The economic outlook for 2006-07 presented by the Economic Advisory Council to the Prime Minister has no startling revelations. It however serves the purpose for which the Council was created—of providing periodic and independent updates on the state of the economy to the Prime Minister. The growth performance did enable the Prime Minister to assert with confidence that for the third year in succession economic growth would be 8 per cent. This is underpinned by a projected 9.8 per cent growth in industry, and in the services sector at a slightly decelerated level of 10.5 per cent.

Agriculture continues to be uncertain with adverse weather yielding at best a 1 per cent while good monsoon taking the growth to 2 per cent. In an overall context, the report argues that growth in recent years has been consumption-driven, supported by demand for homes, financed through easy loans at low interest rates. In terms of prescription, it argues in favour of an investment-led than a consumption-driven growth.

It has become fashionable to suggest that while China needs to move to a consumption-driven growth, the Indian growth must be investment-driven. To some extent there may be an oversimplification in this approach because, as Stephen Roach of Morgan Stanley argues, ‘‘If China were a pure market economy with relatively stable financial institutions then a revaluation of the Renminbi would be appropriate, but China’s not there. I think we (the US) need to grow slower, and if the rest of the world is not willing to pick up its own internal demand to offset that, then the world deserves to grow slower—that’s the bottomline.’’

... contd.