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Chances of economic recovery slim

The prospects of economic recovery in the remaining months of fiscal 1997-98 seem remote.

Several factors -- uncertainty on the agricultural front, absence of a sustained uptrend in industrial production, inconsistent policy environment for the infrastructure sector and less than encouraging foreign institutional investment inflows -- have contributed to the grim situation, according to an expert study.

Adding to the woes is the ensuing general election, says an analysis by the Associated Chambers of Commerce and Industry. The election will burden the economy with substantial additional costs, disturbing the entire Budget exercise. Past experience shows that the election process is likely to slow down investments and thus the overall economic growth.

As for the economy's performance so far, the study said it has been mixed. While the 10th successive favourable monsoon spells good prospects for kharif production, reports of a severe winter damaging considerable crops in recent days does not augur well for the agriculture sector.

Initially, the industrial sector exhibited a downturn, but the index of industrial production figures for the last few months have indicated an improvement. However, a consistent upward trend is yet to be established.

The infrastructure sector continues to have lower growth rates as compared to the previous year. And reduction in capital expenditure, as announced recently in the mid-year fiscal correction measures, is likely to prove a damper. For, the private sector investment has not risen commensurately though the public sector investment.

The ministry of agriculture is yet to come out with any definite projections for overall agricultural production during 1997-98. However, in September 1997, it had said foodgrains production would rise to 200 million tonne (which works out to about one per cent growth).

On the contrary, the Centre for Monitoring Indian Economy has been maintaining that the foodgrain production will rise only at 0.7 per cent.

However, more recently, the Planning Commission has expressed hopes of the agriculture sector achieving about 3.5 per cent overall growth.

During 1997-98, the overall industrial performance has been far from encouraging. The index of industrial production has been consistently witnessing a rate of growth less than six per cent, with the exception of April and July 1997 wherein it exhibited a growth of 7.5 per cent and 9.2 per cent respectively, the Assocham survey pointed out.

There has been a sharp deceleration in the growth rates in all the sectors. While the capital goods sector registered a growth rate of as high as 17.9 per cent in 1995-96, it came down to a low of 3.3 per cent for April to September 1997-98.

The performance of the infrastructure sector has been mixed during April to October 1997. Production of coal, steel and cement has shown considerable slowdown while crude oil production and power generation has shown a significant improvement as compared to the same period in the previous year.

As far as the infrastructural projects are concerned, they have been suffering due to a time lag between fall in public sector investments and commensurate increase in investments by the private sector.

However, the recently announced reduction in capital expenditure as part of the mid-year fiscal correction measures do not foretell an encouraging picture.

Moreover, the policy environment for infrastructure continues to suffer from inconsistency in approach and ad hocism which has been the main hurdle in mobilising private sector investment in the sector.

The performance on the investment front has been far from encouraging as can be seen from the investment outflows for November and December 1997.

Net foreign institutional investment inflows plunged and turned negative for the first time in many years, during November and December 1997. In November 1997, the figure was minus $ 148 million.

According to some foreign investment firms, FII inflows turn negative due to massive losses in other Asian markets which triggered sell out in India to meet redemption targets.

Nevertheless relative stability of the Indian currency all throughout the South-East Asian currency turmoil generates optimism for larger inflows in the next year.

UNI