NEW DELHI, Feb 26: Terror attacks in the United States and a blistering assault on the Indian parliament have taken their toll on the Indian economy which has suffered also on account of what the government describes as an adverse security environment, the Finance Ministry’s pre-budget Economic Survey revealed on Tuesday.

“The Indian economy is passing through a difficult phase caused by several unfavourable domestic and external developments,” said the survey which was placed before the parliament ahead of the 2002-03 (April-March) budget due to be unveiled on Thursday.

It said while domestic output and demand conditions were adversely affected by poor performance in agriculture in the previous two years, the global economy experienced an overall deceleration and is estimated to record an output growth of 2.4 per cent during the past year.

“These tendencies were exacerbated in the aftermath of the terrorist attacks in the United States in September 2001. Consequently export growth has suffered and industrial profitability has also been affected by the prevailing low commodity and product prices globally,” the government’s main survey of its annual economic performance said.

It said despite these constraints, growth in real GDP in 2001-02 is expected to be 5.4 per cent as estimated by the Central Statistical Organization. This growth rate marks some recovery over the low growth of 4 per cent in 2000-01. It will also be one of the highest growth rates in the world in the current year.

The average annual growth rate during the Ninth Five Year Plan (1997-2002) is now estimated at 5.4 per cent which is lower than the plan target of 6.5 per cent.

“Although this raises new challenges for reinvigorating growth in the Tenth Five Year Plan, the Indian growth record is one of the highest among the major economies in the world in recent years,” the document said. It pointed out that the Indian economy had been resilient in the face of several external shocks during this period such as the East Asian crisis of 1997-98, the oil price increase of 2000-01, and the most recent world economic slowdown.

“Domestic shocks in the shape of an adverse security environment, natural disasters like the Orissa cyclone and Gujarat earthquake, and two consecutive years of poor agricultural performance, have also been faced successfully by the economy,” the survey said.

The pronounced bearish sentiments in the stock market saw the Sensex falling to 3184 on April 12, 2001, which implied a cumulative fall of 36.3 per cent from 5001 at the end of March 2000.

The decline in equity prices in leading stock markets abroad following the terrorist attacks on the US on September 11, 2001 led to further squeezing of the stock indices at home.

“The Sensex dropped to 2600 on September 21, 2001, registering a fall of more than one thousand points from 3604 on the eve of the current financial year. The measures taken by both the government and the regulatory authorities in the wake of the September 11 crisis, backed by improvement in investor sentiment abroad, facilitated significant recovery in the stock market,” the survey said. It added that the Sensex regained more than 800 points to close at 3443 on December10, 2001.

“However, the market again came under selling pressure, precipitated by developments following the terrorist attack on the Indian Parliament (December 13, 2001) and the Sensex lost around 180 points by the end of December, 2001. Stock market prospects improved in the new year (2002) and the Sensex regained 232 points to close at 3494 on February 8, 2002,” the survey said.

As part of its effort to boost sluggish foreign direct investment the government said it had taken a host of measures to further liberalizing the FDI regime.

“The defence industry has been permitted FDI up to 26 per cent, subject to licensing. The dividend balancing condition for 22 consumer items was withdrawn, as was the cap on foreign investment in the power sector,” the government document said.

The overall growth of 5.4 per cent in 2001-02 has been supported by a growth rate of 5.7 per cent in agriculture and allied sectors, 3.3 per cent in industry and 6.5 per cent in services.

The acceleration of the overall GDP growth rate is basically due to a significant improvement in value added in the agriculture and allied sectors from a negative growth rate of (-) 0.2 per cent in 2000-01 to 5.7 per cent in 2001-2002. There has been significant deceleration in the growth rate of industry. However, the performance of the services sector has improved moderately.

Prospects of agricultural production in 2001-02 are considered to be bright as a result of normal monsoon and relatively favourable distribution of rainfall over time and regions. Overall agricultural output is estimated to increase by nearly 7 per cent in 2001-02. Foodgrains production is expected to rise to 209 million tons compared with 196 million tons in 2000-01.

Financial and other services are doing well in the current year. However, performance of certain service sectors like transport (other than railways), tourism, business and social services have been adversely affected by slowdown in both domestic and external demand.

The average annual rate of inflation in terms of the Wholesale Price Index (WPI) increased significantly from 3.3 per cent in 1999-2000 to 7.1 per cent in 2000-01 due to a substantial rise in administered prices of petroleum products. During 2001-02, the inflation rate declined in terms of the WPI. The 52 week average inflation rate declined from 7 per cent at the beginning of 2001-02 to 4.7 per cent for the week ended January 19, 2002. The point-to-point inflation rate reached a low of 1.3 per cent by the end of January 2002, which was the lowest in over two decades.

Last year’s budget envisaged a reduction of gross fiscal deficit as a proportion of GDP from 5.1 per cent in 2000-01 (revised estimates) to 4.7 per cent in 2001-02 (budgeted estimates). With the availability of quick estimates of national income and provisional accounts for 2000-01 and advance estimates of national income for 2001-02, revised estimates of fiscal deficit for 2000-01 and budget estimates for 2001-02 have undergone change.

“The gross fiscal deficit as a proportion of GDP is now estimated at 5.5 per cent for 2000-01 and 5.1 per cent for 2001-02,” the survey said. As regards revenues, there are significant shortfalls in indirect taxes due to slowdown in industrial production and significant deceleration of both oil and non-oil imports.

Direct tax collections are likely to be below target for the current year. There is also a shortfall in revenues from disinvestment. Disinvestment proceeds are now expected to pick up in the coming months due to a much smoother working of the disinvestment process.