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Drought conditions curtail economic growth

By Our Special Correspondent

MUMBAI MARCH 31. The advance estimates of real gross domestic product (GDP) in 2002-03 is likely to grow by 4.4 per cent as compared with an average growth rate of 5.5 per cent during the Ninth Plan (1997-98 to 2001-02).

"The estimated fall in GDP growth during 2002-03 is mainly because of the drought condition witnessed in several parts of the country,'' the Reserve Bank of India stated in its "Report on Currency and Finance 2001-02,'' that released today. It is expected that the industrial recovery would get more entrenched during 2002-03, while the services sector would continue to act as a cushion to higher GDP growth.

During 2002-03, the share of services sector rose significantly to 56 per cent, while its relative contribution to the overall growth of 4.4 per cent worked out to 88.3 per cent. The contributions from the industrial and agricultural sectors were 28.8 per cent and (-) 17.1 per cent respectively.

The trend of sectoral composition of GDP indicates a continuous fall in the share of agriculture from an average of 36.4 per cent in the 1980s to 29.1 per cent in the1990s. The share of agriculture in the overall GDP fell further to 22.2 per cent in 2002-03.

On the other hand, the share of industry in the overall GDP rose from an average of 19.5 per cent in the 1980s to 21.9 per cent in the 1990s, and remained almost at the same level in 2002-03. The services sector witnessed a sharp rise in its share in GDP from an average of 44 per cent in the 1980s to 49 per cent in the 1990s.

Available data on the quarterly growth rates of real GDP so far indicate that the growth rate of real GDP is higher in the first and second quarters of 2002-03 as compared with the corresponding quarters of the previous year. The increase in the growth rate of real GDP in the second quarter of 2002-03 was mainly driven by the industry and services sectors. The industrial expansion has come about mainly from `manufacturing' and `mining and quarrying.'

Fiscal deficit

<167,1p,1>"The deterioration on the fiscal front continuous to be a matter of concern,'' the RBI stated. The gross fiscal deficit (GFD) at 5.9 per cent of GDP in the revised estimates for 2002-03 exceeded budget estimates of 5.3 per cent. The rising fiscal deficit, the RBI said, "inevitably constrains augmenting outlays on the much needed social and physical infrastructure and poverty alleviation programmes.''

Recognising these issues, the Union budget 2003-04 accords priority to fiscal consolidation while addressing the basic objectives of eradication of poverty, giving a major boost to infrastructure and laying the foundations for balanced and accelerated growth of agriculture and industry. The latest budget envisages a reduction in the gross fiscal deficit to 5.6 per cent of GDP.

Bank credit

<167,2p,1>Bank credit to the commercial sector increased by 11.3 per cent (net of the merger impact) as compared with 9.2 per cent during the comparable period of 2001-02. The revival in non-food credit, which took root in the last quarter of 2001-02, firmed up throughout 2002-03, reflecting an improvement in the industrial climate.

Inflation remained moderate throughout 2002-03 notwithstanding the shortfall in agricultural production and the volatility in oil prices with war risk perceptions. Headline inflation, measured by point-to-point annual changes in the Wholesale Price Index, edged up to 4.7 per cent on March 1, 2003 due to a hardening of international oil prices and base effects. On an annual average basis, the inflation rate decelerated to 3 per cent as on March 1, 2003 from 3.9 per cent in the corresponding period of the previous year.

External sector

<167,1p,1>"The external sector of the Indian economy posted significant gains,'' the RBI stated. Driven by robust merchandise export performance and the highest ever net invisible earnings in any year, the current account balance recorded a larger surplus than in 2001-02, despite a reasonably well distributed pick up in imports.

Net capital flows remained stable, particularly foreign direct investment (FDI) and non-resident deposits. These developments resulted in a record accretion of around $20 billion to foreign exchange reserves during 2002-03 (up to March 13, 2003).

The foreign exchange reserves stood at $73.9 billion as on March 13, 2003, the seventh largest in the world. On the other hand, the RBI said, the strength of capital flows resulted in a modest appreciation of the exchange rate of rupee vis-a-vis U.S. dollar. Besides, the improvement in external-debt indicators now places India in the "less-indebted'' country category.

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