The economic scenario of the world is fraught with uncertainties. Bears have gripped the bourses and new investors have shown clean pairs of heels. The attacks on New York City (twin trade towers of WTC) and Washington (the Pentagon building) led to almost snail’s pace of the US economy. The economics of Japan, Germany and other Oriental nations are also not doing well. Thus, the economic canvass of the globe is fraught with shadows of war, recession and at the same time, a desperate feeling or an urge to come out of this economic slowdown, which is being witnessed by the world since 1999.
And India is very much a Western economic system, it is in the process of becoming a western economy. Thus, her economic ship sinks or swims in the global economic waters. We cannot consider anything in isolation; nor can we take any decision that would help us and harm the global players.
In the first ever mid-term review of the ecomomy, the Finance Minister, Jaswant Singh, scaled down the projected GDP growth rate for 2002-03 from 6.5 per cent 5-75.5 per cent. This review was submitted to the Parliament on December 3, 2002. This review listed four key areas for policy attention-structural reforms, fiscal consolidation, acceleration of infrastructure and employment oriented investments. It conceded that the consolidated centre/ state fiscal deficit was 9.9 per cent of GDP and could rise. This review has made the system of economic evaluation much more transparent than it was during the nineties.
The IMF has warned that the short-term risk in our economy has increased, as the fiscal deficit is 9.9 per cent of GDP. This would harden interest rates, increase inflation, dissuade private investors from investing and choke the government borrowings in the long term. Fiscal deficit during the first half of the fiscal year 2002-03 was Rs. 57,746 crore Corporate tax is the second highest among nine countries studied for taxation practices. In our country, the tax rate is 36.75 per cent. It does not motivate people to start new businesses. Further, the 2003 Index of Economic Freedom (released by the Heritage Foundation and the Wall Street Journal) has given a rank of 119 to India. In this report, corruption has been described as the major reason why foreign investors stay away from our country. That is one of the reasons why FDI inflows from the USA have plummeted from US$ 737 million (in 1997) to US$ 336 million (in 2000). China is the beneficiary of this whealthy trend: she received US$ 1.6 billion from the American investors in 2000.
The total value of the Non Performing Assets (NPAs) of our nationalised banks exceeds Rs. 65,000 crore; this amount is 14 per cent of the outstanding loans daled out by these banks. This amount could have been used for the economic development of the country. Further severe drought in 320 districts (out of a total of 524) in 2002 affected Kharif crops, soyabean and barley. The south-western monsoon wreaked havoc on farmers of all categories. Finally, disinvestments could bring in only Rs. 3022 crore; the target for the current fiscal was Rs. 12,000 crore and is not likely to be achieved.
There are many silver linings in the dark clouds, however. According to the mid-term economic review, industrial production went up by 5.2 per cent in the first half of the fiscal
2002-03. the growth rate of agriculture and allied sectors was 4.4 per cent in the first quarter of 2002-03. Point-to-point inflation was 3.3 per cent in the first half of 2002-03. The growth rate of the core sector was also encouraging. This sector recorded as growth rate of 5.6 per cent in April-October, 2002 as compared to a growth rate of 2 per cent in April-October, 2001. Further exports rose to US$ 28.2 billion in April-October, 2002 an increase of 13.7 per cent over the like period of the past fiscal. Imports also rose by 12 per cent to US$ 33.8 billion during April-October. 2002.
The rate of net domestic capital formation never rose to 20 per cent; in other countries, this rate hovers around a figure of 30 per cent. Poor savings rate is also responsible for our poor economic growth. But inflation remained at 4 per cent despite a severe drought. Fuels, telecommunications and electricals attracted the maximum FDIs during the period August, 91 to April, 02.
The Wholesale Price Index (WPI) was 1675 and inflation rate was 314 per cent for the week ending on November 16, 2002. India had foreign exchange reserved of over US$ 66 billion, according to the Finance Minister. So, imports of vital items could be done with ease. NRI deposits exceeded FDI inflows April-August, 2002; the former were US$ 1.42 billion whereas the latter were US$ F13 billion (including direct and portfolio investments) in this period. A large chunk of NRI deposits was diverted to real estate and securities market.
The current account has a surplus of US$ 325 million. The service sector is contributing 50 per cent to GDP. Bank credit to business has increased by 11.3 per cent. There was a rise of 12 per cent in receipts, with revenue receipts going up by 15.9 per cent.
The kharif crops would have a total estimated yield of 9085 million tonnes in 2002-03. This estimate is the lowest in 13 years. Nineteen drought-hit states could not produce enough to feed their residents. The sales of commercial vehicles increased in 2002. But the prices of oil spiralled and the markets were hit by poor sales in December 2002. Despite a good bank rate (6.25 per cent) and a bank-friendly CRR
(4.75 percent the financial markets could not look upwards. The Repo rate was lowered to 55 per cent. Disinvestment of HPCL and BPCL is on the cards. So, we should be able to get rid of some white elephants in 2003-04. The ITDC has already sold off 18 of its 26 hotels; this is a nice trend. Finally the government is not very keen to accept the recommendations of the Kelkar Committee. This Committee had suggested far-reaching changes in the structure of indirect taxes. Perhaps, one economy is not free enough to float on its own, if we gauge the mood of the critics of the reports (of Kelker Committee).
The economy is still undergoing the trauma of teething troubles. The poor have no means to sustain and the rich have no opportunities of resources to maintain a healthy tempo of growth. The free market system has brought a plethora of problems. For the have-nots, survival is the issue and for the haves, growth is the real cause of concern. The economic policies of the government would decide, which way the economy should go in 2003. There is growth in real terms. Though, we are heading towards self-reliance, the problems of the have nots must also be looked into.