India poised for major economic gains in 2004; key reforms eyed
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India poised for major economic gains in 2004; key reforms eyed

Monday, 22 December 2003, 08:00 Hrs
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NEW DELHI: For decades derided as a slumbering elephant, India is on its way to transforming itself into Asia's newest economic tiger.

That's the near unanimous conclusion of economic forecasters for the near term based on a string of indicators like growing industrial output, buoyant tax revenues, large foreign exchange revenues and spiralling consumer spending.

If 2003 proved to be busy for the Indian economy, Asia's third largest, the country has more than a bagful of good news to bank on for next year.

The most bountiful monsoon rains in a farm-reliant country, a significant pick up in industrial activity, increased outsourcing of jobs by overseas companies and a booming stock market - there has been a steady stream of positive news.

Experts here believe that with the solid foundation laid down in 2003, the country of over one billion people would benefit from a recovery in the global economy and acceleration in domestic industrial activity in 2004.

But a slow-moving bureaucratic system, sputtering infrastructure, ballooning fiscal deficit and an on-again-off-again reforms process can put roadblocks in the way of achieving sharply higher economic growth.

"The kind of optimism that we witnessed in the Indian economy in 2003 had been missing for quite some time now," said Subir Gokarn, chief economist of the independent credit rating firm CRISIL Limited.

"There is a sense of bullishness in the market, in the industry... everywhere. Consumers are also spending more money and purchasing things ranging from houses to cars and mobile phones like never before," Gokarn told IANS.

"I think this will only get accelerated in 2004 with the growing strength of the industrial sector and signs of a recovery in the global economy. These factors will result in continued domestic spending and a sharp surge in exports."

In addition, a long-awaited upturn in the US economy - India's biggest export market - rising technology spending by global corporations, and expectations of lower oil prices all bode well for India's economic expansion in 2004.

A number of potential pitfalls however loom, including possible below average monsoon rains and soft-pedalling of crucial reforms issues such as privatisation of state-run firms, reduction in food subsidies and changes in archaic labour laws.

The general election next year also adds an element of political uncertainty to the economic outlook.

"The slow pace of reforms in key sectors like labour laws and the power sector and infrastructure bottlenecks are clearly the factors that can inhibit economic growth in the year ahead," said economist D.H. Pai Panandiker.

"The reforms process may face a setback ahead of the general election next year. No government would like to take tough economic decisions and be seen as anti-people in a poll year," he added.

The year 2003 started on a cautious note with the country struggling to come out of the widespread impact of a severe drought in recent memory.

The slowing global economy and border tensions with archrival Pakistan also added to India's woes.

A "feel-good" financial budget for fiscal year 2003-04, presented on February 28, managed to lift the industry sentiment a bit with the government announcing mega plans to boost the infrastructure sector and financial markets.

The impact of the "feel-good" budget was, however, short-lived with the spectre of U.S.-led military action against oil-rich Iraq haunting the nimble-footed Indian economic recovery.

Fears of a long and messy military campaign in Iraq, resulting in soaring oil prices and instability in the global market, threatened to quash the domestic economy's attempt to right itself.

For months, the prospect of military action against Iraq, which has the world's second-largest oil reserves after Saudi Arabia, has driven up oil prices and weighed heavily on the financial markets across the globe.

Although the war in Iraq drew to a close sooner than expected, a fast-spreading acute pneumonia that had hit many countries, mostly in Asia, came at a bad time for the already jittery Indian economy.

The deadly SARS sapped investor confidence and hurt domestic economic recovery prospects.

Although India largely remained untouched by it, the virus dealt a blow to industry as firms cancel business trips, conferences and product launches.

"The impact of Iraq war and SARS was more than offset by the widespread monsoon rains that resulted in increased consumer spending in both rural and urban areas and, consequently, a pick up in industrial production," said Gokarn of CRISIL.

More than five decades after the country's independence and all-round technological leaps, the weather god is still the chief provider to the India economy where agriculture remains the mainstay for millions.

The quantity of rainfall in the June-September period is crucial for the farm sector that accounts for nearly a quarter of the gross domestic product and employs 70 percent of the country's over one billion population.

India's economy grew by a moderate 4.3 percent in the fiscal year ended March 31, 2003, mainly due to a 3.1 percent fall in agriculture produce, as the worst drought in three decades ravaged large parts of the country.

Enthused by the better-than-expected monsoon rains, the Indian government as well as leading think tanks have projected a seven percent growth in the current fiscal year.

A seven percent growth will be the strongest full-year expansion after six years. The last time India's economy grew over seven percent was in 1996-97, when it touched 7.8 percent.

On the downside, the government's ambitious privatisation drive managed to make little progress in 2003 after a court verdict halted the sell-off of two blue-chip public sector oil companies.

The Supreme Court on September 16 restrained the government from selling its stake in Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) without parliament's approval.

The government had planned to sell 35.2 percent equity in BPCL through public offer in domestic and international markets and 34.01 percent equity shares of HPCL to a strategic buyer.

Although the court last month agreed to take a fresh look at its judgement, the verdict threw a spanner in the government's plans to privatise a host of other state-run firms in the current fiscal year.

The government planned to raise 132 billion in the fiscal year ending March 31, 2004, through this route. So far, it has managed to raise only a fraction of that.

Indian exports were also adversely impacted in 2003 due to a sharp surge in the value of the rupee against the US dollar.

The rupee has risen over four percent against the dollar this year due to the dollar's global weakness and persistently strong foreign fund investment in India that has taken the country's foreign exchange reserves to a whopping $96 billion.
Source: IANS
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