NEW DELHI, Aug 25: With first quarter sales figures coming in, it is clear that rural demand is a major reason for whatever pick-up has been seen in demand for industrial goods. According to the latest report on the economy by broking house HSBC B&K, sales figures for tractors, motorcycles and cement indicate the revival in industrial growth is led by rural incomes.

The first quarter of the year, for example, saw an increase in tractor sales by 22 per cent, motorcycles by 14 per cent and utility vehicles by 11 per cent.

The increase in rural demand is fuelled, apart from the good crop prospects, by the increase in relative prices of agricultural produce as compared to industrial or manufactured goods - terms of trade - in jargon. While prices of foodgrains rose by 18 per cent (on a year-on-year basis) last year, those of the manufacturing sector rose by just 4 per cent.

HSBC's prognosis for the economy as a whole, however, continues to be grim. It has, in fact, downgraded its overall industrial growth estimated at 9 per cent, earlier, to 7.5 per cent.

It expects GDP to grow by around 6 per cent. HSBC's economist Rajan Govil points out that the problem lies in the fact that there is no growth in government expenditure, investment spending or exports which along with private consumption constitute the four components that determine demand in the economy. Right now, only private consumption is showing a revival.

There is, therefore, a natural ceiling on the increase of industrial growth.While exact figures on government spending for this year are yet to come in, it is obvious not much growth can be expected on this front. Last year, for example, the government, spent 12 per cent less on the central plan outlay than it had budgeted for.

Export growth has also been poor and fell by seven per cent as compared to the previous month. For the year as a whole, HSBC expects a growth of a mere five per cent.

And considering it was a only four per cent last year - it symbolises a near-stagnation of demand from this vital area. Investments also remain poor with internal surpluses of corporates falling and not much equity being raised in the market.

Disbursements by IDBI fell by 30 per cent in the first quarter of the year. What is more worrying, however, is the fact that interest rates continue to remain low despite the fact that the government has already completed over 80 per cent of its borrowing from the market.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.