New Delhi, Feb. 8: Is the Confederation of Indian Industry (CII) — the premier industry association — turning into a Cassandra'
The CII has come out with its growth projection for the economy for 2004-05 — which it put at 6.7 per cent, sharply down from its gross domestic product (GDP) estimate of 7.8 per cent for the current fiscal (2003-04).
The number flies in the face of finance minister Jaswant Singh’s assertion that the economy will grow at 8 per cent this year and continue at that heady pace for some more time if the Vajpayee government is voted back to power in the general elections scheduled for April.
The Vajpayee government has created a lot of hype around the feel-good factor in the economy which, the minister believes, will last longer.
The CII — which made the GDP projection for 2004-05 in its state-of-the-economy report for the quarter ended December 2003 — seems to suggest a general dissipation of the feel-good factor even though India Inc’s business confidence has been soaring.
The CII forecast — which is the first estimate made by anyone for the next fiscal — indicates India Inc is hugely conservative about the economy’s growth whether or not the Vajpayee government is voted back to power.
“We believe this is a conservative estimate, given that there is an upside for industrial growth depending on the extent to which investment picks up,” the CII report said.
“It is just a preliminary and very conservative estimation. It seems a little difficult for the agriculture sector to perform in an excellent manner in the coming year. This might bring down the overall growth rate,” says CII senior economist Bidisha Ganguly.
The country recorded a GDP growth of 8.4 per cent in the second quarter of this fiscal, the highest since 1997-98. For the first six months of 2003 (April-September), GDP growth was over 7.0 per cent.
The CII forecast for the next year is tempered by an innate reality: the Indian economy depends heavily on the way the monsoon behaves since that impinges directly on the performance of the agriculture sector. Farm sector growth this year has been phenomenal at 7.4 per cent in the second quarter (July-September) after shrinking by 3.5 per cent a year earlier when the monsoon had failed.
“Agriculture growth is likely to slow down even with a good monsoon due to the impact of the above trend growth in the base year,” the CII said.
There has been a lot of debate over whether the 8 per cent growth, which has been forecast this year, is sustainable. Joseph Stiglitz, the Nobel laureate and former chief economist of the World Bank, said last month that he had serious reservations about the ability of the Indian economy to sustain that level of growth, given the fact that growth rates have always tended to yo-yo with the performance of the monsoon.
“The new year began on a bullish note as a slew of data revealed positive trends in the economy, boosting confidence among investors, policy-makers and commentators alike. Moreover, a string of policy announcements has also strengthened the perception that, unlike in earlier pre-election periods, political expediency will not stall economic reforms,” says the CII report.
“The industrial recovery which began in the second quarter of 2002-03 is yet to peak. We expect growth rate to pick up in the forthcoming year,” the report says.
Although performance of all three sectors, including agriculture, industry and services was strong, growth in the services sector has been “significantly above trend”.
“Given that the domestic cycle is turning and that international growth is on an upswing, positive factors favouring growth currently far outweigh the risks,” the industry forum said.