Preconditions for accelerated growth
Saturday, 11 August 2007
The official projected growth rate for the economy in fiscal year (FY) 2007-08 is 7.0 per cent or near that figure. But real worries are surfacing whether this growth rate would be attainable. The flood now would come in handy for explaining any slowdown in the economy that may occur in the remaining part of the fiscal year. Here again, the growth prospects will largely depend on how the post-flood recovery takes place particularly in the agricultural sector. Having said that, it has to be pointed out that even before the appearance of the flood, symptoms of a slowdown were noted. The same was reflected in less than expected investment operations. New investments in enterprises -- specially by the private sector of a country -- are among the major indicators of an economy on the growth track. But the figures do not suggest any sustained uptrend in investment in the private sector. The growth in bank credits signify increases or decreases in new investment operations. But actual bank credit growth, in terms of disbursement, has so far been less than that of the last year. Similarly, export growth rate has also decelerated. Furthermore, the rate of actual foreign investment made in the economy has not been significant during the last several months.
It is not possible to write about this slowdown in all the sectors within the confines of this column. But one example should suffice. The housing and construction sector in recent years was proving to be a dynamic one contributing progressively and significantly to the GDP. Unlike other sectors, its capacity for multiplier effects on other sectors or to create demands in them and in creating income and employment, are considered to be high. But this sector has hit hard times with figures showing drop in sales of apartments to the tune of 50 per cent in the last six months. Analysts and expert observers of the economy are saying that if the present trend continues, then this may depress the growth rate below its potential in the current fiscal. That is in no way encouraging, more so at a time when growth rate at a level higher than that of the previous years is necessary to make an effective dent into the poverty situation.
All concerned would hope that this would not happen, for the same would cause very unpleasant repercussions on employment and purchasing power of people. A growing economy absorbs these problems by expanding economic opportunities. The opposite happens in a situation of no growth or little growth. While there are multiple factors that may be cited to explain this slowdown, is there an all too important factor causing this slower growth? It has crystallised from different assessments that the main reason for businesses not taking greater interest in their occupations, to come forward to invest and engage in business operations with zest, is linked to fear, on real or perceived grounds. The simultaneous drives against corruption, tax evasion, money laundering, food adulteration, hoarding etc., however well-intentioned these may be, are having rightly or wrongly some jarring effects on business in general. Deviations and malpractices rooted in last three and a half decades of lax governance have led to a situation when unsparing efforts to streamline it under a single sweep may create dislocations and jitters. That is why a pragmatic approach, recognising the ground-level realities, is needed for avoiding the possible adverse after-effects of such drives and for retaining and instilling confidence among all sections of people by dispelling fear or panic that persists, on real or perceived grounds. Tough actions against the corrupt big fries have already sent the signal, exerting corrective influence on others. The economy should enjoy the confidence of the people so that the normal activities can be carried on without being deterred by any fear. In the ultimate analysis, economic growth determines social stability which is critical for successful undertaking of the much-needed reforms for setting the basics right and addressing the systemic problems of corruption, tax evasion and the like.
It is not possible to write about this slowdown in all the sectors within the confines of this column. But one example should suffice. The housing and construction sector in recent years was proving to be a dynamic one contributing progressively and significantly to the GDP. Unlike other sectors, its capacity for multiplier effects on other sectors or to create demands in them and in creating income and employment, are considered to be high. But this sector has hit hard times with figures showing drop in sales of apartments to the tune of 50 per cent in the last six months. Analysts and expert observers of the economy are saying that if the present trend continues, then this may depress the growth rate below its potential in the current fiscal. That is in no way encouraging, more so at a time when growth rate at a level higher than that of the previous years is necessary to make an effective dent into the poverty situation.
All concerned would hope that this would not happen, for the same would cause very unpleasant repercussions on employment and purchasing power of people. A growing economy absorbs these problems by expanding economic opportunities. The opposite happens in a situation of no growth or little growth. While there are multiple factors that may be cited to explain this slowdown, is there an all too important factor causing this slower growth? It has crystallised from different assessments that the main reason for businesses not taking greater interest in their occupations, to come forward to invest and engage in business operations with zest, is linked to fear, on real or perceived grounds. The simultaneous drives against corruption, tax evasion, money laundering, food adulteration, hoarding etc., however well-intentioned these may be, are having rightly or wrongly some jarring effects on business in general. Deviations and malpractices rooted in last three and a half decades of lax governance have led to a situation when unsparing efforts to streamline it under a single sweep may create dislocations and jitters. That is why a pragmatic approach, recognising the ground-level realities, is needed for avoiding the possible adverse after-effects of such drives and for retaining and instilling confidence among all sections of people by dispelling fear or panic that persists, on real or perceived grounds. Tough actions against the corrupt big fries have already sent the signal, exerting corrective influence on others. The economy should enjoy the confidence of the people so that the normal activities can be carried on without being deterred by any fear. In the ultimate analysis, economic growth determines social stability which is critical for successful undertaking of the much-needed reforms for setting the basics right and addressing the systemic problems of corruption, tax evasion and the like.