INTERNATIONAL HERALD TRIBUNE

India gains on China

June 01, 2006 (Anand Giridharadas)

NEW DELHI: India is closing in on the economic growth rates of more than 10 percent that China has enjoyed, according to government data released Wednesday, showing a 9.3 percent expansion in the first quarter.
 

The Indian economy grew unexpectedly at its fastest pace in more than two years, according to the year-on- year data for the first three months, as the pace of agricultural expansion nearly doubled to 5.5 percent from 2.9 percent a year earlier.
 

The growth rate of farm output jumped almost six fold in the year that ended March 31, to 3.9 percent from 0.7 percent the year before.
 

Even as call centers and software campuses proliferate in India, the two- thirds of Indians who live off farming have lagged behind, burdened by low yields, antiquated methods and an unwieldy bureaucracy.
 

In an interview Wednesday, Finance Minister P. Chidambaram said that according to provisional data, the farm growth came from diversification into exports of fruits and vegetables, as state governments and companies seek to persuade farmers to abandon wheat and rice for mangoes and okra.
 

"Agriculture, I think, has done well last year because the non-cereal production has been very good, especially horticulture," Chidambaram said in his office here.
 

But Subir Gokarn, chief economist of Crisil, a leading Indian credit-ratings agency, said the high growth rate reflected a particularly strong winter harvest more than it did a fundamental change in farmers' prospects.
 

The 5.5 percent expansion in agriculture "is probably a one-time spike," Gokarn said. But the growing importance of horticulture, "and the trend of its contributing to agricultural growth, is a valid point."

Despite the strong growth figures, the Sensex, the Indian stock benchmark, slumped Wednesday, in line with declines in markets around the region.

The 5.5 percent growth figure in agriculture also marked the first time in two years that the sector's advance has exceeded what the government regards as the critical barrier of 4 percent - the pace at which India's 600,000 farm-dependent villages must grow to catch up with Chinese expansion rates.
 

"Double-digit growth is simply a function of three numbers," Chidambaram said. "Agriculture must grow at 4, services at 12, manufacturing at 12, in order to achieve 10 percent growth."
 

In recent months, manufacturing, too, has shown a turnaround after years of sluggishness. Industrial growth hovered around 6 percent annually from 1991 to 2004.
 

But signs of a turnaround have been apparent in recent data, and the figures released Wednesday showed manufacturing increasing 8.9 percent in the first three months of this year.

Another important source of growth for the economy is increasing spending by a rising consumer class of call-center workers, software writers, offshore researchers and other new-economy workers.

Their spending on hotels, mobile- phone subscriptions and other services grew 12.9 percent, the fastest pace in more than two years and up from 10.2 percent growth last year.

"Optimism stems from very strong domestic demand, high export growth and the entrepreneurial skills of our manufacturers and service providers," Chidambaram said.

Together, the unexpected successes in manufacturing and now in agriculture suggest that more than a decade of economic liberalization is beginning to spread beyond the cloistered domains of malls and corporate parks.

That spread is important to a coalition government, led by the Congress Party, that came to power on a wave of rural restiveness over being left behind and that is often seen as walking a tightrope between the imperative of brisk growth and of inclusive growth.

"It is plain as daylight to me that we can pursue our goals for social justice and equality only if we have high growth," Chidambaram said.

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