February 2001

Current status

In general the global economic growth is showing signs of slackening, which is surely an area of concern

current status | rescue package | industry expectations | the FM's mind | budget blues | report card | key ratios

This article on the Union Budget 2001, prepared by the department of economics and statistics, Tata Services, highlights the choices before the finance minister and discusses their pros and cons.

The first budget of the 21st century is set against the backdrop of a slowdown in industrial growth, phasing out of import restrictions, a gathering global slowdown and a devastating earthquake which has seriously affected Gujarat, one of India's most industrially advanced states. These circumstances make the budgetary exercise a highly daunting task. In all probability, the natural calamity may force the finance minister (FM) to change the tone of the budget, giving it a humanitarian rather than a technocratic approach.

The pre-budget hike in the surcharge on income and corporate tax is a pointer in this direction. Even as grief grips the nation, there are dissenting voices and debates on the government's wisdom in imposing a rather premature and short-sighted levy, thus burdening industry further.

In this article, we highlight the choices before the FM and the measures that he is likely to include in the forthcoming budget. But before we do that, let us take a look at the current status of the economy.

The optimism generated by the last budget in 2000-01 has petered out; the expectation that it would promote a higher rate of growth was dashed as important sectors of the economy turned into laggards over the year. Concurrently, several factors like falling non-food credit, declining consumption of petro products, lower imports of capital goods, decelerating business confidence, etc., are indicators of the overall deceleration in the economy. The statistical snapshot given below says it all!

1998-99 1999-00 2000-01
GDP (% growth)
6.8
6.4
6.0
IIP (% growth)
3.8
6.5
6.0
Manufacturing (% growth)
4.1
7.1
6.0
Agriculture (% growth)
8.2
-1.3
1.0
Exports (% growth)
-5.1
13.2
20.0
Inflation (% growth)
5.9
3.3
6.5
Foodgrains stock (mn. tonnes)
21.7
28.0
50.0
Forex reserves ($ bn)
29.5
35.1
38.0
Foreign direct investments ($ bn)
2.4
2.7
1.0 (Apr-Sept)
Foreign Institutional Investments ($ bn)
- 0.5
1.0
1.4 (Apr-Jan)
Disinvestment: Realisation (Rs crore)
5,874
2,600
150
Incremental non-food credit (Rs crore)
40427
72,618
34,430 (Apr-Jan)
Indirect tax collection (Rs crore)
93,914
108,800
124,824 (est)
82,355 (Apr-Dec)

While there are some positive areas in the economy such as comfortable levels of food stocks, forex reserves and buoyant exports, these are outweighed by the other negative factors, which along with the catastrophic earthquake, are bound to impact the industrial and fiscal scene adversely.

Over and above, global economic growth is showing distinct signs of slackening, which is an additional cause for concern. After witnessing buoyant growth for the past ten years, the US economy is now in for a bout of deceleration. This could adversely affect the export performance of India as well as other Asian economies. However, the impact is not expected to be even. Although Quantitative Restrictions will be totally phased out by April 2001, the danger of India turning into a dumping ground for imports is temporarily at bay since the government is in a position to employ protectionist barriers.

Given the plaintive scenario, what are the policy measures that the FM can take in order to revive the feel-good factor in the economy?