Putting economy back on track
Wednesday, 28 November 2007
The Asian Development Bank (ADB) in its quarterly economic update has taken stock of the country's overall situation in terms of its economy and business in the wake of the recent cyclone preceded by two consecutive floods. The combined impact of all the natural calamities including floods and cyclone has taken its toll on the economy. First of all, the natural calamities have inflicted severe damage to agriculture. The hope that it would be possible to recover from the flood-inflicted losses sustained by the agriculture, particularly by its crops, once the aman paddy is harvested, has been dashed with cyclone wreaking its havoc on the aman fields and the winter crops. The livestock and fishery resources of the country have also been equally affected in consequence of the wrath of nature. ADB in its report has estimated that as a consequence of the cyclone, about 38 per cent of the aman crop has been damaged. The two successive floods between July and September destroyed about 1.3 mullion tons of food grains. Such a loss to the crops will force the country to import more food grains from the international market. But as the price of food grains is also high in the international markets, such imports would ultimately contribute to creating further pressure on the already prevailing inflationary trend.
Meanwhile, the fall in the export of readymade garments (RMG) products and other exportable items due to a decline in their external demand coupled with increase in imports of food grains will, of necessity, affect the foreign exchange reserve situation. The combined effect of all these negative factors will press down the GDP growth. According to the ADB estimate, the GDP growth rate will decline to below 6.0 per cent in 2008 compared to what it was in the previous fiscal at 6.5 per cent. The kind of challenge the natural disasters have put before the economy is in a word unprecedented in the history of the nation. Add to it this situation the complex gamut of issues like erosion of business confidence largely for a variety of non-economic factors.
All the above mentioned factors, though inadvertent in nature, are going to weigh down heavily on the overall performance of the economy. But the accidental factors apart, there are also some constant sources of drain on the economy like the subsidies on the prices of oil, power, fertilizers and the burden of the state owned enterprises. Understandably, during the current fiscal and even beyond it, the government will have to walk a tight rope to manage the economy. So, to face such a package of challenges, the government will have to set its priorities right. But it would be real tough for the incumbent government to face the challenge on its own given the fact that the most urgent task before it would be to rehabilitate the cyclone victims as well as the physical infrastructure devastated by the impacts of cyclone and the dual incidence of floods. While meeting the emergency, it would also have to play the catalytic role of stimulating the private sector growth through taking prudent steps to address the loss in business confidence in the economy.
Against the above backdrop, it is heartening that the ADB, without asking the government to cut subsidies, has committed generous assistance in the form of easy loan to help carry out the task of post-cyclone rehabilitation work. In sync with ADB help, some other donor countries have also pledged outright grants. Such gestures of goodwill will certainly help the government in grappling with the challenges it faces to put the economy on track.
Meanwhile, the fall in the export of readymade garments (RMG) products and other exportable items due to a decline in their external demand coupled with increase in imports of food grains will, of necessity, affect the foreign exchange reserve situation. The combined effect of all these negative factors will press down the GDP growth. According to the ADB estimate, the GDP growth rate will decline to below 6.0 per cent in 2008 compared to what it was in the previous fiscal at 6.5 per cent. The kind of challenge the natural disasters have put before the economy is in a word unprecedented in the history of the nation. Add to it this situation the complex gamut of issues like erosion of business confidence largely for a variety of non-economic factors.
All the above mentioned factors, though inadvertent in nature, are going to weigh down heavily on the overall performance of the economy. But the accidental factors apart, there are also some constant sources of drain on the economy like the subsidies on the prices of oil, power, fertilizers and the burden of the state owned enterprises. Understandably, during the current fiscal and even beyond it, the government will have to walk a tight rope to manage the economy. So, to face such a package of challenges, the government will have to set its priorities right. But it would be real tough for the incumbent government to face the challenge on its own given the fact that the most urgent task before it would be to rehabilitate the cyclone victims as well as the physical infrastructure devastated by the impacts of cyclone and the dual incidence of floods. While meeting the emergency, it would also have to play the catalytic role of stimulating the private sector growth through taking prudent steps to address the loss in business confidence in the economy.
Against the above backdrop, it is heartening that the ADB, without asking the government to cut subsidies, has committed generous assistance in the form of easy loan to help carry out the task of post-cyclone rehabilitation work. In sync with ADB help, some other donor countries have also pledged outright grants. Such gestures of goodwill will certainly help the government in grappling with the challenges it faces to put the economy on track.