Fiscal FY04 witnessed robust economic activity driving GDP growth estimates to 8.1% for the year. All the three constituents of the economy, i.e. agriculture, manufacturing and the services sector, showed strong performance during the year, especially the agricultural sector, which witnessed a revival after a drought marred FY03.
Let us now see as to how the individual sectors performed during FY04:
In FY03, the decline in GDP (reset at 4% from 4.3% by the Central Statistical Organization) originated from the decline in the real GDP growth from the agricultural sector (down -5.2% from the earlier estimate of -3.2%). Good monsoons in FY04 coupled with the low base effect of the downward revision by the CSO resulted in a strong revival of the agricultural sector. Thus the real GDP growth emanating from this sector, which accommodates nearly 70% of the working population of the country, is estimated at a strong 9.1% (highest since FY99).
The first three quarters' performance during FY04 shows the important role played by the agricultural sector in making the country one of the fastest growing economies in the world. The below mentioned table suggests the same.
|GDP at factor Cost
The above table indicates a sharp surge in GDP during the 2QFY04 and the 3QFY04. This growth was led by the agriculture sector on the back of record Kharif output, followed by a bumper Rabi output. Foodgrains recorded a growth of 22% touching an all-time high of 212.2 MT (million tonnes) while cotton production increased by nearly 43%. All in all, the index of agricultural production rose by 19.6% in FY04 as against a -15.2% in FY03.
The strengthening of the industrial performance was broad based and occurred simultaneously when the activity was picking up in various other developing economies, especially, China. High growth in demand coupled with lack of additional capacity being built up led to a reduction in the demand supply gap thereby leading prices northwards. High demand from the Chinese economy further added fuel to commodity prices and steel, copper and aluminium prices surged. As per CSO estimates, growth in FY04 in the real GDP emanating from manufacturing activity alone has been robust with a 90 basis point improvement (7.1% in FY04 as compared to 6.2% in FY03).
Industrial activity was mainly driven by higher growth in the manufacturing and power generation segments while mining witnessed deceleration. All sectors, except for consumer goods showed improved performance. In fact, the manufacturing activity was complemented by the fact that increased generation of electricity led to higher output. The major activities that led to robust manufacturing activity were transport equipments and parts, basic metal, alloys and machinery and equipments, which witnessed growth in the range of 7.4% to 18% among others.
However, infrastructure Industries witnessed lackluster performance in FY04 with steel production being mainly affected by high raw material prices, cement production witnessed lower than expected demand while crude output was affected due to high water-oil ratio in the ageing fields of Mumbai. However, refineries witnessed robust margins on the back of sustained high prices in the international product prices.
The Services sector witnessed robust growth with activity in trade, hotels, transport and communication rising by around 11% in FY04 as compared to nearly 8.5% in FY03.
All in all, the sector did witness robust growth if software services are included. The rise in the outsourcing contracts in the last fiscal led to the software industry recording robust growth numbers (50%).
We believe that growth in the infrastructure sector (petro products, crude, electricity, cement and steel, etc.) was primarily price led. This in turn was largely due to high demand for commodities like steel, aluminium and crude in the international markets. Now coming back to the Indian scenario, for the country to consistently maintain a growth rate of above 8%, we need to increase the per capita consumption of various products such as oil products, steel (30 kg), aluminium (0.5 kg), which are the one of the lowest as compared to developing nations. The very fact that per capita consumption is low, in itself, provides a vast market expansion opportunity to the existing players.
However this is not possible unless there is a rise in the purchasing power of the Indian public. Since nearly 70% of the population thrives on farm income, an urgent need exists to give a further fillip to this sector. Also infrastructure projects like the national highway development program needs to be fully implemented. Projects of this magnitude give goods employment opportunities and help in the development of the domestic markets by linking various regions of the country. The government has proposed strong measures for the farm sector ands the intent seems to be present. However, it remains to be seen how the government implements its policies without putting strain on its deficit position as well as the financial system.
In the services sector, although outsourcing has gathered steam with highly skilled labour available, we need to build on the advantage and at the same time create roadblocks for other developing nations by entering the higher end of the value chain. In this scenario, China and India coming together can bring in synergies, as India is a super power in the software business while China is capable of producing cheaper hardware products, thereby combining efforts shall be profitable to both the countries.