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04 June, 2013

Economy: Hope and despair

BRP Bhaskar
Gulf Today

India’s $1.9 trillion economy is showing signs of slow recovery but the big rebound which the recession-hit countries are looking for, in their own interest, is still not in sight.

Data released by the Central Statistical Organisation last week shows that the economy registered a growth of five per cent during the financial year which ended on March 31. Growth in the previous year was 6.2 per cent.

The new figure is in line with the CSO’s previous estimate which Finance Minister P Chidambaram had discounted, saying it was based on outdated data. Clearly the minister and his advisers are out of tune with ground realities. 

The current growth rate is the lowest in a decade. Many challenges have to be overcome to push it back to the previous best of nine per cent and fulfil the expectation of becoming a major driver of global economic recovery.

All sectors of the economy declined last year. In agriculture the growth rate was down from 3.6 per cent to 1.9 per cent, in manufacturing from 2.7 per cent to one per cent and in the services sector from 8.2 per cent to 7.1 per cent. The mining sector witnessed a drop of 0.6 per cent for the second successive year. There was, however, a slight all-round improvement during January-March, the last quarter of the financial year, raising hopes of a turnaround.

One factor, which retarded the growth rate during the year, was the cut-down on public spending. The government deliberately held down expenditure to prevent a slide in the country’s investment-grade sovereign rating. Incidentally, this did some good to the economy by reducing the fiscal deficit to 4.9 per cent of the gross domestic product from 5.8 per cent last year.

Another factor which kept the growth rate down was the inflationary pressure which reduced private spending. Capital investment was also low.

Foreign and domestic business interests have been pressing for acceleration of the reform process to attract more investment. The government, which opened up retail trade and the aviation and insurance sectors to foreign direct investment last year, is ready to do more but the political climate is not conducive to quick forward movement.

The Congress-led United Progressive Alliance is in a minority in parliament and is surviving on the goodwill of several parties which are not supportive of reforms. It is keen to make changes in the law to make it easy to acquire land for mega projects and grant environmental clearance. The Bharatiya Janata Party, the main opposition, is in agreement with the government on these issues but foiled its efforts to pass the necessary legislation during the last session of parliament by repeatedly disrupting the proceedings on the issue of corruption.

Even if the government has its way, it will have to overcome widespread popular sentiments against alienation of land and destruction of the environment. Many big projects are in trouble because of stiff opposition from the people, not because of inadequacy of laws. Repressive measures are not an easily exercisable option when elections are less than a year away.

Notwithstanding the current low growth rate, the Paris-based Organisation for Economic Cooperation and Development reckons that India may have already overtaken Japan, which has been in the doldrums for many years, and become the world’s third largest economy after the United States and China.

The OECD’s Economic Outlook report, released last week, says China is likely to overtake the US and emerge as the world’s largest economy in the next few years. It expects China to continue to record the highest growth rate among major countries till about 2030 before experiencing a slowdown which will enable India to get ahead of it. 

It adds, “Between now and 2060, GDP per capita is seen to increase more than eight-fold in India and six-fold in Indonesia and China.”

Can this rosy forecast come true while poverty dogs the nation’s footsteps? A World Bank study released in April said India accounts for one-third of the world’s poor. Many of the measures the government is contemplating to promote economic growth will directly hurt the poor and make their lives more miserable.

The mowing down of 27 Congress leaders of the predominantly tribal Chhattisgarh state by ultra-left guerrillas in a daring attack on May 25 is a bloody reminder of the dangers of pushing ahead with reforms, ignoring the widening gap between the rich and the poor. -- Gulf Today, Sharjah, June 4, 2013.

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