Indian Economy
Published in B&E- 28 Dec 2006
The shame of growth
India’s economic growth reaches stupendous levels in the previous quarter. Time to celebrate? Or time to berate ourselves much more? B&E gives the reasons why...
Of course, this treatise is about the ramifications of India’s growth on sectors across India’s expanse, but this treatise is also about the hollowness of such growth, if it doesn’t trickle down, nay, shower down on the bottom 80% of disadvantaged masses. Is India’s Finance Minister P. Chidambaram happy with the quarterly economic report card? Obviously yes! And if one were to make a bipartisan statement, he’s not wrong. This quarter, India has shown its best ever economic performance in the entire post reform period. That the GDP has accelerated to 9.2% in the July-September quarter, is a reason enough to celebrate. But of critical importance is the question whether India’s economic growth will equitably advantage society across sections, or would it follow the killing paradox of providing a plenty for a few?Yes, the current economic indicators do give us hope, but to keep alive the hopes of eradicating poverty (which has increasingly captured a pitiably massive 400 million Indians in its grasp: UNDP figures), India not only needs to sustain GDP growth rates above 8% for the next 10-15 years at a stretch, but also needs to implement a radical economic reengineering paradigm that facilitates a cross sectional improvement in health, literacy, education levels, perhaps with a larger emphasis on the majority of the disadvantaged masses. Therefore, more important than accomplishing just healthy figures is the consistency of performance for long-term sustainability of India, just as P. Chidambaram, hopefully expresses as, ”...our economy is growing and I hope it will grow at 9%. We hope to maintain this growth for the next five to ten years...”. . It is indeed good news that despite the unprecedented rise in global oil prices, India has been able to retain its annual economic growth rate at around 8% for the past three years and is continuing on the winning path. Although, the exorbitant fuel prices have had an adverse impact on inflation. Consumer prices have increased phenomenally in the recent past – today, the annual rate of inflation is between 6 and 7%. More importantly, the wholesale price index stood at 5.45% in the 12 month period till November 18.
The other factor which could have affected India’s economy negatively, was the sluggish growth of American economy – this single factor could have dramatically reduced India’s export of manufactured goods. As supported by noted economist & columnist Alok Puranik while speaking to B&E, the most promising fact that the manufacturing industry has registered a 11.9% growth during the July-September 2006 period, “is a good sign... as this will lead to growth in employment sector, which is badly needed.” But perhaps the biggest reason to cheer is India’s growth in the service sector, (accounting for half of India’s GDP) – the back bone of India’s economic boom has withstood the onslaught with great resilience, expanding at 13.9%, while even the financial services sector has kept pace with a smashing 9.5% growth in the period under consideration. To top it all, trade and communications grew at a pace of 13.5 % in the six month period, One agrees with the fact the Indian economy is yet to show any signs of ‘overheating’, but the moot point is, can these twin pillars (of manufacturing and services) continue to fuel the growth engine over a long time?The Economist has already thumped-off India’s above-ordinary dependence on and support to the services sector, for one, as characterising a typical “loose monetary and fiscal policy” system, capable of directly impugning the sustainability of high growth rates. All India Kisan Shabha General Secretary, K. Varadha Rajan, in a tete-a -tete with B&E, accuses policy makers with an acerbic, though cliched, query, “Can a country with disproportionate development stand on its feet?” These ‘disproportionate’ doubts arise mainly because of the poor performance of the agriculture sector – the farm output grew by a mere 1.7% during the quarter as compared to 4.1% in the same quarter a year ago. Having agriculture as India’s Achilles’ heel is dangerous, as that perhaps has the gravest potential to slow India’s economic momentum, especially with a large chunk (a whopping 43%; NSS 2004) of population surviving on agriculture, and with a larger 66% living in rural India. In addition, the non-plan expenditure on public distribution system would further add to the pressure on the economy. Worse, sooner rather than later, the government will also be forced to revise the interest rates upwards to control the demand push inflationary pressures.
With these various factors in mind, unless the government increases the Gross Budgetary Support (GBS) for education, health and employment schemes, lopsided development process across the country will inevitably, and with crying shame, continue. The GBS in the tenth Plan was around 7% of GDP. Estimates by experts within the Left front (if one, however wrongly or correctly, were to assume they are most pro equitable development) suggests that the GBS for the Eleventh Plan will have to be increased by at least another 4.75% of GDP in order to ensure a minimum increase of 1% of GDP for agriculture. Comparatively, the government has sounded off that it is most likely to increase the GBS in 11th plan by only 2.5%.Also, the availability of quality labour force to meet the growing demands of the industry has become the newest major concern. Suddenly one is discovering that despite a huge youth force, India just does not have enough institutes of higher learning, which can churn out leaders and managers of international standards. According to Nasscom, India will face a shortage of about 500,000 skilled manpower by 2010!And if the government hopes that things will turn around in the next 10 or so years time, when about 45-50% of the Indian population is forecasted to begin to reside in urban areas, then surely they’re deliberately being blind to the killingly slow pace of infrastructure development. Professor Edison Tse of Stanford University berated India’s infrastructure development compared to China by mouthing a vitriolic remark to B&E, that “India’s best city doesn’t even compare with China’s Tier 3 cities (the ones with lowest development, as per the Chinese government), what to talk about Tier 1 cities.” A fact corroborated to B&E by George Wu, Professor at Chicago University’s world renowned Graduate School of Business. China has maintained a constant 10% and around growth for past three decades in continuation; and so consummate is their economic management that even this year, they have kept their inflation as low as 1.4%.
