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ELEPHAS MAXIMUS INDICUS
- The elephant inevitably crops up in any discussion on Indian economic reforms

The author is director, Rajiv Gandhi Institute for Contemporary Studies, New Delhi

Recently, I attended a seminar on economic reforms in India. Inevitably, there were complaints about the speed of liberalization, about driving in first gear (sometimes in reverse gear) on a highway. Inevitably, on such occasions, the image of an elephant crops up. Unlike tigers and tiger-cubs in east Asia, the Indian economy is identified with an elephant, perhaps because of its slow and lumbering nature, or perhaps because of the elephant’s fabled memory. (Remember the book and the film, An Elephant Called Slowly')

We find it difficult to give up the socialist past. Perhaps because of the elephant’s long pregnancy. Consider the long time-lag between our conception of reforms and the actual delivery. Perhaps because of loss-making public sector units. This is the white elephant image. Perhaps because of the story of the blind men and the elephant. We grab one part of the privatization anatomy and imagine that is the whole truth.

The fact that there are elephants in India cannot be the main reason. Have you ever heard of the Thai economy being compared to an elephant' On outer ring road in Delhi, near Vasant Vihar, there is a traffic sign that says no cycles and no elephants. So elephants are important to India. S.L. Rao’s post-reform book on the economy has a title that refers to the dancing abilities of elephants .

Given this identification between elephants and the Indian economy, I wonder if the government ever appoints the right economic advisers. I would like K.P. Sreekumar to be the chief economic adviser. Almost certainly you haven’t heard of Sreekumar or the Ignoble prizes. Very few people have, and that is exceedingly strange. India’s track record in winning Ignoble prizes is far better than its track record in winning Nobel prizes. Anyway, earlier this month, the Ignoble prizes for 2002 were announced. These are awarded for strange research. Sreekumar and the late G. Nirmalan (Kerala Agricultural University) have won it for mathematics.

Sreekumar being a mathematician is no deterrent to his being a CEA. Most successful economists are unsuccessful mathematicians. Sreekumar and Nirmalan have won the award for their research report on “Estimation of the Total Surface Area in Indian Elephants (Elephas maximus indicus)”. The report hasn’t been put up on the Ignoble website. I have checked. Evidently, this Sreekumar-Nirmalan technique enables you to estimate the elephant’s surface area without actually measuring it. Perhaps you only need to measure the tail.

Sreekumar is now at the University of South Pacific and seems to be a most interesting person. He is especially interested in domestic chickens and elephants. Two of his recent papers are titled, “Effect of photostimulation on concentrations of plasma prolactin in castrated bantams (Gallus domesticus)” and “Ontogeny of the photoperiodic control of prolactin and luteinising hormone secretion in male and female bantams (Gallus domesticus)”. Both papers are about chickens. This year’s Ignoble list doesn’t feature any other Indian.

The economics prize has been won by “the executives, corporate directors, and auditors of Enron, Lernaut & Hauspie (Belgium), Adelphia, Bank of Commerce and Credit International (Pakistan), Cendant, CMS Energy, Duke Energy, Dynegy, Gazprom (Russia), Global Crossing, HIH Insurance (Australia), Informix, Kmart, Maxwell Communications (UK), McKesson HBOC, Merrill Lynch, Merck, Peregrine Systems, Qwest Communications, Reliant Resources, Rent-Way, Rite Aid, Sunbeam, Tyco, Waste Management, WorldCom, Xerox, and Arthur Andersen, for adapting the mathematical concept of imaginary numbers for use in the business world”.

Perhaps North Block or the planning commission could also use some imaginary numbers and creative accounting techniques. Several scientists have won the biology prize for their study on, “Courtship behaviour of ostriches towards humans under farming conditions in Britain”. Arnd Leike won the physics prize for “Demonstration of the exponential decay law using beer froth”. Theo Gray won the chemistry prize by constructing a four-legged periodic table. Two scientists won the literature prize for their report, “The effects of pre-existing inappropriate highlighting on reading comprehension”.

Two Japanese scientists won the peace prize for inventing Bow-Lingual, a computer-based automatic dog-to-human-language translation device. A Spanish scientist won the hygiene prize for inventing a washing machine for cats and dogs. And a British scientist won the medicine prize for his report on, “Scrotal asymmetry in man and in ancient sculpture”. Newspapers have ignored all these important research studies. The only award that has received some attention is the inter-disciplinary research award, conferred on an Australian for his comprehensive survey of human belly-button lint.

