Ways of looking at the economy

BRP Bhaskar
Gulf Today

India’s star shines bright amid global economic challenges, International Monetary Fund Managing Director Christine Lagarde said in New Delhi earlier this month. It now has the fastest growing economy and the largest and youngest workforce and is in the process of reforming the system, she noted.

The reform process began in 1991. A quarter century later, it still faces many obstacles. The first Congress-led United Progressive Alliance government could not go ahead with some proposals due to strong opposition from the Left parties which sustained it in office. When UPA II came up with a constitutional amendment to provide for a uniform pattern of tax on goods and services across the country the Bharatiya Janata Party, which was in the opposition, did not cooperate. Now, as the ruling party, the BJP is eager to take the measure forward but the Congress stands in the way.

The BJP and the Congress agree on steps to make it easy to acquire land for industries but the people who stand to lose their farmlands and homesteads are up in arms against them. Changes of the kind the International Monetary Fund is pressing for may not, therefore, come easily. However, India is well set to retain its status as the fastest growing economy as no credible challenger is in sight.

According to World Bank data, China’s growth rate stood at 9.5 per cent in 2011 and India’s at 6.6 per cent. Since then China’s growth has fallen continuously and India’s has risen except in one year. In the process, they levelled at 7.3 per cent last year. The projection for India in the current financial year is 7.5 per cent against China’s 7.1 per cent.

On the strength of the growth rate, Finance Minister Arun Jaitley claimed that the economy had recovered from the effects of the global slowdown. But former Prime Minister Manmohan Singh, who, as Finance Minister, had initiated the economic reform process in 1991, termed the recovery very fragile. Touched to the quick, Jaitley said, “In a global slowdown situation, to have the fastest growth rate in the world certainly does not make the Indian economy fragile.”

Chief Economic Adviser Arvind Subramanian sought credit for the government for the fast growth rate. He said the manufacturing and service sectors, which were under the government’s control, had done well while the farm and export sectors, which were not under its control, had not done so well.

The steep fall in oil prices in the international market helped India, which imports 70 per cent of its crude requirements, to contain inflation and the current account deficit. But it also hurt to some extent by reducing foreign demand for its products.

Alyssa Ayres, Senior Fellow at the Council on Foreign Relations, in a testimony before a Congressional committee urged the US to “elevate support for India’s growth to the highest bilateral priority” and to “work more comprehensively to integrate India in the global economic institutions”.

She mentioned in particular the Asia Pacific Economic Cooperation (APEC) forum, which has not acted upon India’s application for membership for two decades, the Organisation for Economic Cooperation and Development (OECD), where India has the status of “key partner”, and the International Energy Agency (IEA).

China, which is watching the US moves, is of the view that unrealistic praise and forecasts for India are painting a false picture. “There is no possibility of India surpassing China,” the Communist Party’s English tabloid, Global Times, said in an article last week.

Growth rate is not a reliable measure of the robustness of the economy. A developed economy cannot be expected to chalk up a high growth rate. The US growth rate in the last four years, for instance, ranged between 2.9 per cent and 4.1 per cent. Assessment of the economy entirely on the basis of the growth rate will, therefore, be misleading.

“It is inescapably clear that India won’t easily outgrow China as predicted by the West,” the Global Times article said. “From a macro perspective, China’s GDP in 2015 was nearly $10.42 trillion, which is around five times as much as India’s $2.18 trillion.”

IMF data of GDP shows that vast gaps separate India from China, and China from the US. In per capita terms, China’s GDP is 25 per cent of the US’s and India’s 11 per cent. Until India is able to carry with it the vast excluded sections of its population, the high growth rate will be of little avail. - Gulf Today, Sharjah, March 22, 2016.

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.