Despite the delayed start of monsoons and deficient rainfall in some states, the Centre for Monitoring Indian Economy expects agriculture and allied activities to grow by 7.5 per cent in 2003-04. What does this do for gross domestic product growth' The GDP growth in 2002-03 determines the base on which growth will take place. The Central Statistical Organization advance estimates continue to be 4.3 per cent, despite counter-arguments that circumstantial evidence does not indicate the economy or even agriculture performed that badly in 2002-03. In the transition from advance to final estimates, upward revisions are not new. However, these occur with time lags and in the interim, the government has a vested interest to show higher growth in an election year. Ipso facto, the 4.3 per cent base for 2002-03 will continue for some time and given this low base and good monsoons, earlier forecasts of around 6 per cent GDP growth in 2003-04 will prove to be low. The Asian Development Bank, Reserve Bank of India and other analysts had earlier predicted around 6 per cent in 2003-04, with the International Monetary Fund chipping in with a more conservative 5.1 per cent for the calendar year 2003.
The RBI governor has already indicated that come October, RBI might revise its estimates upwards from the April figure of 6 per cent. The sectoral composition of GDP shows that this is likely to be the case. Seven and a half per cent for agriculture and allied activities yield 1.9 per cent contribution to GDP growth. Despite some slowing in export growth, industry should grow at around 6 per cent and this adds 1.5 per cent to GDP growth. Finally, service growth at 7 per cent adds 3.5 per cent. Cumulatively, this gives a GDP growth of 6.9 per cent in 2003-04, a figure the National Democratic Alliance will be happy to take into the elections.
The NDA will also be concerned about what happens to inflation. In the week ending July 5, the point-to-point wholesale price index showed a marginal drop in the rate from 5.32 per cent to 5.15 per cent. In April, the RBI expected an annual inflation rate of between 5 and 5.5 per cent. This does not spell electoral disaster, but inflation is likely to be lower than what the RBI expected. With global oil prices softening, the energy price impact will be minimal and the expected good monsoon will temper price increases of primary products. While increased demand has led to some hardening of manufactured prices and this trend is certain to continue, the overall inflation rate cannot possibly be more than 4.5 per cent. If decisions about the timing of elections are taken on the basis of macroeconomic indicators, as they partly are, this is the best of times for the NDA to call a round of general elections. Therefore, news on growth and inflation merely reinforces what has been doing the rounds on the grapevine for some time, early elections in February or March. If final figures upset the 2003-04 applecart (particularly on growth) after the 2004-05 budget, so be it.