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Drought-hit Indian economy seen slowing in 02-03

Unni Krishnan in New Delhi

Economists forecast the Indian economy would grow by 4.8 per cent in 2002-03, below the government's estimate of 5.5 per cent, as the country's worst drought in more than 15 years chokes a nascent recovery.

A Reuters' survey of eight economists on Wednesday and Thursday put the average forecast for growth for the year ending March 2003 at 4.8 per cent with the range from 4.6 per cent to 5.1 per cent.

"We have cut our forecast due to the poor monsoon rains. The contribution of agriculture is going to be low," said Ajit Ranade, chief economist with the Mumbai-based ABN Amro Bank, who expects five per cent growth.

The annual June-September monsoon is crucial for India's agricultural sector, which contributes 25 per cent to gross domestic product and employs 70 per cent of its more than one billion population.

The economy grew by 5.4 per cent in 2001-02, spurred by a robust farm sector, compared with 4.0 per cent the previous year.

The government earlier cut its growth estimate for this year to 5.5 per cent from 6.0 per cent due to scanty monsoon rains.

Analysts had been expecting the farm sector to be the main engine of growth this year but the severe drought has damaged several crops in key grain-bowl states.

"Now drought is everywhere except Assam and some other states. It's worse than the 1987 drought," Agriculture Minister Ajit Singh told a meeting in New Delhi on Thursday.

India has received 30 per cent less rain than normal, damaging crops in a country with few irrigation facilities. In 1987, Singh said rainfall was 24 per cent below normal.

Most economists said they expect farm sector performance to be flat in 2002-03 compared to 5.7 per cent growth last year.

INDUSTRIAL GROWTH TO BE PULLED DOWN

Lower farm income would force rural consumers to postpone or reduce purchases of consumer durables and other items, hurting the industrial sector, economists said.

"Demand from the rural sector is bound to take a hit. Not only will the rural consumer postpone bigger purchases, demand for consumer non-durables would also get affected," Sanjeet Singh, analyst at ICICI Securities and Finance Co Ltd.

"I expect the full impact of the fall on the industrial sector to happen in the fourth quarter of the current financial year," said Singh, who forecast 4.6 per cent growth.

Most analysts said a sluggish industrial sector would mean lower revenue collections, leaving little leeway for the government to hike spending to pump the economy.

The government will also have to boost spending in rural areas to meet basic needs of the drought-hit population, analysts said.

"The government will have to launch relief programmes in a drought, putting pressure on expenditure," said D K Srivastava, economist with the New Delhi think-tank National Institute for Public Finance and Policy.

India plans to narrow its fiscal deficit to 5.3 per cent in 2002-03 from 5.7 per cent the previous year. International rating agencies have cited India's high deficit as a main obstacle to growth and a rise in its ratings from junk bond status.

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