GDP Growth - 1 September 2010
I am happy that I was the first one to predict after the last year’s Union Budget that our GDP would grow close to 7.5%. We ended the year with a growth of 7.4%. At that point the best prediction of GDP was at 6.1% by the Economists in the world. Last year, the growth momentum came from various sources including a large government stimulus programme, Sixth pay commission Effect and vibrant rural Economy.
This quarter’s growth of 8.8% is encouraging and since the rainfall is good , this year agricultural growth rate is likely to be good and the year could end with a GDP growth of around 9.5%. The momentum in the private Sector has picked up in the last few months and organizations in private sector had announced plans for expansion. The Sixth pay commission effect is likely to last for another year. Rural Economy continues to do well.
The inflow of funds to government coffers were much better than the expected level mainly aided by a high collection on account of spectrum fee collected by Telecom Ministry. The government is also planning to capitalize the land bank and it is happening at both Central and state levels which should ease the pressure on Government Finances.
FDI so far was lower than last year but inflows on account of FII’s so far accounted for $ 13 bn and the year is likely to end with an inflow ranging from $ 16 – 20 bn. Since the Indian Growth Story is intact and most of the companies have shown a good Sales and Profit growth and potential for growth in the next few years is good, the Investors from abroad are likely to increase their focus on India. This will also be strengthened by the increased presence of Multinationals in various sectors in India including Auto, IT, ITES, Pharma and others. Government could liberalise few more sectors including Life insurance, which would help to attract more FDI into India.
Inflation rate is likely to soften in the light of better agricultural production which should ease the pressure on RBI to increase the interest rates. Keeping interest rates at present levels will reduce the pressure on Government finances and make easy availability of credit to the Corporates and Individuals.
Going forward, the following areas require focus to support the growth momentum
• Bottlenecks in distribution of power to be reduced on a fast track basis and achieve higher level of productivity in the existing power plants. The best practices adopted by private transmitting companies could be transferred to state owned utilities. Transmission and Distribution Loss could be reduced by increasing the monitoring of consumption of power at a transformer level covering each locality. More manufacturing capacity could be created for manufacturing power equipments. Hurdles for implementing new projects to be cleared on a fast track basis.
• In many varieties of agri produce, the productivity levels per acre of land compares very poorly with the other countries in the world. Objectives could be set to achieve the best levels of productivity in five years from now and action plans could be identified for achieving the same. So far, many new initiatives were taken by government to address the productivity. But there is a need for an institutional reform to achieve the desired productivity levels. Like what has happened in the case of Milk, the concept of Agri co-operatives can be created in all parts of India on the similar lines of NDDB and State Milk Co-operatives.
• Infrastructure. Requires a big investment. At present mega projects are awarded which requires large organizations with large financial resources. Only few organizations, have the capability to execute very large projects. To expedite the Infrastructure development, to fill the projected gap, large projects could be broken up into small projects and awarded to more companies. This will help to expedite the infrastructure development. The projects in rural and semi urban areas could be integrated with the social development schemes implemented by the government.
• The capital markets could be made more vibrant by allowing Corporate Bonds, Municipal Bonds and other securities to be listed on the exchanges. Any instrument carrying a issue value of more than Rs.10 cr could be listed on the stock exchanges. This will help to create a vibrant market for Debt and other instruments.
• The government could continue to tap the non conventional sources of funding thereby easing the pressure on Government finances and from time to time identify support measures to be provided to Export led industries so that the external balance is maintained and will be within control.
