Feb 03 : The euphoria over economic growth that started with the November 2009 industrial production figures has carried over into the first month of the new year. It was fortified last week by the Reserve Bank, which raised GDP growth projection for 2009-10 to 7.5 per cent from the earlier October credit policy figure of six per cent.

The renewed optimism is based on the HSBC Markit Purchasing Managers’ Index (PMI) for December 2009, a 9.3 per cent jump in exports and 27 per cent increase in imports. The export figures were the  highest since May 2009 while the rise in imports appears to indicate an improvement in manufacturing. The RBI’s industrial outlook survey has also showed further improvement in manufacturing in October- December 2009, and greater expectations for January-March 2010. But while this is heartening following the 2008-09 slowdown, the euphoria in some quarters, including sections of the media, appear premature. It’s not yet time to open the bubbly!

In order to be credible, the euphoria over growth would require totally different contours and must be inclusive of all sectors. It is certainly true that India, growing at 7.5 per cent, is doing far better than most countries, including the so-called developed economies, but as the RBI has observed and a breakup of the IIP figures show, our growth has been uneven and restricted to some sectors of the economy. There are other areas that are yet to register healthy growth. In last week’s credit policy statement, the RBI pointed out that even though 12 out of 17 industries, accounting for 57.2 per cent of the IIP’s total weightage, contributed to recovery, it is still driven by a few segments. The RBI also reminds us that the government and its stimulus package played a dominant role in this connection.

It is also important to remember that implementation of the Sixth Pay Commission’s award, benefiting Union government employees, provided much of the steroids for this growth. It added at least two per cent to the nine per cent growth in the services sector. Private sector spending has not kept pace with government spending, and there is a crucial need for this to be corrected if the growth rate is to be sustained when the government exits the stimulus package regime — as it must do sooner or later. There is almost a mild tremor of protest whenever there is talk of ending the stimulus measures. This uneven growth is one of the reasons why the RBI did not touch interest rates for now. There are still several sectors that badly need a cheaper credit regime.

The industries and sectors that contribute 43 per cent to the IIP have not seen any resurgence: these include sectors like non-durables, electricity, exports and tourism. Many depend on the external economy. While there are some hints of growth making a comeback worldwide, it is not strong enough to sustain exports that depend almost entirely on rising demand in these economies. The December IIP figures will be released over the next nine days, and the GDP figures will be out later in the month: both should be interesting to watch out for. And it is important to remember that whatever growth has been witnessed in industry, manufacturing and the services sector, the condition of agriculture has been dismal — with a 0.9 per cent growth rate seen as an improvement over the previous quarter. We cannot forget that 60 per cent of our people depend on agriculture, half of whom are completely at its mercy, and the government appears to be showing comparatively less interest in developing this sector. Remember what RBI governor D. Subbarao recently wondered: "When is the next big idea in agriculture?"