This is in the same tradition as last year’s Indian winners. Chittaranjan Andrade and B.S. Srihari from the National Institute of Mental Health and Neurosciences won the public health award for their work on, “A preliminary survey of rhinotillexomania in an adolescent sample”. In case you didn’t know, rhinotillexomania is nose-picking.

Imagine how easy life would be if we had Sreekumar in the planning commission. I have already convincingly argued that the Indian economy is like an elephant. Hence the elephant’s surface area is a bit like estimating real gross domestic product growth during the tenth plan (2002-07). And the planning commission is stuck with an impossible situation. The ninth plan (1997-2002) got us 5.35 per cent. Whichever way you look at it, nothing significantly more than 6 per cent seems possible during the tenth plan. Agriculture and allied services will chip in with 4 per cent, services will chip in with 7 per cent and industry (not just manufacturing) will possibly chip in with another 7 per cent. That gets you marginally more than 6 per cent. Nowhere near the 8 per cent, the prime minister has asked us to shoot for “India cannot afford to have a lower rate of growth.”

Marginally more than 6 per cent doesn’t get you the 50 million new jobs you need in five years. Compelled to jack up 5.35 per cent or 6 per cent to 8 per cent plus on the instructions of the government, the planning commission has to be creative and those guys who messed around with imaginary numbers would have been proud of this work. (In all fairness, I haven’t seen the tenth plan document. No one outside the government has access to it. I have only seen newspaper reports.)

The savings rate (as percentage of GDP) is expected to increase from 23.3 per cent during the ninth plan to 26.8 per cent during the tenth. Household savings are around 20 per cent of GDP now and can’t increase significantly above this figure, even if expected income growth does boost the rate. The plan expects private corporate sector savings to increase from 4.9 (share of GDP) to 5.8 per cent and public sector savings to increase from 2.4 per cent (share of GDP) to 4.6 per cent. Both of these are unrealistic assumptions and there is no evident reason why such increases should happen. The current account deficit is expected to be 1.6 per cent of GDP. The approach paper to the tenth plan (published in September 2001) had 2.8 per cent.

This incorporates a target annual foreign direct investment inflow of $7.5 billion a year and this figure may very well be possible. After all, we don’t follow the International Monetary Fund guidelines in accounting for FDI and under-estimate FDI. A correction is now underway and this alone will increase FDI inflows from something like $4 billion to $6 billion or thereabouts. If only a tiny little bit of the N.K. Singh committee’s recommendations is implemented, $7.5 billion is not that difficult.

This increases the investment rate to 28.4 per cent of GDP and this divided by the capital-output ratio gives the growth rate. During the ninth plan, the incremental capital-output ratio was 4.53 — 28.4 per cent divided by 4.53 gives 6.3 per cent real GDP growth, not 8 per cent. Through efficiency improvements, triggered by reform, the approach paper expected the ICOR to drop to 4.08, arguing that this was going to be very difficult. To boost the GDP growth target, the final plan document expects the ICOR to drop to 3.58.

This is a remarkable sleight of hand. Stated differently, if there are reforms, 8 per cent is possible. But since reforms are unlikely and we will be in first gear, not only is an increase in the tax-GDP ratio from 8.6 per cent to 10.3 per cent or a decline in the non-plan expenditure to GDP ratio from 11.3 per cent to 9 per cent unlikely, there may not even be enough budgetary support from the plan. So we will settle for 6 per cent.

Everyone knows this. But I am trying to make a slightly different point. The tenth plan document reportedly has around 1,800 pages. A lot of time and energy has gone into estimating the surface area of the elephant and justifying the hike in growth from 5.35 per cent to 8 per cent. The more you write, the easier it is for people to attack your assumptions — 1,800 pages provide enough material for critics to pick holes.

As I have said, I am not very clear about how Sreekumar estimates the surface area. He would probably just talk to the Rashtriya Swayamsevak Sangh, the Bharatiya Mazdoor Sangh and George Fernandes (representing the elephant’s tail) and estimate GDP growth. With him in the planning commission, criticism would have been difficult.

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