Golden harvest: Agricultural production is expected to grow 2-2.5 per cent

It alarmed, only to deceive, and then delivered. The monsoon this year displayed greater volatility than even, perhaps, the stock market. It started on a false note, arriving a little late and then did little in the first month, setting off alarm bells. The country witnessed a 15 per cent deficit in rainfall during June this year. This changed in July; by the end of that month, the country had registered 15 per cent excess precipitation. There was deficient rainfall again in August. The overall deficiency: 17 per cent. And facing the brunt of the deficit was North India. Uttar Pradesh, Haryana, Punjab and Himachal Pradesh experienced 42 per cent, 68 per cent, 46 per cent and 50 per cent shortfalls, respectively, in August. The monsoon in the rest of the country has been normal to marginally deficient.

Fortunately, these sharp crests and troughs in this year's rainfall graph have not affected the kharif crop too much. July is the sowing season in most parts of the country, and plentiful rains that month ensured that sowing got off to a good start. And the best news is that the deficit in the northern states is unlikely to hit crop production as these areas are highly irrigated, and, therefore, extremely well prepared to deal with the wrath of a delinquent rain god.

No wonder the frowns have been replaced by broad smiles at Krishi Bhavan. Agriculture Ministry officials are forecasting total foodgrain production of 220 million tonnes this fiscal, compared to 210 million tonnes in 2004-05. Analysts say agriculture as a whole will grow 2-2.5 per cent in 2005-06. "With industry expected to grow at 8.2-8.5 per cent this year, the GDP growth for this fiscal could well be anywhere between 7.2 per cent and 7.5 per cent," says Saumitra Chaudhury, Economic Adviser at credit rating agency ICRA.

Interestingly, and contrary to conventional wisdom, good monsoons and, hence, agri-cultural growth seem to be losing their direct correlation with industrial buoyancy. The proof: the country was ravaged by drought in 2002-03 and agriculture recorded a negative 7.2 per cent growth. Yet, manufacturing grew by a healthy 6.9 per cent the following year.

But thankfully, economists and statisticians won't get to check out the veracity of that this year.

-Ashish Gupta

Out Of Fisc?
Not really. Too much is being made out of fiscal deficit.

FM Chidambaram: Should he worry?

Is India's fiscal deficit spinning out of control? A senior RBI official says the combined fiscal deficit of the Centre and the states is at 8.3 per cent. The fiscal deficit for the April-July 2005 period has already touched 51.3 per cent of the Budget estimate for the whole of 2005-06. This is much higher than last year's figure of 37 per cent. And the government hasn't even begun implementing the obscenely expensive National Employment Guarantee Scheme.

But there's reason for optimism as well. Revenue receipts have grown 25.5 per cent in the first four months of 2005-06, against the Budget estimate of a 21.6 per cent rise. The revenue deficit, at 18.7 per cent, is also slightly less than the budgeted figure of 19.8 per cent. Revenue expenditure, however, remains a problem, and has grown at 19.3 per cent compared to the Budget estimate of 16.1 per cent.

But this is where an accounting practice plays a crucial role. Last year, state governments repaid around Rs 25,829-crore loans to the Centre. The figure came down to only Rs 2,283 crore this year as the 12th Finance Commission rescheduled the remaining loans of state governments for 20 years. This non-repayment of debt is adding to the fiscal deficit. If this is factored out, the fiscal deficit for the first four months of 2005-06 works out to Rs 8,552 crore compared to Rs 7,493 crore in the corresponding period last year. That's a growth of about 14 per cent-not very good, but no cause for alarm either.

-Ashish Gupta

The Return of Regulation
With crude oil prices skyrocketing and little hope of raising retail prices, the government reverts to the practice of issuing oil bonds.

Petroleum Minister Aiyar: Old tactics

Succour is at hand for domestic oil companies, at last. The government has decided to issue two tranches of high-value oil bonds, to dig these public sector units out of a hole that it had itself dug for them. The government had little choice in the matter: under-recoveries (officialese for losses from the sale of petrol, diesel, kerosene and LPG at less than their cost of production) for these 12 companies is likely to touch a massive Rs 40,000 crore in 2005-06, compared to Rs 20,000 crore last fiscal and Rs 9,900 crore the year before. It had two options: raise retail prices of petroleum products, as was being demanded by the oil majors, or compensate them through oil bonds. The first option, though economically logical, was politically untenable because of Left opposition. The result: Union Petroleum Minister Mani Shankar Aiyar chose to revive the oil bond.

The first, the Rs 5,762.85-crore Oil Companies' Government of India Special Bonds 2012, notified on September 9, 2005, is actually the outstanding amount left over from the oil pool account, which was done away with on April 1, 2002. That was also when the administered price mechanism was partially dismantled. In that sense, this move does signal a reversal of economic reforms and a return to a command system. Indian Oil Corporation, the largest beneficiary, will receive Rs 2,320.8 crore, followed by BPCL, which will get Rs 1,044.06 crore. Others will receive various amounts depending on the extent of their outstandings from the erstwhile oil pool account. These bonds can be encashed in 2012 when they mature, or can be sold to financial institutions or banks if these companies face an immediate requirement of funds.

The second tranche of Rs 10,000-15,000 crore will be released only after it receives the parliamentary seal of approval. This can happen only after the winter session of Parliament, which starts in November. Details of tenure and interest rate have not yet been finalised. The relief offered is still way short of the losses suffered, but half a loaf is better than no bread. And given their precarious financial state, the oil companies will happily settle for that.

-Ashish Gupta