Economic surveys are the government’s report card on the economy and, we assume, a broad hint on the Budget. By those counts, there are quite a few things to cheer about. The macroeconomic state of the nation is good. The survey confirms the near 7 per cent GDP growth rate for this fiscal and projects a 7 per cent growth for the next. Coming on top of 8 per cent growth in 2003-04, that means three good years, a considerable achievement. Even better, unlike the last sustained high growth period, 1994-97, there seems to be no warning signal of overheating. In that period, there was excess capacity creation by business, speculation in real estate, banks lent too much and the inflation rate became threatening. There was a policy-induced squeeze and the economy lost its growth momentum.
This time, two years of good growth and a promised repeat in the third year has happened despite an oil price shock and a below par monsoon. Inflation did rear its head. But at 6.4 per cent, the survey’s figure, it is acceptable. The problem for the economy is not signs of excess enthusiasm but the signposts of excess regulation. That is, for the economy to grow like this, or rather even faster, certain institutional and legal bottlenecks have to be removed. That is where what the survey supposedly hints about the Budget becomes important.
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