The advance estimates of a drop in GDP growth from 8.4 per cent in 2010-11 to 6.9 per cent for 2011-12 was not unexpected. One doesn’t have to be an economist to know that there can be no growth without investment. Central Statistical Office figures indicate that gross fixed capital formation grew by a measly 3.5 per cent in the first six months of this fiscal, compared to 10.7 per cent in the same period last year. The reasons are many for this dismal growth situation. These include high inflation, high interest rates, uncertainty and paralysis in government decision-making and, most of all, lack of coordination between various ministries of the government. Industrial production was the lowest in a decade, with manufacturing and mining showing negative growth for several quarters. This is the most disturbing sign, for manufacturing is synonymous with large-scale employment generation.
If finance minister Pranab Mukherjee is still optimistic about GDP growth finally ending higher, it is only because of the rabi crop figures that will come in and push up overall growth. The big picture still remains dismal, unless India Inc and the government invest in capital goods and services. The Reserve Bank was compelled to raise interest rates 13 times from October 2010 even though it knew well that this would not tame inflation and would instead curb growth. But the RBI had little choice as the government has failed miserably to tackle the supply side situation, which continues to fuel inflation, particularly on the food front.