The fast-growing, globalising Indian economy is expected to slow down to a pace of 8.7 per cent this year, according to the latest Economic Survey 2007-08. The strong message that it sends out is that maintaining overall growth rate at 9 per cent — that has been the experience of the last two years — is a challenge and raising it further to 10 per cent is a greater one. This deceleration or “some degree of cyclical fluctuation” is occurring against the backdrop of heightened global economic uncertainties, including the prospect of full-blown recession in the US economy. The fast globalising economy has also attracted record inflows of capital. Portfolio and foreign direct investments have been booming and have resulted in a sharp appreciation of the rupee vis-à-vis the US dollar. This has, in turn, affected the competitiveness of India’s exports, with manufactured exports to the US slowing down this year.
Some of this has affected industrial performance that has also moderated this year as in the case of textiles. Consumer durables, too, have been sluggish. Another important factor behind the overall deceleration of the Indian economy has been the slump in agricultural growth to 2.6 per cent when compared to previous year’s 3.8 per cent. Unless this is stepped up to 4 per cent, this sector will remain a drag on the transition to double-digit growth.
What are the challenges of sustaining rapid growth? The Survey notes the heightened urgency to augment and upgrade infrastructure like roads, ports and electricity generation that can fast emerge as an obstacle to the growth process. This is not easy as it requires the mobilisation of huge amounts of capital, the right policy framework and regulators. The success so far in telecom and aviation ought to indicate the way forward in this regard. The far bigger challenge is reforms that have taken a back seat over the last four years. The Survey includes raising foreign equity in insurance, retail trade, greenfield private rural-agricultural banks, disinvesting the State’s equity in public sector undertakings, phasing out controls on sugar, fertilisers and drugs, free entry of private and public-private partnerships in rail freight companies, allowing private entry into coal mining, changes in the Factory Act to increase the work week to 60 hours and daily limit to 12 hours to meet seasonal demand. There is no doubt that without reforms it will indeed be difficult to sustain rapid growth over the medium term. But the big question is: why is there a weakening will to implement such policy options when the Indian economy is showing signs of flagging? True to form, the Survey sticks to economic rather than political imperatives.