Hindu rate of growth is now 7%

ECONOMIC SURVEY 2004-05/ ECONOMY

Investment not enough to raise industrial growth to 10 per cent in order to achieve the economic growth target.

The growth performance of the economy during 2003-04 and 2004-05 indicates a possible ratcheting up of the trend of the annual growth rate from around 6 per cent to about 7 per cent.

The Economic Survey said the sustained double digit year on year growth seen in capital goods and consumer durables since September 2003 as well as the increase in savings and interest rates indicated that a trend acceleration could be under way.

However, a business-cycle type explanation of the performance of the economy in 2003-04 and 2004-05 is also tenable, it said, adding that vigorous efforts would be required to accelerate the growth to 7-8 per cent mentioned in the National Common Minimum Programme.

The current level of investment was, however, not sufficient to reach the 10 per cent industrial growth required in order to achieve the economic growth target.

"The investment rate continues to be not only far below that in China and East Asia but also lower than that assumed in the Tenth Plan," said the survey.

A higher industrial growth was the reason for the economy being able to maintain the growth momentum despite deficient monsoon, hardening of global crude oil and steel prices and extensive damage caused by the December 26 tsunami in several southern states.

After achieving a two-decade high of 8.5 per cent in 2003-04, the economy was expected to clock a lower growth of 6.9 per cent for the current year mainly on account of 7.8 per cent industrial growth, the survey said.

It pointed out that growth in the post-reform period had avoided the pitfalls of earlier decades, when the economy suffered from the balance of payments problems. However, growth had been spurred from the demand side with private final consumption being the driver, with investment and exports playing a minor role.

The survey spelt out a five-point agenda to enhance investment. This includes simplifying procedures and relaxing entry-exit barriers for businesses besides providing low cost finance, improving infrastructure and encouraging foreign direct investment.

The survey also made a case for increasing private and public investment in agriculture, which produced only 21 per cent of GDP but supported nearly 57 per cent of the population. This was needed to increase value-addition in agriculture, besides improving the link between agriculture and rural industrialisation.

The initial projections of growth for 2004-05 were put between 6.2 per cent and 7.4 per cent. The current year began with a buoyancy in industrial growth, early onset of monsoon and forecast of a normal rainfall.

But the summer (kharif) crop suffered because of deficient rainfall though the impact is expected to be partially offset by the prospects of a good Rabi crop.

The industrial sector registered an impressive growth of 8.4 per cent in the first three quarters of the year. The improvement is particularly pronounced in manufacturing, capital goods and consumer durables.

Chapter-wise documents of Economy Survey 2004-05

General Review

Public Finance 
   
Monetary and Banking Developments 

Securities Markets

Prices and Food Management 

External Sector

Industry

Agriculture

Infrastructure

Social Sectors