The Hindu Business Line : For another rewarding year

IF 2005 HAS to be remembered as an extraordinary year, it should be with reference to two acts symbolising the nation's tragic vulnerability on the one hand, and an enduring strength, on the other. The random violence of terror witnessed in Bangalore in the closing days of the year highlighted the awesome vulnerability of an open, democratic society with its fragile economy tenuously stepping into prominence on the world stage. On the other hand, the unprecedented, all-party action dismissing the 11 tainted members of Parliament showed up the growing maturity and robustness of India's democratic institutions. Weakness and resilience, insecurity and surging confidence, serve as apt symbols of the Indian economy too, as the nation wakes to a new year. These two aspects also help draw the map for the coming year's journey down a more arduous but hopefully a more rewarding road of policy change.

It seems apposite to start with the good news. The economy has shown up to be remarkably buoyant, not just resilient, in the face of a global slowdown the past two years. After China's searing but lower growth of 9.5 per cent comes India's 8 per cent for two quarters in a row this fiscal. This performance has come on the back of the services sector growth of 12 per cent for two quarters in the same period, followed by manufacturing's 9.2 per cent in the second quarter of 2005-06 compared to 11.3 per cent in the first. Good news surely; but could have been better had other sectors not pulled the overall growth rate down. So here is the bad news. Agriculture, the weather vane of the economy, grew by just 2 per cent. In the industrial economy, electricity, crude oil production, mining and quarrying actually fell (-1.1 per cent). In short, what propped up the GDP at world record levels was the services sector, and within it, the retail, business services, housing/real-estate segments. Depending on one's perspective, India's economy is either on its way to stardom or becoming a bubble that can blow up in everybody's face. A developing economy with its key sectors agriculture and infrastructure in terminal decline and benign neglect respectively, cannot but send out alarm signals for policy-makers. Mercifully, they are listening.

In 2005, the Manmohan Singh Government inherited an economy bubbling with good spirits on an uncorked services sector, a buoyant capital market and record inflows from foreign institutional investors and remittances. Some policies, on divestment for instance, never got beyond rhetoric, except in the case of Maruti; others may follow. But the more important issues for 2006, certainly more than FDI in retail, are infrastructure and agriculture, and, of course, manufacturing itself. As the Prime Minister noted, the share of manufacturing in national income has grown marginally in the ten years to 2003, from 15.8 per cent to 17 per cent. The institutional set-up for infrastructure investments (the Special Purpose Vehicle route, for example) is in place; agriculture requires a similar framework so as to raise the incomes of the rural poor. There can be no better safety net than that for the hapless, and, indeed, the economy.