India''s GDP growth in 1999-2000 is likely to remain below 6 per cent -- about 5.9 per cent as opposed to 5.7 per cent in 1998-99 -- with only a slight improvement over the previous year. The reason for this, according to Macro Track, the quarterly update of the National Council for Applied Economic Research, is that the economic recovery currently being experienced is likely to be short lived.

The current recovery is evident: the index of industrial production rose 5.4 per cent in April-May 1999, having risen 4.2 per cent in the same period last year; and the index of manufacturing rose 6.3 per cent, against 3.9 per cent in the same period last year.

This, says Macro Track, constitutes a temporary recovery. "Some business cycle indicators suggest that the recovery may be short-lived," it warns. It expresses concern over the fact that, in spite of a capital market boom, there has been no primary issue by any manufacturing company – indicating a troubling trend in industrial investment. Growth in bank credit has been low. So has been the growth in imports, which usually complements an industrial recovery. Also, as the monsoon has been 5 per cent below normal, agricultural growth is likely to be a mere 3 per cent, down from 6 per cent last year.

The construction sector, with 6.6 per cent growth, and the services sector, with 8 per cent growth, are, however, likely to do well this fiscal year.

The fiscal situation offers very little comfort: "Expenditure overruns on account of Kargil are now expected to be around Rs. 2,000 crore. We assume that the shortfall in 1998-99 on account of tax collections in customs and excise will continue."

Yet the fiscal deficit is expected improve from 6.9 per cent of GDP (using the old base) in 1998-99 to 6.1 per cent in the current year. But this level will still mean less public investment (growing at 8 per cent in nominal terms in 1999-2000) than is thought to be necessary to sustain a recovery. Food subsidies are expected to remain at its earlier levels, while fertiliser subsidies are expected to rise by 15 per cent. Disinvestment is likely to generate half of the targeted Rs. 10,000 crore.

To add to that, the recent steep hikes in international oil prices that pushed up the oil pool deficit are likely to instigate a rise in prices and increase the trade deficit. However, there will be some time lag, after which the annual inflation rate is expected to rise to 6.8 per cent.