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DIPLOMACY: FORECAST
The Probable Scenario
If these assumptions
hold, the GDP in 2001-02 will increase by 6.3 per cent. That's only a
fraction higher than the 6 per cent GDP growth achieved in 2000-01. Even
this level of GDP growth will come about from a likely recovery in the
value of agriculture output which will grow by 3.5 per cent in 2001-02
compared to just a 1.2 per cent rise last year. Value of agriculture output
is the multiplication of total agriculture output (foodgrains and non-foodgrains)
and average agricultural prices. In the past, rebounds in the value of
agriculture output from a bad year have been much stronger. For instance,
in 1996-97 the value of agriculture production spurted by 9.6 per cent,
after falling by 0.9 per cent in 1995-96. But the NCAER is forecasting
a conservative recovery of 3.5 per cent in 2001-02 because of the expectation
of a slow rise in agriculture prices and exceptionally poor state of the
rural economy (see box: Agriculture).
 The
industry is likely to grow by 7 per cent, which represents a recovery
from the 5 per cent growth it clocked in the previous year. The recovery
is almost entirely rooted in the assumed additional public investment
of Rs 7,000 crore and private investment of Rs 1,500 crore. That translates
into a growth rate of 11 per cent in public investment and 17 per cent
in private investment. But services, which now have over 50 per cent share
in the GDP, will slow down marginally-from clocking an 8.1 per cent growth
in 2000-01 to 7.86 per cent in 2001-02. That's the reason why GDP growth
will not recover substantially, despite some recovery in industry and
agriculture output.
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GOVT
INVESTMENT
Budget has promised a pick up in investment
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PRIVATE
INVESTMENT
Tax reliefs will ensure higher investment
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% annual growth
*Estimate
**Assumption
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% annual growth *Estimate **Assumption |
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WHOLESALE
PRICES
Inflation will be lower than last year
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EXCHANGE
RATE
Rupee will shed 6.6 per cent value against US dollar
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% annual rise
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Rupees per US dollar |
Low GDP growth will come with one consolation-low
inflation. Wholesale prices are forecast to rise by 6.1 per cent in this
financial year, one percentage point slower than the price rise last year.
That's because large stocks of foodgrains with the Government should keep
food prices low, whereas stable international prices will prevent any
spurt in domestic prices of tradeable commodities. Exports will grow by
14 per cent, substantially lower than the 20 per cent growth last year.
Reason: global economic slowdown. The rupee will shed its value by about
7 per cent, taking its exchange rate close to Rs 49 per US dollar. But
Finance Minister Yashwant Sinha will not be able to meet his fiscal-deficit
target, which will balloon to 5.96 per cent of India's GDP against the
budget target of 5 per cent of GDP.
It is useful to know what the year ahead has
in store for the economy. It's even more helpful to know how the months
ahead could shape up. The NCAER dissected its annual forecast under the
probable scenario into four quarters of the financial year. The GDP growth
is predicted to pick up as the year progresses, peaking at 7.42 per cent
in fourth quarter (January-March 2002). This will primarily be driven
by a strong recovery in industrial production that will grow at 9.2 per
cent in the last quarter.
For its annual forecast, the NCAER also delved
into two other scenarios.
Dip
in rural incomes, wealth erosion will mute demand.
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