At that time it was estimated that if GDP does not grow by at least 10 per cent, the country would not be able to catch up with the rest of the developed world by the end of the first decade of the new millennium. The decline in GDP was marked by a fall in agricultural output by 1.5 per cent and a decline in industrial production. Additionally export growth slumped while import growth was buoyant resulting in a worsening of the trade deficit and a growing deficit in the current account. This was in spite of a fall in the international oil price. Capital inflows have slackened due to a variety of reasons among which are political instability, turmoil in the Asian financial markets and the world recession. The country got a breather on account of the success of the Resurgent IndiaBonds. If this had not been successfulthere would have been a net outflow. With falling exports, high or increasing imports and foreign capital outflow, the stability of the rupee will be threatened and reserves will reduce.

Indications are that the dog days will continue. It is estimated that agricultural production will grow at about 3 per cent this year. Industries are still in the grips of a liquidity crunch and there will be no marked improvement in industrial growth. Thus even if the rate of growth from services are as high as 9 per cent to 10 per cent, GDP growth this year will be about the same as last year. If the winter crop is affected by adverse weather conditions and industrial recession continues, GDP growth will be even lower than 4.5 per cent.

The budget anticipated the fiscal deficit to be in the region of 5 per cent. However, it now appears, in the face of the fall in GDP growth and lower tax revenues, that it may have been overly optimistic. It is now agreed and accepted that the deficit will be higher--more in the regionof 7 per cent to 8 per cent. A high fiscal deficit can create severe economic repercussions starting of course from an increase in the rate of inflation.

As matters stand the question that is in the minds of most individuals is whether the economy will recover in the imminent future. My personal opinion is "no". A strong recovery this year is unlikely. Agricultural growth is more likely to be around 2.5 per cent. If industrial recovery is to take place there must be a favourable industrial climate--a climate where there is a growing demand and a reasonable cost of capital. This could be accomplished by two ways--foreign investment or public spending. In the present world economic scenario foreign investment and capital spending will be low. Furthermore, the Government on the other hand does not have enough money. Any big increase in government spending will increase GDP at the cost of high inflation and larger fiscal deficits. The positive is that public spending will result in stimulating core industrialgrowth. This will threaten the stability of the rupee and may force a readjustment. The rupee has been remarkably stable and readjustment could mean that Indian exports would once again become buoyant. I believe in spite of the dangers of an increasing fiscal deficit that if industrial growth is to be stimulated government spending on core industries has to be increased. By core industries I mean steel, cement, power, construction, road and other infrastructure industries.

Development and increased activity in these areas will translate into lower costs to the end user. The negative will be rising inflation and this will threaten the stability of the rupee. A threat to the stability of the rupee may not be a bad thing. Exports have fallen mainly on account of the fact that due to the steep devaluation of currencies of South East Asian countries, Indian exports appear more expensive. Export growth fell last year. It is estimated that it will be in the region of 6.5 per cent this year. Real inflation hasrisen during the last year and is realistically around 15 per cent. It may not go much higher. If government spending increases inflation will rise. Employment will also increase and so will disposable income. This will result in increased consumer spending and a revival of these industries.

In regard to attracting foreign investment the coming budget has to be very decisive with tax incentives and a very clearly spelt out policy. It must be acknowledged that after the first spurt of liberalisation the pace of economic reform has not been consistent. There has been full liberalisation on current account. In regard to domestic reforms there has been liberalisation but the full potential/effect has not been felt because of bureaucratic impediments. The Government has to see that these are removed if foreign investment is to come to India in a big way and come in a big way it must as the Government does not have the money to spur the revival of the economy.

Additionally, the Government must have a relook atthe industries/ factories that it controls and runs. There are several loss-making ones running solely to keep workers in employment. This is wrong. Legislation must be introduced to permit unviable entities to be closed. This worked with remarkable success recently in Thailand and Korea--two economies that are limping back to normalcy.

In conclusion, we must accept that the international economy is still in the doldrums. We in India must re-examine our reforms in the light of this. If we are to progress I believe India has to and must gradually remove remaining controls and administrative restrictions on production and consumption. However, it would be better to retain controls over foreign capital and currency for a while longer. The dangers of premature capital account convertibility must be remembered. Additionally impetus must be given to exports and imports must be discouraged to protect the balance of payments. The road is mined and with potholes. One must tread firmly but carefully.