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Business Commentary/Dilip Thakore

1997 not annus horriblis

Notwithstanding the long faces and much head-shaking which one can discern when gaps present themselves in the gloom and doom clouds which have enveloped the Indian economy, 1997 was not quite the annus horriblis that captains of Indian industry insist it has been. Everything considered, the Indian economy has shown remarkable resilience in maintaining a fairly even keel in an extraordinarily turbulent year.

Despite the rise and fall of two governments in New Delhi and new faces popping up and disappearing within the economic ministries, the International Monetary Fund forecast is that the Indian economy will record a 5.8 per cent GDP growth in fiscal 1997-98. The official (wholesale prices) inflation index has risen by a mere four per cent over the year; the country experienced good monsoon rains; foreign exchange reserves at $ 29 billion are comfortable; interest rates are the lowest in a decade; the inflow of foreign project investment is double that of last year; and though the value of the rupee has depreciated, it has been spared the mauling which the national currencies of the wonder economies of South-East Asia have suffered.

Admittedly these economic indicators are nothing to be exuberant or even complacent about. The projected 5.8 per cent GDP growth rate is well below the 7 per cent budgeted and the fiscal deficit is likely to be almost 6 per cent against the budgeted 4.5 per cent. And given that these shortfalls represent Rs 13 billion in output loss and a Rs 10 billion increase in money supply, these are not minor slippage's. More worryingly, low inflation despite the high fiscal deficit is indicative of demand recession and rising inventories within the economy. The long faces which one sees in the business magazines are not entirely put on during photo-opportunity sessions.

Yet, it is arguable that the gloom and pessimism which pervades industry is attributable to regret about the passing of an era rather than to genuine fears of a full-fledged recession. The consequence of six years of creeping but determined liberalisation and deregulation of the economy is that now there is a widespread and growing awareness in Indian industry that the era of comfortable sellers' markets is over. With the abolition of industrial licensing and monopoly law curbs except in a few specified industries, and the sharp reduction in import tariffs, captains of Indian industry and business organisations -- perhaps for the first time since the nation attained its Independence five decades ago -- have to fight for market shares and the favour of consumers.

Suddenly the era of easy profits earned by providing shoddy goods and services is over. Now business all over the country are beset with the fear that if they don't get their act together, domestic and/or foreign competitors are likely to muscle in on their turf.

To an extent one can sympathise with the fears and anxieties of economic liberalisation and deregulation if only to sharpen the competitive skills of Indian industry. Consequently, the present pains being suffered by the captains of industry are the result of the administration of bitter but necessary medicine which is likely to improve the long-term health and well being of their businesses.

The silver lining to the oppressive gloom cast by the cloud of political uncertainty which looms menacingly over the Indian economy, is that even in an extraordinarily difficult year, the reforms programme inched its way forward down the liberalisation road. True, its a long road what with liberalisation in the vital infrastructure, banking and insurance sectors a long way away. But the 5.8 per cent GDP growth expected to be recorded in a turbulent election year (fiscal 1997-98), though well below the targeted 7 per cent, is still way above the so-called Hindu rate of growth (3.5 per cent per annum) which characterised the Indian economy for over three decades.

The great achievement of the unlamented 14-party coalition United Front administrations which ruled in New Delhi for the past 17 months is that they continued to inch the Indian economy down the liberalisation road on which it was set in July 1991. Their commitment and persistence with economic liberalisation has not only forced the technology upgradation and rejuvenation of Indian industry, but may well have catalysed a political consensus on the subject of economic liberalisation and reform.

Viewed in this perspective, and against the chaos and turmoil in the wonder economies of Southeast Asia, 1997 was certainly not an annus horriblis.

Dilip Thakore