The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments.
Domestic output and demand conditions were adversely affected by poor performance in agriculture in the previous two years. The global economy experienced an overall deceleration and is estimated to record an output growth of 2.4 per cent during the past year. These tendencies were exacerbated in the aftermath of the terrorist attacks in United States in September 2001.
Consequently export growth has suffered and industrial profitability has also been affected by the prevailing low commodity and product prices globally.
Despite these constraints, growth in real GDP in 2001-02 is expected to be 5.4 per cent as estimated by the Central Statistical Organisation (CSO). This growth rate marks some recovery over the low growth of four per cent in 2000-01. It will also be one of the highest growth rates in the world in the current year.
The overall growth of 5.4 percent in 2001-02 is supported by a growth rate of 5.7 percent in agriculture and allied sectors, 3.3 percent in industry and 6.5 percent in services.
The acceleration of the overall GDP growth rate is basically due to a significant improvement in value added in the agriculture and allied sectors from a negative growth rate of 0.2 per cent in 2000-01 to 5.7 per cent in 2001-2002.
There has been significant deceleration in the growth rate of industry. However, the performance of the services sector has improved moderately.
The average annual growth rate during the Ninth Five Year Plan (997-2002) is now estimated at 5.4 per cent, which is lower than the Plan target of 6.5 per cent.
Although this raises new challenges for reinvigorating growth in the Tenth Five Year Plan, the Indian growth record is one of the highest among the major economies in the world in recent years.
The Indian economy has been resilient in the face of several external shocks during this period such as the East-Asian crisis of 1997-98, the oil price increase of 2000-01, and the most recent world economic slowdown.
Domestic shocks in the shape of an adverse security environment, natural disasters like the Orissa cyclone and Gujarat earthquake, and two consecutive years of poor agricultural performance, have also been faced successfully by the economy.
The Indian economy responded to the economic reforms of the 1990s with a higher growth performance than in previous decades. The economy has, therefore, shown that it is capable of achieving high growth rates in response to the implementation of appropriate economic reform policies.
Consequently, higher growth rates in the rest of the decade can indeed be achieved through further deepening of the economic reform process.
Second generation reforms have been initiated already and, as their implementation proceeds, acceleration in economic growth can be expected in the coming years.
However, the crucial issue of fiscal imbalance at both the Central and State levels needs to be addressed with some urgency in order to improve the overall health of the economy.
Economic reforms are a continuous process which need to be adjusted as the economic environment changes, both domestically and internationally.
The year 2001 has been a difficult year for almost all economies of the world. World economic growth slowed down as did trade growth. The current signals are that recovery is expected in 2002. This should help in the expansion of international trade and in the rejuvenating of Indian export growth.
As the world economy picks up, the deflationary trend experienced in the prices of commodities and manufactured products would also begin to be reversed enabling improved profitability in the Indian manufacturing sector as well.
The continued implementation of reforms along with this upturn in the economic environment is likely to help in regeneration of economic activity in the months and years to come.
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