Almost halfway into 2003-04, the Indian economy has shown early signs of revival. Thanks to the good monsoon this fiscal, it is expected that the drought ravaged Indian Agriculture will manage to tote up a good growth rate. It is also expected that with the shadow of a negative growth rate put behind, a resurgent agriculture sector may take the lead in setting the tone and sustaining the nascent forces of economic upswing seen in the first few months of the current fiscal.

The latest estimates of the movement in GDP and its various constituents published by the Central Statistical Organization shows how the rain gods weakened the gathering forces of economic revival in the last fiscal. Shrinkage of 3.2 per cent in agricultural output in 2002-03 more than neutralised the accelerated growth in the manufacturing, construction and mining and quarrying activities. As a result, overall GDP growth rate plunged to 4.3 per cent in 2002-03 as opposed to 5.6 per cent the previous fiscal.

Based on the quantum and distribution of rainfall in the current fiscal, the CMIE has projected a 7.6 per cent growth in agriculture this fiscal i.e., FY2003-04. This is indeed good news. Because industrial activities continue to be determined at the margin by the level of income generated in primary activities. This, in spite, of some weakening in the relationship between the two sectors got noticed in the recent years. As a matter of fact, it is now widely held that performance of exports is also emerging as an important determinant of the activity levels in the industrial sector.

Let us now find out how the other departments of the economy are likely to fare in the last six months. According to the September bulletin of the CSO, recovery in the industrial sector is seen to be reasonably broad based. The CSO survey estimates that 13 out of the 17-two digit industry groups have shown positive growth year in July 2003. The highest growth of 25.1 per cent came in 'Transport Equipment & Parts' followed by 21.6 per cent in wool, silk and man-made fibres and 16.2 per cent in basic metal and alloy industries. It is worth noting that two of the three high growth sectors represent metal and metal-intensive products. This observed trend probably heralds the return of the brick?and?mortar commodity sectors as driving the economic process of economic growth.

Disaggregated growth rates in the first four months of FY2003-04 have, however, been unevenly distributed over the various sectors as compared to the corresponding time period last fiscal. While 'Manufacturing' industries bettered their performance between the two years under consideration, 'Mining' and `Electricity' have fared much worse, than in the last fiscal. The year-on-year monthly growth rate 'Manufacturing' in July has been maintained at around 6.8 per cent for the two consecutive years. But the cumulative growth rate for April-July has gone up from 4.8 per cent in FY 2002-03 to 6 per cent in the current fiscal. A recovery in the 'Manufacturing' growth rate from the intense sluggishness observed in the last four years is a welcome development and may trigger growth in the other economic sectors. Apart from a consolidation in domestic demand, the growth in manufacturing activities can also be attributed to a commendable increase in exports from India during this period. Exports grew at around 12 per cent despite the severe downturn in the developed countries.

Use-based classification of industrial activities highlights the relatively better performance of the 'Capital Goods' and 'Intermediate Goods' sectors. Even though it is too early to draw any definitive conclusion, an increase in the growth rate of the IIP for 'capital goods' may well portend an increase in investments activities possibly in fulfillment of replacement demand for used capital goods and also to some extent in fresh capacity creation. As far as the relative growth rates in the consumer goods segment is concerned, 'Consumer Durables' industries are a clear winner all the way. The first four months of the current fiscal have seen an emphatic reversal of the negative growth rates observed in this sector during the, last year and a half. The surge in imports of industrial inputs in the recent weeks is another evidence that indicates revival of the Indian industrial sector.

The growth in industrial production will be further boosted when the sectors representing the largest weights in the IIP, namely those producing basic goods and intermediate goods, also go past the sub? five per cent rate attained up till now. The data also suggest that the current upsurge has been largely consumption?led. If the economic upturn in the domestic economy continues unhindered into the next few months and the world economy consolidates the gains made in the recent weeks, we may very well expect a rise in investment rate in the next year with all the associated expansionary effect on effective demand. As a matter of fact, there has been a distinct increase in the investment intentions of corporate India as measured by the rising number of Industrial Entrepreneur Memorandum (IEM) filed in the last few months of the FY 2002-03. According to some estimates the proposed investment based on IEMs fell by a hefty 44 per cent in 2000 from a record high of Rs. l, 28, 892 crore in 1999 to Rs.72, 332 crore in 2000 and rose by 26 per cent again in 2002. We hope these intentions are translated into actual investments.

