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Monday, 10 September, 2001, 11:13 GMT 12:13 UK
India worries over stagnant growth
Rice farmers in India
Agriculture: one of few sectors whose performance is healthy this year
Indian business leaders have joined a growing chorus of voices warning that India's economy is due for a sharp slowdown unless the reform process is speeded up.

In a report called "State of the Economy," the Confederation of Indian Industry (CII) said it saw no possibility of the country hitting the Reserve Bank of India's target for 2001/2 of 6-6.5% growth in gross domestic product (GDP).

"With less than 30 days left for the end of the first half of 2001/2, and little reform having occurred till date, GDP growth for the current year is unlikely to exceed 5.25%," the CII said.

"Even if there is a flurry of reforms in the second half of the year, it is unlikely that their effects will be evident until the first half of 2002/3."

The shift comes shortly after the influential think tank the National Council of Applied Economic Research cut its own GDP growth forecast to 5.6% from 6.3-6.8%, blaming falling exports and a weak investment climate.

Growth in 2000/1 was 5.2%.

Clouded outlook

The CII's concerns follow a wave of worries from official and unofficial quarters.


The slowdown needs to be seen in the proper perspective, with a confident recognition of the inherent strengths of our economy... This is essential to avoid unnecessary pessimism and panic

Atal Behari Vajpayee
Indian prime minister
Confidence in India's economy has been hurt badly in recent months by stock exchange and arms dealing scandals, some of which are connected to leaders of the ruling Bharatiya Janata Party.

The government itself is being blamed for failing to tackle the country's faltering economy, particularly in terms of cutting bureaucracy and allowing privatisation.

The most significant sell-off currently under way is stalled, as all but one bidder for Air India has dropped out.

The lack of progress in economic policy making has added to pressure on the Indian rupee, which today fell to a record low of 47.31 rupees to the US dollar.

Premier's plea

The slowdown has sparked a call from the prime minister, Atal Behari Vajpayee, to economic advisors for fresh thinking.

Despite low and stable inflation and rising foreign exchange reserves, the country has "deep systemic maladies", the prime minister told the Economic Advisory Council.

But he went on to warn against sparking unnecessary concern.

Indian Prime Minister Atal Behari Vajpayee
Vajpayee: panic must be avoided
"The slowdown needs to be seen in the proper perspective, with a confident recognition of the inherent strengths of our economy," he said.

"This is essential to avoid unnecessary pessimism and panic."

Poor service

The CII warned that despite having been India's main engine of economic growth in recent years - and the source of 50% of GDP - the service sector in particular is likely to disappoint.

"In a general environment of low growth and lack of demand, it is difficult to see the services sector trotting along at 8% plus," the report said.

" We have therefore scaled this sector's growth for 2001/2 at 6.5% - which is 1.2% below the 2000/1 figure."

Agriculture, in contrast, could see a healthy performance of around 5% growth thanks to good monsoon rains, helping spur development in rural areas, the CII said.

But the benefits are unlikely to come through till early next year.

Faster growth needed

But even the RBI's confident 6-6.5% estimate of GDP growth is insufficient to stave off swelling unemployment as the population grows, according to a recent report written by US management consultants McKinsey for prime minister Vajpayee.

The group said that to avoid a jobless rate as high as 16% by 2010, India needs to open all sectors of the economy to foreign investors, reduce subsidies and protectionist policies and accelerate privatisations of state-owned industries.

McKinsey claims that if the government makes the policy changes over the next two to three years, the economy would achieve most of the projected 10% yearly growth by 2004 and foreign direct investment (FDI) could accelerate to $20bn annually.

See also:

05 Sep 01 | South Asia
06 Sep 01 | Business
06 Sep 01 | Business
15 Aug 01 | Business
08 Aug 01 | Business
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