India's economy grows 8.2% in 2003-2004
India's economy expanded a sharp 8.2 per cent in the year to March 2004, beating government forecasts as the country recovered from the impact of a severe drought to join the ranks of the world's fastest growing economies.
The achievement was possible due to one of the most bountiful monsoons in years in India, where two-thirds of the billion-plus population work in agriculture.
Growth in 2002-2003 had been hampered by a withering drought which had reduced farm output. The state-run meteorological department on Tuesday forecast another healthy monsoon, in welcome news for the economy.
The government had forecast in February that annual growth would range between seven and eight per cent, a key factor leading the Hindu nationalist government to call elections five months ahead of schedule.
But the government lost the polls in an upset to a left-leaning coalition that accused the administration of being out of touch with ordinary Indians left out of the boom.
The surging growth in 2003-2004 rivals the strong gross domestic product figures of the mid-1990s after India opened up sectors of its inward-looking economy to foreign and private investors.
Economists said they expected strong growth to continue in the next couple of years, although possibly at slightly lower levels, provided the new government's policies were sound.
"It will be too much to expect the agricultural sector will be able to repeat its feat this year," said T.K. Bhaumik, senior economist at the Confederation of Indian Industry.
"Buoyant industrial growth is expected to help sustain the momentum, which is happening because of a pick up in consumption. I expect the growth to be between 7.0 to 7.5 per cent this year," he said.
The new government is led by Prime Minister Manmohan Singh, an Oxford-trained economist who designed the historic liberalisation drive that began in 1991, but relies on support of communists sceptical of privatisation.
Singh has pledged a major investment in agriculture in his government's first budget due to be released July 8.
Bhaumik said the extra expenditure to support farmers and employment schemes could be offset by parallel policies to bring more people into the tax net.
"The good thing is this year's good growth will give ample elbow room to the government," Bhaumik said.
The previous government of prime minister Atal Behari Vajpayee was popular with investors late in its term by pushing forward economic reforms including privatisation.
The new administration has worried investors who fear it will sacrifice reforms for more populist measures geared towards the rural poor.
The Bombay Stock Exchange has sunk since the election and Wednesday dropped 0.95 per cent or 45.92 points to 4,795.46 on selling pressure despite the strong growth data.
Singh's government has ruled out privatisation of profit-making state-run firms and is bringing down the foreign investment allowed in India's largest airports in Bombay and New Delhi.
Saumitra Chaudhari, chief economist at credit rating agency ICRA, said the government will have to be careful not to increase the fiscal deficit -- the gap between expenditure and receipts -- with its economic agenda.
"It should be tackled without resorting to high taxes," he said. "If the policies announced in the budget are good, then growth will be strengthened and there will be acceleration."