The revival in the real sector has been helped by some of the developments in the financial sectors of the economy. It would appear that the regime of low official/lead interest rates accompanied by an inflation level contained at around five per cent has been a factor in stimulating both consumption and investment demand in the economy. The record level of foreign exchange reserves at more than $100 billion currently has, no doubt, provided the necessary cushion for policy maneuvers. But the inflow of arbitrage?induced foreign funds on the capital account and the resultant appreciation in the external value of the Rupee has caused some consternation for the policy makers. It is now widely held that any further hardening of the Rupee may adversely affect the competitiveness of Indian exports. The recent stricture of the RBI on parking of funds in India by Overseas Corporate Bodies (OCB's) is expected to take care of the problem to a large extend. The other point of discomfiture arises form the fact that prime lending rates of the scheduled banks have not fallen in the consonance with the official bank rate of the RBI, indicating perhaps the bankers risk aversion and his preference for buying government securities over market lending. The slow growth in non-food credit offtake from the commercial banks despite some revival in industrial production is perhaps partly a reflection of the bankers' cautious approach to industrial lending. India's lack of success in attracting; Foreign Direct Investment (FDI) is' another area of concern. According to the Finance Ministry, FDI inflows in July this year were higher at $180 million compared to $154 million in July 2002. The point of worry, however is that the cumulative inflow of FDI was $351 million, which is significantly lower than the $1605 million recorded in April ? June 2002. Admittedly, improvements in physical and social infrastructure and better quality of human resources are needed to attract foreign capital. According to latest calculations of the Finance Ministry, electrical equipment including electronics and computer software attracted the maximum amount of FDI (14.49%) between August 1991 and June 2003, followed by. telecommunications (12.83%), transportation (10.7%), fuels including power and oil refinery (10.2%), services (8.2%), chemicals excluding fertilizers (6.5%) and food processing (3.9%). The Finance Ministry is hopeful of a surge in FDI in the current year and specifically singles out the 'food processing' industry to gain the most.

In this backdrop of gathering optimism, the RBI has been cautiously optimistic in its prognostications about the Indian economy in the immediate short run. The Bank projects GDP to grow by about six per cent in FY2003-04 assuming rainfall to be around 96 per cent of the long term average. It puts the inflation outlook at around 5 per cent 5.5 per cent, assuming a higher base level of prices at end?March 2003, a decline in oil prices and a favourable expectation of the Monsoon. Non-food credit is expected to grow by 15 per cent to 16 per cent. The optimism of the bank regarding India's prospects in the short?run finds has been echoed by the International Monetary Fund (IMF). The Fund has recently said that it expects India to grow at about 5.4 per cent this fiscal and do even better at 5.9 per cent growth in the next year. This would make India one of the leading performers in Asia.

The Bank also promises to create a growth inducing monetary policy environment by providing adequate liquidity to meet growth in credit. It also reveals a preference for a soft and flexible interest rate regime rather than tightening monetary policy. In balance, however, it seeks to reconcile concern about inflation and concern about economic growth. In pursuance of its avowed stance the RBI, so far in FY2003?04, has reduced bank rate by 25 basis points to 6 per cent, which it proposes to keep stable till October 2003. It has also cut CRR by 25 basis points to 4.5 per cent effective from June 14, 2003. On the fiscal front also the government has been striving hard to reduce fiscal deficit to the budgeted target of 5.1 per cent. With an increase in economic activity, it is reasonable to expect increased revenue mobilisation and therefore, a greater probability of containing the fiscal deficit. As far as the institutional reforms for fostering competitiveness are concerned, the government has already taken major steps in fine?tuning the regulatory framework in important sectors. It has also instituted the Asset Securitization Act to reduce the risks project financing. It has also catalysed investment in critical physical infrastructure. The passing of the Electricity Act is another landmark development. It is to be hoped that with continuing progress in the implementation of such reform measures., the Indian economy tackles the problems of structural rigidities and emerge stronger.

In the end, we would like to point out that India's revival will be helped to a large extent if the global economy continues to firm up as evident now. First and foremost, the Asian economies, especially the Asian Tigers, have been on a comeback trail during the last year or so. This is a welcome development for India, as continued prosperity in these regions will support India's burgeoning export efforts. Most importantly, the Japanese economy has shown signs of recovery. Helped by a rise in business investment and higher private spending, the Japanese GDP grew by 0.6 per cent during April ? June 2003 ?on an annualized basis this translates into a possible 2.3 per cent growth in GDP. Return of Japan on a growth path may very well have positive effects elsewhere in the Asian sector. Similarly, as for India's largest trading partner USA, growth in Q3 has been projected to be higher at 3.7 per cent over the modest 2.4 per cent growth estimated for Q2. Observers have projected a pick up in US economic growth in the near?term and this rising trend to hold next year as well. All this is good news for the globalized Indian economy. May be the world will leave synchronised slowdown behind and embark on a synchronised revival.