Inflation and low industrial growth - challenges for India.

An inflation rate touching 8.51 percent and the slowdown in industrial growth are the major challenges for the Indian government. While the high inflation rate will affect the ruling party's prospects in the coming elections, the slow industrial growth is upsetting the governments fiscal projections.

The comman man is not happy about the performance of the present government. Price rise of almost all essential commodities has been one of the major reasons. The government is not only alienating the common man, industrial groups and foreign investors are equally worried about the performance of the economy. The latest on this has been the government's acceptance that the targets set in the budget may not be achieved.

Rate of inflation continued to rise for the second successive week and touched 8.51 per cent for week ended October 31. Prices of essential commodities has been on the rise for some time. Prices of commodities like onion went up to unheard-of levels. Inflation during the previous week stood at 8.20 per cent while a year ago it was at a low of 3.73 per cent.

The continued slowdown in industrial growth will affect the government's fiscal projections. Collection of excise and customs duties will suffer on account of a slowdown in the industry. The government is hopeful about corporate and income tax collections due to better administration and more people coming into the tax net. The problem is that excise and customs, both of which are doing badly, account for over two-thirds of the revenues projected. Customs and excise are budgeted to bring RS 1,05,800 crore into the government's kitty, whereas corporate and income tax together are projected to bring only Rs 47,000 crore.

There is a view that the government might have over-estimated revenues while formulating the 1998-99 budget. Revenues were estimated with an assumption of a 10 per cent industrial growth. This has not materialized. Normally, the growth in excise revenues is an aggregate of the real industrial growth and inflation. With a 10 per cent industrial growth and seven per cent inflation, excise collection growth should have been 17 per cent. With industrial growth slowing down to about 3.6 per cent in the first six months of the fiscal, excise collections are bound to suffer, officials said. Excise was budgeted to grow from Rs 47,700 crore in 1997-98 to Rs 57,690 crore in 1998-99.

Customs duty collections have come down because oil imports, which contribute about 35 per cent of the total customs duty. Total customs duty growth was projected at about 16 per cent, from Rs 41,000 crore in 1997-98 to Rs 48,148 crore in 1998-99. An estimate by the petroleum ministry shows that total oil imports were projected at about $8.8 bn in the beginning of the fiscal. But this has been revised downward to $7.4 bn, largely because of the depressed oil prices internationally. The industrial slowdown also reduces the physical consumption of oil products. Thus, on both counts the oil bill will come down.

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