The year 2003 has ended with good news and not just because foreign exchange reserves have crossed 100 billion US dollars. In 2003-04, the Central Statistical Organization’s first quarter estimates showed a gross domestic product growth of 5.7 per cent. In the second quarter, this increased to 8.4 per cent, thus yielding 7 per cent for the first six months. It is possible to quibble about the quality of the CSO’s advance estimates. Nevertheless, the improvement has to be recognized. It is premature to break up this GDP growth into three components of primary, secondary and tertiary sectors, because in all three, the CSO’s advance estimates are inadequate and the final figures will not be known for at least 18 months. The breakup at present is for agriculture (meaning primarily crop output) and not agriculture and allied sectors, which is what the primary sector represents. Subject to this, because agriculture declined by 3.5 per cent in the second quarter last year, there is a growth of 7.4 per cent in the second quarter this year. Spliced with 1.7 per cent growth in the first quarter this year, agriculture has 4.1 per cent growth during the first six months. Thanks to the good monsoon, agricultural revival was expected. The CSO’s advance estimates do not cover the entire secondary sector and coverage is also limited within manufacturing. But because rural demand also favourably affects manufacturing growth, the increase in manufacturing growth from 6.4 per cent in the first quarter to 7.3 per cent in the second quarter is understandable. For the first six months, we have manufacturing growth of 6.8 per cent.

Subject to incomplete coverage again, services clocked 9.6 per cent in the first quarter and 11.9 per cent in the second, thus yielding 10.7 per cent for the first six months. While the tenth plan (2002-07) still has 8 per cent as annual rate of GDP growth, this is impossible. Crossing 8 per cent in the second quarter may be psychologically important. Courtesy the low base in 2002-03 and the good monsoon, it is accepted that GDP growth in 2003-04 will be around 7.5 per cent, if not 8 per cent. But without reforms of the kind the tenth plan document recommended, this is not sustainable. In the course of calendar year 2004, fiscal year 2003-04 will give way to fiscal year 2004-05 and such growth rates will no longer be replicable. Not only will the base be higher, high export growth rates will be difficult, adversely affecting manufacturing, because of inevitable rupee appreciation.

Some of the present euphoria will dissipate. The government may call for early elections, given good GDP growth and relatively low inflation, the latter inching down further now that energy price increases have slowed. But this is not to say that the feel-good factor is permanent and India has indeed moved to a higher growth trajectory. There are reasons for feeling good. But feeling ecstatic, the mood projected by the government in Shining India advertisements and websites, is premature.