ado about nothing
Finance Minister K.N.Choksy's statement on the economy was
indeed an anti-cli
max. The Prime Minister had drawn a picture of an economy in crisis:
a crisis that required a strong and bold response. It led to an expectation
that the Finance Minister would announce a series of stringent financial
measures; some bitter medicine that will redress the very weaknesses
the Prime Minister spoke about and the Finance Minister reiterated.
What was announced
were a series of measures to bring down the cost of living that
were sweet to the ear. What is difficult to understand is how these
measures would solve the problems announced by the PM? It appears
that the government will take up the serious policy measures for
development next year.
Bank expects the economy to revive and register a growth of about
3.5 per cent this year. The Prime Minister has announced a similar
expectation. It is on this recovery that the government expects
to rebuild the public finances of the country. Is such an expectation
of an economic recovery realistic?
Bank announced that the economy grew by one tenth of one per cent
in the first quarter of this year. This was in the view of the bank,
a sign of economic recovery. The worst, it appears, is over. The
Central Bank interprets this rise in the value of goods and services
produced in the first quarter as a sign of a turnaround in the economy.
Are we on a path of economic recovery and growth?
be sceptical of this interpretation. There are many reasons for
such scepticism. First of all the figure itself is not inspiring.
A mere 0.1 per cent is neither here nor there. What is the big difference
between a decline in growth and a 0.1 growth? Not very much. Too
small indeed to make a fuss. Much ado about nothing! Interpreting
such a minute growth as a positive sign is not convincing. Yet we
must recognise that this growth is not in relation to the negative
growth of last year. It is a comparison with the first quarter's
growth of last year that was about 1.5 per cent. Therefore it is
not as insignificant as it appears. It is however not very convincing
when one looks at several statistics of economic performance that
the Central Bank itself has released.
was down by 4 per cent, coconut production down by 6.5 per cent,
industrial production in the private sector fell by 6.5 per cent
and tourist earnings declined 31 per cent in the first quarter.
In a heavily
trade dependent economy, the country's trade performance is a good
indicator of the economic growth performance. Here too we see evidence
of a downturn rather than a recovery. Exports declined by 15 per
cent and imports by 16 per cent. The decline in imports means that
several sectors of the economy, especially wholesale and retail
trade and industrial production would be adversely affected. This
is especially so as industrial raw material imports have declined
by 11 per cent.
All these are
indications of a decline rather than growth in the economy. Where
then has the growth come from? There has been a slight increase
in rubber and paddy production and perhaps in other food crops.
If the decline in several agricultural crops and in industrial production,
tourism and trade have been offset by increases in other agriculture,
there is further good reason to doubt our economic growth statistic
for the first quarter.
This is because
the statistics of production of most of these crops are dubious.
Further the rise in prices of vegetables lends little support to
the view that such crop production has increased. The signs of recovery
are difficult to find in the statistics. The decline in imports
of raw materials by 11 per cent and imports of investment goods
by 25 per cent in the first quarter is an indication that the expected
economic growth in the second quarter is quite unrealistic. Tea
production continues to decline. Industrial exports have not picked
There is little
hard evidence that the economy has in fact recovered to any significant
extent. Let's face the fact that the economy is still in bad shape.
There is little prospect that the figures for the second quarter
would be better. Let us at least hope that the second half of the
year would be one of at least modest economic revival.
of the two statements on the economy are clear. Although we have
a serious economic problem, the government is not willing to take
unpopular measures for economic recovery. It prefers to postpone
these till its own political future is more stable and a more durable
peace enables a better economic performance.