"….. With China and India portended to be the economic superpowers in the next five decades, the lot of Asia, particularly South and South East Asia, is likely to undergo complete transformation. Once that happens, we hope that the balance of economic power and along with it economic welfare will become more evenly distributed. …. "

The success story of the Indian economic growth continues into the new fiscal year. The fact that this growth so far has been led by the Services sector lends an interesting aspect to the entire conundrum of development in this so-called Third World country. Contribution of the Services sector has not remained confined to the domestic economy alone, but has managed to capture a decisive share of the global demand for technical services - basic as well as cutting edge. The fact that the policy planners had the foresight to provide a solid educational and training infrastructure for developing a skill-base in anticipation of future demand and that the delivery system managed to impart skills comparable to the best in the world - sets India apart from its peers in the Developing World. This admixture of superior technical and scientific acumen along with greater economic empowerment for a section of the population with poverty and underdevelopment in the rest of the economy has brought the basic dichotomy in the Indian economy into sharper focus now than before. The need for reconciliation of the various socio-economic objectives with a view to maximizing welfare of the society at large has probably not ever been as great as it is now with the social and economic differences becoming widespread across various strata. As a matter of fact, it is now widely felt that growth in skill-based Service activities should be supported by commensurate growth in material-based manufacturing and agriculture to provide sustenance and employment to India's teeming millions. Failing this, it is feared that the social fabric might rupture under the burden of disparity amongst classes.

Now it appears that the prayer is about to be answered. According to the latest Report of the ADB on economic outlook in India, industrial growth rate is predicted to touch the double-digit figure of 10.2% this year - after a hiatus of nearly half a decade. The report also forecasts Agriculture to grow by 3% and Services by 8% during the year. In that case growth in industrial output will overtake that in the Service sector after almost six long years. But the crowning glory to the entire economic outlook comes in the form of highly optimistic projections of GDP growth pegged at 7.4% during FY 2004-05 and 7.6% for the next fiscal. A detailed analysis of business cycles undertaken by the Bank indicates that the country has entered a rapid growth phase. To quote the Bank " An upswing in India's current business cycle is riding on an underlying long-term growth path which is also accelerating." The Bank also feels that the Indian economy has gained the required degree of resilience so as not to be adversely affected by some degree of political uncertainty. The other departure from earlier characteristics of the economy derives from the reducing influence of Agriculture on the rest of the economy. So much so that the Bank feels that a failed Monsoon, which may affect the Agricultural sector accounting for about 20% of the total GDP, is no longer a potent source of disturbance to activities taking place elsewhere in the economy. In other words, there has been a definite improvement in the resilience of the reformed Indian economy as it has managed to garner enough degrees of freedom to withstand the odd exogenous shocks.

The Report, however, points out several areas of concern, which might prove detrimental to the growth prospects of the Indian economy in the near and medium terms. The primary concern is with the very large combined fiscal deficit of the central and the state governments, currently standing at about 10% of the GDP. The likely adverse impact of such a large deficit on the rates of inflation and interest can only be neglected at the peril of restricting future growth. Further, according to the Bank the other major factor that may upset all calculations is the large share of hot money in India's ballooning foreign exchange reserves. Last but not the least, the Report also expresses some concern about the pace of the continuing reforms process, but it accedes to the success of the reforms that have already taken place.

Another endorsement of the economic performance of the Indian economy comes from no less a source than the reputed financial consultants Goldman Sachs. Upholding the sustainability of the current good run, a recent report from the firm holds that the Indian economy is poised to maintain on an average a GDP growth rate of over 5% during the next 45 years. It is also predicted' that the size of the Indian economy will be larger that that of Japan and EU by 2030. It is interesting to note that in recognition of the recent upsurge in the Indian economic performance the latest Sachs Report has pre-poned the date by a decade compared to its earlier prediction made in October last year, where the bench mark year was fixed at 2040. the fact that the services-led growth process is driven by both global and domestic demand spreads the ris.k thinly. It is pointed out that since India will not be dependent upon exports to a very large degree, it can very well avoid the kind of crisis that the Asian Tigers faced when their currencies fell precipitously. It seems that like China, presence of a large internal market waiting to be tapped can translate into a big advantage of the Indian economy in the long run. Once again this Report has identified large fiscal deficit and slow growth of employment as two major areas of weakness in the current context.

With China and India portended to be the economic superpowers in the next five decades, the lot of Asia, particularly South and South East Asia, is likely to undergo complete transformation. Once that happens, we hope that the balance of economic power and along with it economic welfare will become more evenly distributed.

( J P Singh Joint Secretary, Ministry of Steel & Chairman, JPC)
(This is excerpted from JPC Bulletin Mar'04)