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Why Six Per Cent Won't Give

Why Six Per Cent Won't Give
Yashwant Sinha was being honest when he said he'd ask God and then tell people this year's expected growth rate. Or perhaps plain cautious. See what happened in 2000-01? They started off with 7 per cent and ended up with 5.2.

CMIE is already one up on God—it has forecast 6-6.3 per cent. Reason for optimism: good monsoon and trade. In sympathy, exports promptly declined in June by 5 per cent! As of now, 6 per cent is obscured by clouds. The first reason is numerical: to get a 6 per cent gdp growth, we need at least 7 per cent in services, and 5 per cent each in agriculture and industry. Services can deliver. But to lift industry and agriculture from last year's pathetic levels to 5 per cent will be a herculean job.

The second reason is historical. Experts like former chief economic advisor Shankar Acharya argue that the high-growth era ended in the mid-'90s. The 7 per cent plus growth achieved thereafter was merely a statistical blip, aided by the Fifth Pay Commission award or, as Acharya describes it, "transfer of 2 per cent of the gdp to 3 per cent of the labour force." Since the cso computes the value of services by government employees by taking into account their salaries, the huge pay hikes translated overnight into over 2 per cent growth, but the effect started tapering off in '99-2000. Take out the hike and we get a trend growth of 5-6 per cent. Unless we do something drastic—and there are few signs so far that we will—there is no reason to expect the graph to curve upwards.

The third reason is trade. Q1 export growth was 1.76 per cent, and imports went down by 2.4 per cent. Says jnu's Manoj Pant: "Exports today are almost 10 per cent of our $400-billion gdp. So a 10 per cent drop in export growth would lead to one per cent drop in gdp growth. The US accounts for a quarter of the global export market, so the US slowdown is bound to impact us."

The fourth—and the most important—reason is budget maths. The Budget at a Glance today looks completely different from what was presented in Parliament five months ago. Revenues fell short by Rs 15,178 crore in 2000-01, so an equal amount of spending had to be put off to this year, but still the fiscal deficit inched up to 5.25 per cent instead of the expected 5.1. That spells gloom for 2001-02. The government has completed 60 per cent of its borrowing programme and over a third of its fiscal deficit in Q1, just to meet salaries and other non-plan expenditure which is up by 14 per cent. As slowdown worsens, revenues may dip further—Q1 collections are already behind by 29 per cent. It's unlikely Sinha can announce major investment programmes to trigger revival.

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