Was the impact of this on domestic producers of manufactures aggravated by competition from abroad in the aftermath of liberalisation? Till recently the evidence of displacement of domestic production by imports was anecdotal at best. At the aggregate level, barring the high growth years 1994-95, 1995-96 and 1996-97, when India's import bill rose faster than her GDP, the decade of the 1990s was characterised by relatively small increases and even declines in the value of non-oil imports in general and non-oil, manufactured imports in particular. Thus, non-oil import values rose by just 3.2 per cent over 1999-2000 and fell by 8.5 per cent during 2000-01. The sluggishness in non-oil import values has been consistently used by the government to dismiss fears of an import surge in the wake of liberalisation. But a closer look indicates that aggregate, non-oil import values grew slowly not because of slow growth in the quantum of imports, but because the effects of an increase in quantities imported on the size of India's import bill was neutralised by a fall in the unit values or prices of imports. In fact, the statistical evidence that India has been the destination for cheaper imports after liberalisation only corroborates the, often alarmist, "grass roots" view, that the Indian market is flooded with cheap imports of a range of commodities from countries like China.
 
What is more disconcerting is the evidence that the current deceleration in growth has been accompanied by an increase in the non-oil import bill. Provisional trade statistics indicate that during the second quarter of this financial year (June-August), non-oil imports rose by 16 per cent when compared with the corresponding period of the previous year, resulting in a 6.8 per cent rise in India's overall import bill despite a 11 per cent fall in oil imports. Part of this rise may have been due to an increase in the imports of gold, since the poor performance of financial markets has rendered investments in gold attractive. Though commodity-wise import figures for the second quarter are not yet available, it is reported that the first quarter of this year (April-June) saw a 33.5 per cent increase in the value of gold imports from $1.2 billion to $1.6 billion. With gold imports accounting for about 20 per cent of all non-oil imports, such increases are bound to affect the overall import bill quite substantially. But to the extent that this factor alone does not explain recent increases in non-oil imports, and given the evidence of a decline in the unit values of many non-oil product imports, the role of import competition in explaining the deceleration in manufacturing growth could be significant.
 
With agricultural and industrial growth dampened by these factors, aggregate GDP growth has managed to touch even the levels they have in recent quarters only because of the buoyancy of the services sectors. GDP growth rates in the Financing, Insurance, Real Estate and Business Services sector has been well above 9 per cent in most recent quarters, and that in Community, Social and Personal Services fluctuated between 6.2 and 9.3 per cent. Even in the Trade, Hotels, Transport and Communications sector, which too has witnessed a deceleration in GDP growth, the rate of growth has remained above 5 per cent. It is this resilience in the services sectors that has allowed aggregate GDP growth to remain in the 4-5 per cent range.
 
These trends in the pace and pattern of growth in the Indian economy have two implications that are worth noting. First, since inadequate public investment and faltering demand explain the deceleration of growth in the commodity producing sectors, "supply side" policies cannot trigger a recovery. Hence, arguments that advocate more and faster reform as the means to trigger a recovery are completely misplaced. In fact, liberalisation of imports and the fiscal squeeze associated with reform have been in large part responsible for the slowdown in growth. What is required for a reversal of the process is a more aggressive use of tariffs, anti-dumping duties and the like to deal with unequal competition from abroad. This needs to be combined with stepped up public investment and expenditure, and an innovative use of the large food stocks available with the government, to both increase capital formation as well as stimulate demand. The government has in recent times espoused such views, but an ideological obsession with import liberalisation and deficit reduction have prevented the translation of those views into practice.
 
The second implication of our analysis of the pace and pattern of growth is that, given the crucial role of the services sectors in propping up aggregate growth, any development that adversely affects the fragile service economy can accelerate the slide in growth. The events of September 11 and their aftermath have rendered this threat more real. Given the impact that these developments are having on the airline industry, the insurance business and the business services and financial sectors, a sharp slowdown of growth in the services sectors is more than likely. As a result the artificial prop provided to India's economic performance by these sectors can give way, converting the slowdown into a slump. Efforts to revive the commodity producing sectors are therefore crucial if India's is to deal with the instability that September's terror attacks have unleashed. But with the government paralysed by its own liberalisation agenda, there are no signs of such a response as yet.