But then, these critical remarks have been made too often by experts and economists; and the government is well aware of almost all of them. So where does India stand? Why isn’t the government machinery working with a fanatical commitment towards poverty eradication and equitable growth. The answer, though most ludicrous, is quite obvious.A majority of politicians realise that India’s growth has been significantly because of the rise of private entrepreneurship, rather than because of moribund government initiatives. Despicably, they also realise that this growth, like in the past, will continue even without government’s support. So what better opportunity, than this, to invest in garnering vote banks – evidenced through the most recent Justice Sachar Committee Report promoting reservations for Muslims, and the ridiculous “affirmative action” agenda forcing private corporations to start reserving jobs. And what better opportunity to earn some additional corrupt revenue by the wayside – evidenced by the government’s deplorable and forcible shut down of the trading community in New Delhi, affecting the employment of a humungous 12 million people, and that after the corruption ridden Municipal Corporation of Delhi had made millions in bribes over the years misleading traders by allowing them to open shops in unauthorised areas.Equitable growth is obviously last on the agenda of politicians, many of whom with a genetic lineage of being crime driven, and many more basking in the glory that if the masses of India remain illiterate (more than 65%), and poor, it’s easier (with celebrities), and cheaper (with wine and food), to influence them to give votes! So does that mean that India’s stupendous growth stands to nothing?!?! We didn’t say that. But we did mention, this treatise was also about the hollowness of such growth, if it doesn’t trickle down, nay, shower down on the bottom 80% of disadvantaged masses...
Of course, this treatise is about the ramifications of India’s growth on sectors across India’s expanse, but this treatise is also about the hollowness of such growth, if it doesn’t trickle down, nay, shower down on the bottom 80% of disadvantaged masses. Is India’s Finance Minister P. Chidambaram happy with the quarterly economic report card? Obviously yes! And if one were to make a bipartisan statement, he’s not wrong. This quarter, India has shown its best ever economic performance in the entire post reform period. That the GDP has accelerated to 9.2% in the July-September quarter, is a reason enough to celebrate. But of critical importance is the question whether India’s economic growth will equitably advantage society across sections, or would it follow the killing paradox of providing a plenty for a few?Yes, the current economic indicators do give us hope, but to keep alive the hopes of eradicating poverty (which has increasingly captured a pitiably massive 400 million Indians in its grasp: UNDP figures), India not only needs to sustain GDP growth rates above 8% for the next 10-15 years at a stretch, but also needs to implement a radical economic reengineering paradigm that facilitates a cross sectional improvement in health, literacy, education levels, perhaps with a larger emphasis on the majority of the disadvantaged masses. Therefore, more important than accomplishing just healthy figures is the consistency of performance for long-term sustainability of India, just as P. Chidambaram, hopefully expresses as, ”...our economy is growing and I hope it will grow at 9%. We hope to maintain this growth for the next five to ten years...”. . It is indeed good news that despite the unprecedented rise in global oil prices, India has been able to retain its annual economic growth rate at around 8% for the past three years and is continuing on the winning path. Although, the exorbitant fuel prices have had an adverse impact on inflation. Consumer prices have increased phenomenally in the recent past – today, the annual rate of inflation is between 6 and 7%. More importantly, the wholesale price index stood at 5.45% in the 12 month period till November 18.
