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Saasachi Mitra
JAIPUR, Aug 23: Finance minister Yashwant Sinha received a pat on the back at the weekend from party colleagues for his handling of the economy, but economists were not nearly so charitable.
JAIPUR, Aug 23: Finance minister Yashwant Sinha received a pat on the back at the weekend from party colleagues for his handling of the economy, but economists were not nearly so charitable.
The National executive of the Bharatiya Janata Party (BJP), which leads the ruling coalition, said in a resolution on Saturday that the government, guided by finance minister Yashwant Sinha, had taken the first step toward recovery.
The party also congratulated the government for meeting the challenge of economic sanctions, imposed by the United States and Japan after India conducted nuclear tests in May.
But economists said the recovery might be a rough ride, citing an abysmal export performance, rising inflation, a depressed capital market and slack investor confidence.
Sinha told Reuters in an interview on Saturday that the outlook was not all "gloom and doom". He was confident of a pick-up after the monsoon rains ended and clear skies marked the start of the construction season.Sinha, who raised government spending on infrastructure and housing to boost growth in his budget for 1998-99, said positive signals were already emerging from the economy.
"Once the rains are over and the construction season begins, then the public sector expenditure will be put on stream, projects will be taken in hand, they will generate demand for steel, cement, (and) impart a certain momentum to the economy," Sinha said. But economists believe the task is not that simple.
"I do not expect in fiscal 1998-99 (April-March) any significant change. I do not expect growth in gross domestic product (GDP) beyond five, 5.5 per cent," said BB Bhattacharya, a professor at the Institute of Economic Growth.
The government expects GDP to grow between 6.5 and 7 per cent in 1998/99. It was 5.1 per cent in 1997/98. Economists said increased government spending was needed but they fretted over the government's high fiscal deficit target, which they said could pull the rug from under its feet.
Sinha said the 1998/99 fiscal deficit target was realistic and he was determined to keep it at 5.6 percent of GDP compared with 6.1 in the previous year.
"I expect fiscal deficit to be more than six percent,"Bhattacharya said.The World Bank said in its latest India economic update that fiscal imbalances threatened economic stability.
"The external environment is also difficult. The government faces a tough task," economist SP Gupta said.
Exports slumped 7.94 per cent in the June quarter, when the government was aiming for 20 percent growth.
The BJP's economic resolution voiced concern over the Asian crisis, saying it had dented India's shares and currency.
It also expressed concern about rising inflation, which it felt could be politically damaging with provincial elections in four states expected in November. But the BJP laid most of the blame on previous governments and bad weather.
The consumer price index for industrial workers, closely watched by economists, rose 12.4 percent in June. It had risen 6.6 percent a year earlier.
Economists said only a good winter harvest could salvage the government's reputation and stabilise the economy.
"Inflation can be controlled if there is a bumper Kharif(winter) crop as food prices will come down," Bhattacharya said.
In India, where two-thirds of the population depends on agriculture for their livelihood, a bumper crop can boost farm incomes which in turn can revive demand in the industrial sector.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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