 |
| [GFX: ©news.BDTV.in] |
For a few months now, the Indian economy appears to be on a
recovery path. At least there are enough indications to that. Foremost is the
performance of various sectors of the economy.
Industrial output has been gathering some pace since August.
It rose by 2.7 % in August this year compared to a fall of 0.2 % in July. But
the hike has been less if we compare it with August last year when it stood at
3.4%. The manufacturing sector grew 2.9% in August but again less than 3.9 %
growth it recorded in the same month last year. The mining sector recorded an
increase by 2.9% in August when it actually declined by 5.5 % in the same month
last year. The growth recorded by the manufacturing sector is significant since
it accounts for about 76 % of the index of industrial production.
There have been some down turns as well. Electricity sector
grew by just 1.9% as against 9.5 % in August last year. Another area of concern
is the exports sector which as per the Commerce Ministry figures fell by 11% in
September last. The decline was consecutive for the fifth month. As against
this, imports rose by 5% in the same month. For the first six months of the
current financial year fall in exports has been 6.8% compared to the
corresponding period last year. Though non-oil imports fell by 4.5% in
September, the value of oil imports rose by over 30% to $14.1 billion in
September compared to the same month last year when it stood at $10.8 billion.
There are various reasons for this scenario. Global demand
has been on the decline due to financial crises. It has led the World Trade
Organisation to revise its estimate for global trade during 2012 from the
earlier 3.5% to only 2.7. Domestically, high cost of credit is one important
factor responsible for this situation.
But there are lots of silver linings. Of late the Foreign
Direct Investment is showing an upward movement. Last financial year it reached
$46.84 billion, compared to $34.84 billion in the previous year. In 2009-10 FDI
accounted for $37.74 billion. More than the FDI, NRI inflows have been
consistently rising for the last three years. The remittances stood at $ 53.64
billion in 2009-10 which reached $55. 62 billion in 2010-11 and 66.13 in
2011-12. The remittances account for 4%
of our GDP.
Overseas investors have poured in more than Rs.11, 000 crore
in the stock market in October so far. Clearly this has been a fallout of the
reforms initiatives taken by the government. As per SEBI data, Foreign
Institutional Investors were gross buyers of shares worth Rs.40, 940 crore in
the first 20 days of October. This takes the FII investment in the country’s
equity market to Rs. 93,444 crore this year so far.
After Chidambaram took over as the Finance Minister,
the government has embarked on a vigorous reforms path. It has cleared bills to
open up insurance and pension sectors to foreign investment. Foreign investment
in pension sector is to be raised to 49%. In the insurance sector, FDI will be
raised to 49 % from the current 26%. Some other sectors including the aviation
sector are also being liberalised.
The government is set to carry forward the reforms process
in the days and months ahead. The idea is to make India an investment friendly
country to boost growth. The reforms are important because the country would
need about $1 trillion to modernise its infrastructure. Thus huge additional
resource mobilisation is needed. This won’t be possible without streamlining
the system and attracting much more foreign investment. Besides other measures
further opening up of the insurance, pension and banking sectors would be
needed. Reforms in energy sector, including restructuring of State Electricity
Boards, is no less important. Other important areas include education and
labour laws.
Of immediate concern is to narrow the fiscal deficit which
has been rising to as much as 6 percent. The attempt is to limit it to this
year’s budget estimate of 5.1 %.
All this is of utmost importance in the face of the warnings
by the Finance Ministry commissioned Kelkar committee and the likelihood of S
and P downgrading India’s rating if things don’t improve in next 24 months. But
then 24 months is a long time and a lot is going to happen till then.
Investment rate in the first quarter of the current
financial year has been at 32.8 % which is less by 1 percentage point compared
to last year. Persistently high food inflation is also a big concern. How far
will the current reforms spree allow us to reach the envisaged 8% growth is
still an open question. The IMF has brought down it’s forecast for India to 4.9
% in the current year. But the planning Commission has put the growth target
for the 12th Plan period realistically at 8.2 % since the current year growth
is likely to end up between 6 and 6.5 %.
The plan’s thrust area is Health, education and
infrastructure which are considered to be the centre of our growth engine. The
plan size too has been increased 135 percent compared to the 11th plan. As the
Prime Minister says, achieving 8% growth rate is not unattainable if we put in
efforts to boost investment.
Soon after the current reforms process began a couple of
months ago, sensex is flirting with 19000 mark and the slide of the rupee has
been curbed. The currency market is thus in a better shape.
With plans afoot to phase out the current subsidy regime
slowly and replace it by cash transfers through unique identification cards,
things are set to improve. A roadmap for fiscal correction is in the pipe line
despite, RBI’s cautious moves with regard to lowering of interest rates. There
are thus credible indications that the animal spirits are on display in
different sectors of the economy. This could signal better days ahead.
But as of now it is a long journey yet. (PIB Features.)
(*Ashok Handoo is a freelance writer. Views expressed
by him in this article are his own and do not necessarily reflect the
views of news.BDTV.in.)