The other factor which could have affected India’s economy negatively, was the sluggish growth of American economy – this single factor could have dramatically reduced India’s export of manufactured goods. As supported by noted economist & columnist Alok Puranik while speaking to B&E, the most promising fact that the manufacturing industry has registered a 11.9% growth during the July-September 2006 period, “is a good sign... as this will lead to growth in employment sector, which is badly needed.” But perhaps the biggest reason to cheer is India’s growth in the service sector, (accounting for half of India’s GDP) – the back bone of India’s economic boom has withstood the onslaught with great resilience, expanding at 13.9%, while even the financial services sector has kept pace with a smashing 9.5% growth in the period under consideration. To top it all, trade and communications grew at a pace of 13.5 % in the six month period, One agrees with the fact the Indian economy is yet to show any signs of ‘overheating’, but the moot point is, can these twin pillars (of manufacturing and services) continue to fuel the growth engine over a long time?The Economist has already thumped-off India’s above-ordinary dependence on and support to the services sector, for one, as characterising a typical “loose monetary and fiscal policy” system, capable of directly impugning the sustainability of high growth rates. All India Kisan Shabha General Secretary, K. Varadha Rajan, in a tete-a -tete with B&E, accuses policy makers with an acerbic, though cliched, query, “Can a country with disproportionate development stand on its feet?” These ‘disproportionate’ doubts arise mainly because of the poor performance of the agriculture sector – the farm output grew by a mere 1.7% during the quarter as compared to 4.1% in the same quarter a year ago. Having agriculture as India’s Achilles’ heel is dangerous, as that perhaps has the gravest potential to slow India’s economic momentum, especially with a large chunk (a whopping 43%; NSS 2004) of population surviving on agriculture, and with a larger 66% living in rural India. In addition, the non-plan expenditure on public distribution system would further add to the pressure on the economy. Worse, sooner rather than later, the government will also be forced to revise the interest rates upwards to control the demand push inflationary pressures.
With these various factors in mind, unless the government increases the Gross Budgetary Support (GBS) for education, health and employment schemes, lopsided development process across the country will inevitably, and with crying shame, continue. The GBS in the tenth Plan was around 7% of GDP. Estimates by experts within the Left front (if one, however wrongly or correctly, were to assume they are most pro equitable development) suggests that the GBS for the Eleventh Plan will have to be increased by at least another 4.75% of GDP in order to ensure a minimum increase of 1% of GDP for agriculture. Comparatively, the government has sounded off that it is most likely to increase the GBS in 11th plan by only 2.5%.Also, the availability of quality labour force to meet the growing demands of the industry has become the newest major concern. Suddenly one is discovering that despite a huge youth force, India just does not have enough institutes of higher learning, which can churn out leaders and managers of international standards. According to Nasscom, India will face a shortage of about 500,000 skilled manpower by 2010!And if the government hopes that things will turn around in the next 10 or so years time, when about 45-50% of the Indian population is forecasted to begin to reside in urban areas, then surely they’re deliberately being blind to the killingly slow pace of infrastructure development. Professor Edison Tse of Stanford University berated India’s infrastructure development compared to China by mouthing a vitriolic remark to B&E, that “India’s best city doesn’t even compare with China’s Tier 3 cities (the ones with lowest development, as per the Chinese government), what to talk about Tier 1 cities.” A fact corroborated to B&E by George Wu, Professor at Chicago University’s world renowned Graduate School of Business. China has maintained a constant 10% and around growth for past three decades in continuation; and so consummate is their economic management that even this year, they have kept their inflation as low as 1.4%.
But then, these critical remarks have been made too often by experts and economists; and the government is well aware of almost all of them. So where does India stand? Why isn’t the government machinery working with a fanatical commitment towards poverty eradication and equitable growth. The answer, though most ludicrous, is quite obvious.A majority of politicians realise that India’s growth has been significantly because of the rise of private entrepreneurship, rather than because of moribund government initiatives. Despicably, they also realise that this growth, like in the past, will continue even without government’s support. So what better opportunity, than this, to invest in garnering vote banks – evidenced through the most recent Justice Sachar Committee Report promoting reservations for Muslims, and the ridiculous “affirmative action” agenda forcing private corporations to start reserving jobs. And what better opportunity to earn some additional corrupt revenue by the wayside – evidenced by the government’s deplorable and forcible shut down of the trading community in New Delhi, affecting the employment of a humungous 12 million people, and that after the corruption ridden Municipal Corporation of Delhi had made millions in bribes over the years misleading traders by allowing them to open shops in unauthorised areas.Equitable growth is obviously last on the agenda of politicians, many of whom with a genetic lineage of being crime driven, and many more basking in the glory that if the masses of India remain illiterate (more than 65%), and poor, it’s easier (with celebrities), and cheaper (with wine and food), to influence them to give votes! So does that mean that India’s stupendous growth stands to nothing?!?! We didn’t say that. But we did mention, this treatise was also about the hollowness of such growth, if it doesn’t trickle down, nay, shower down on the bottom 80% of disadvantaged masses...
the ‘otherwise’ criticises the ‘wise’The Reserve Bank has been continuously emphasising on the need to give support to agriculture and SSI. As a regulatory stipulation, both Indian and foreign banks are required to extend 40% and 32% of their Net Bank Credit (NBC) towards priority sector. More encouraging is the fact that RBI is considering a proposal to expand the definition of NBC. Enlarging the base on which priority sector lending targets are set would result in increased credit flow to priority sector by a commendable Rs.500 billion. Though RBI’s priority investments have been criticised by ‘otherwise’ Mckinsey (which termed priority lending as an unproductive one), yet we can only be thankful to our ‘wise’ Indian banks who are currently lending 57% of total credit to this sector. It’s only the resurgence of agriculture, which can catapult India’s GDP growth to the magic figure of 10%.
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