functional efficiency and more accountability; structural reforms in banking
and finance after putting in place appropriate laws and appointing regulators,
if necessary; changes in labour laws; more foreign direct investment in the
oil, gas and other sectors; all-round technological upgradation to meet
international standards; and suitable measures to make India an attractive
business destination.
The World Development
Report 2005 has again ranked India as the fourth largest economy
in terms of purchasing power parity even as it said that the country lagged
behind in technology and efficiency. It
said that though in certain areas investment and productivity in industries
have improved, the country was held back in technology due to lack of proper exit
policy. It has pointed out that he
general trend showed many firms improved their total factor productivity
significantly but aggregate number, has been slow to respond.
The Confederation of India Industry (CII) had sometime back
floated a 10-point action plan to help the country a double digit growth
rate. The agenda talked of reforms in
areas such as infrastructure, agricultural, entrepreneurship/self-employment,
value-added tax, manufacturing, governance, fiscal management and exports. Though physical infrastructure development
has received attention in recent years, there is a need to make them
world-class.
Global trade in farm products stands at around $640 billion
and there is expectation that the country in the next 3 or 4 year would leapfrog
from being a marginal player with a stake of below 1% to at least 2% share of
market. Though prospects appear quite
encouraging with more and more regional trade tie-ups, it remains to be seen
whether the country would become the “food chain of the world”. According to North Block officials, “we plan
to cut the maize of laws that restrict farm trade and streamline agricultural
credit delivery systems”. However the
food subsidy should not be reduced.
Another problem area is the growing unemployment and
underemployment which has been a matter of concern, jobless growth in the
advanced country has translated into jobless growth in the developing
countries. Further, recent times have
also seen the sharp accentuation of economic inequalities. It is felt that revitalization of the rural
areas and revival and growth of the unorganized and informal sector holds the
answer to the problem. Some economists
have been of the opinion that industry has the capacity to absorb the cheap
labour of the rural areas.
Moreover, unless the rural economy is strengthened by the
joint efforts of agriculture, agro-based industries and export-oriented cottage
industries (which have potential and demand), it may not be possible to achieve
all-round development though high growth rates may be achieved. As envisaged in the Tenth Plan, industrial
clusters to promote village (and tiny) industries would have to spread at a
fast pace covering around 40% of the districts in the next five years.
Any future strategy would have to take into consideration
the growth potential of industry, the services sector and also the rural
sector. The services sector has possibly
the greatest potential with fast rate of growth and contribution around 51% of the
GDP. Similarly the industrial performance
has shown remarkable results in the last few years but in the coming years
manufacturing techniques would have to be improved further to match
international standards.
Apart from ensuring that growth rate is geared up, it would
also be necessary to evolve an integrated strategy of development which would
take care of poverty eradication and improve the lives of people all over the
country. The Human Development Report 2005 poses a pertinent question: why has
accelerated income growth not moved India into a faster poverty
reduction power? Obviously tackling the
problem will require emphasis on the rural sector and also on social
infrastructure development. However, the
following may be considered in this connection: ensuring good governance at all
levels; effective decentralization; making local self government strong and
powerful; stronger public-public partnerships; rethinking or subsidies;
tackling corruption; and transparency in Government functioning.
In the coming years, India has possibly to grow at a
higher rate to look respectable. Some
believe that we ought to emulate the South-East Asian miracle. During the thirty-year period (1960-1990),
economies such as Singapore,
Hong Kong and South Korea
grew at phenomenally high rates, often touching as impressive as 10%. If they grew at such high rates for almost
three decades so can we. Thus a rise in
real GDP is important.
Liberalization, privatization, open economies, research and
development are possibly marvelous solutions to the growth dilemma but none of
these will make a dent on our welfare unless the rate of growth of population
is simultaneously kept under control. China has
succeeded on both fronts. Of the
population growth is kept below say 1.5% (compared to the present level of 2%),
as China managed to lower the population growth rate at 1.3% during the last
two decades, there would be a quantum jump in India’s per capita GDP in the
coming years.---INFA
(Copyright,
India News and Feature Alliance)
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