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CMIE's growth forecasts for this year and the next are dismal compared with optimistic official projections. The Planning Commission assumes the GDP growth to rise from 6 per cent in 1998-99 to 7 per cent in 1999-2000. But CMIE reckons GDP growth will stagnate at 4.5 per cent, though it provides for a possible rise to 6 per cent in 1999-2000--should the country reap a bountiful harvest and witness a pick-up in investment. more important than the difference in numbers is the loss of drive reflected in CMIE's assessment. For the fifth consecutive half-year, it points out, corporate profits have declined, and debt servicing has increased. This setback blurs corporate vision and dampens expectations.
So, Tatas' investment in Indica, Hyundai's in Santro and Maruti's in capacity expansion bucks the trend. True, the domestic capital-goods industry logged a higher growth of 10 per cent in April-October 1998 against 8 per cent in the corresponding seven months of the previous year; but this improvement is attributed, principally, to demand from just two sectors: power transmission and distribution and oil and gas. There is no telling, so say doomsayers, if growth will plummet in the winter months as happened in 1997-98. However, it is also true that capital-goods imports have surged in the current year, up 4 per cent in dollar terms against the 13 per cent fall in the corresponding seven months of 1997-98. Investment is pulsating, though feebly. And if construction picks up in housing, as expected, green shoots might still appear.
The prevailing mood is overly skeptical: the half-full glass is seen to be half-empty. Go back to the five consecutive half-year set-back period. Before it, there was rapid capacity expansion for almost three consecutive years. But there was no corresponding acceleration of demand. Its growth rate remained stable. But over the last 30 months demand has been absorbing the slack in capacity utilisation. This is also reflected in the decline in the rate of profit, a consequence of competitive pricing, during the set-back period. The cyclical downturn in investment may have bottomed out. Recovery is slow. This will not have happened if public investment had not faltered. But with liberalisation public investment is on the retreat. The last few years and possibly the coming one or two, will be a period of transition to private investment-led growth. As this scenario unfolds, numbers will be viewed differently: if growth is 4.5 per cent this year, it must rise next year (a possibility that even CMIE does not ruleout).
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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