Economic growth prospects assessed

At the same time, however, the central bank feels that in the perspective of the post-2004 quota-free global trade regime, our garments export sector is likely to face severe competition in the international market. This might have a negative impact on balance of payment, productivity and employment.

The rate of inflation is projected at 6.5 percent for this fiscal as compared with 5.83 percent in fiscal 2004 and 4.38 percent in fiscal 2003. The central bank estimates that the macro-economic impact of the recent oil price hike on balance of payments, inflation and growth, if sustained, 'will be significant but manageable'. 'The partial adjustment of fuel prices and absorbing the rest through the budget' to cushion off the likely impact on consumer prices inevitably bring up the question of government borrowing and deficit financing. The countervailing arguments are that a 30 percent average increase in oil price will cost additional $300 million which is 'significant but sustainable' and that the conversion from oil to gas in transport and power sectors will act as a mitigating factor.

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The growth in the manufacturing sector at 7.7 percent compared with 7.3 percent of the previous year is a heartening thing to note, but we need to be wary of the fact that the wage rate decelerated. It stood at 7.6 percent in FY '04 compared with 15.4 percent increase in the previous year.

In all, we have a plenty of economic challenges on our hands.