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If other conditions were favourable, slight variations in output would not matter. But they are not, and that makes the first quarter data ominous.
As if on cue with the latest forecasts of less than 8 per cent growth for the current fiscal, data for the first quarter of the year show GDP growth slipping to 7.9 per cent, the lowest in 14 quarters. Gross output has fallen one percentage point over the last quarter and this seems to be in tune with the decline in industrial production. The Prime Minister’s Economic Advisory Council (EAC) recently added to the gloom with its observation of an agricultural growth of just 2 per cent. For the UPA government this may appear the unkindest cut because it assumed power in 2004 on the back of what the Finance Minister, Mr P. Chidambaram, then called “restoration of output in agriculture”. Just how significant the first quarter growth of 7.9 per cent will be for the fiscal, time will tell.
Inaugurating the currency derivates platform of the NSE in Mumbai on Friday, Mr Chidambaram felt the decline was unimportant; in the context of world growth, a 7 per cent rate is impressive indeed. If other conditions were favourable, slight variations in output would not matter. But they are not, and that makes the first quarter data somewhat ominous. The EAC’s prognosis on agriculture is a sign that all is not well despite claims of higher investments in the sector. Inflation is another. There are few signs of proactive intervention in combating double-digit inflation, other than the tweaking of monetary policy. There is an unhealthy reliance too on luck, on the fortuitous chance of global energy and food prices softening over the next two quarters enough to push domestic prices down to 7 per cent by March.
In the meantime, interest rates pushed higher by the Reserve Bank of India are raising costs for consumers and producers. The effects of the squeeze are already there: output is being cut back, as evidenced in declining industrial production. In the meantime, the Government has some unfinished business in Parliament that will, for some inexplicable reason, sit only in October when it should have been in session this month. Important as pension reforms and the women’s reservation Bill are, little thought seems to have been paid to those legislations relating to land acquisition and mining, both of which ought to have been cleared by now. In effect, little seems to have been done after the trust vote to galvanise investments for new industrial expansion that could generate fresh rounds of employment, a better bet for raising standards of living than government spends or pay hikes. Instead of comforting itself that 7.9 per cent growth is good enough, the Government ought to ask itself: for whom?
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