The Hindu Business Line : Nourishing the farm sector

Vigorous growth with strong macroeconomic fundamentals characterise developments in the Indian economy in 2006-07, with sharp increase in savings and investment rate. As per the advance estimates of GDP for 2006-07, the economy is expected to grow by 9.2 per cent. Industry and service sector maintained their vigorous growth performance, particularly in manufacturing, which recorded double-digit growth of 11.3 per cent and has boosted sentiments, both within the country and abroad.

However, the two worries before the Government are the up-and-down pattern in agriculture and the rising inflation. The agriculture sector is likely to grow by mere 2.7 per cent for 2006-07 and its share in GDP is likely to drop to 18.5 per cent. Next on the agenda is the inflation, which rightly is not just the Government's worry but society's. All the pillars of the strong economic growth including the industry and services will fall flat if inflation is not tamed, which is more of a supply-side concern.

The Economic Survey states that shortfall in the domestic production of primary articles, led by food items and minerals are responsible for the rising inflation.

In my opinion, right approach to control inflation and bring it down to 5.2-5.4 per cent would be to allow imports of the food items temporarily and not at the cost of nations long-term economic growth and potential, which has been achieved after long struggle.

The Budget has reduced the excise duty to Rs 350/tonne from Rs 400/tonne for bags selling up to Rs190/bag and increased the excise duty to Rs 600/tonne for bags selling above Rs 190/bag. Increasing the excise duty on cement will not help curb inflation because cement prices will be governed by the cost structure and the supply-demand equation.

Cement prices contribute little to the overall inflation with weight of 1.7 per cent. It is already a highly taxed sector, contributing about Rs 10,000 crore as taxes.

(The author is MD, Gujarat Ambuja Cements Ltd.)

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