A perfect 10?

Eight per cent growth for the fiscal 2003-04. This has just been confirmed by the latest GDP numbers for the third quarter ending December 2003. The engine for this growth was, without doubt, the generous monsoon. As a result, output and incomes shot up in rural India. Higher incomes, in turn, triggered demand for industrial goods. The effects of rural spending begin to be felt in the third and fourth quarters of any fiscal. Therefore, agricultural growth of 16.9 per cent clearly underlies the overall Q3 GDP growth of 10.4 per cent.

Statistically speaking, a rebound of this nature is somewhat exaggerated because of the negative agricultural growth of 9.8 per cent witnessed during Q3 of the previous year, one that was drought-stricken. Questions, therefore, are bound to be raised whether or not such a performance is sustainable. But a good agricultural year has strengthened recovery in industrial growth. The fact that manufacturing growth has been averaging nearly 7 per cent every quarter since Q2 of 2002-03 is evidence enough of a cyclical upswing in the sector’s fortunes. With the services sector also growing robustly by 9 per cent, the overall growth process clearly is broad-based in nature. While that is the good news, there are faultlines in this picture of accelerating growth. The government’s spin doctors talk of a boom in infrastructural investments such as in roads, highways and ports. But the Q3 growth of construction is modest enough, at 5.1 per cent, when compared to growth of 7.4 per cent during Q3 of 2002-03. The key indicators of this sector — notably, cement and finished steel — registered growth rates of 5.6 per cent and 7.1 per cent, respectively, during April-December 2003-04 and 2002-03. This performance is out of sync with double digit GDP growth.

The implications then are that India’s economic growth is not driven by bricks and mortar, but services. Prima facie, this is true as services account for 50 per cent of India’s GDP. But whether the Central Statistical Organisation is able to reliably track quarterly growth in this sector is a different matter. Indicators like bank deposits, telephones installed and revenue expenditure have their uses, but measuring the contribution of this sector calls for a comprehensive data collection machinery. The latest sectoral growth numbers, nevertheless, point to an acceleration over time: 9 per cent as against 6.8 per cent during Q3 of 2002-03. A major source of dynamism is trade, hotels, transport and communications—which is consistent with the view of economists that India is increasingly becoming a bar and restaurant economy. This pattern is also reflected in the occupational distribution of the workforce. The upshot of the Q3 GDP story is that it is premature to uncork the bubbly. The big question indeed is whether 8 per cent growth can be repeated with a more normal agricultural growth this fiscal. What the economy really needs then is more consistent reform in all the sectors, including agriculture.