The most serious development this year is the slowing growth of the economy. In the last budget speech, P. Chidambaram had boasted that the growth rate had exceeded eight per cent in each of the previous 12 quarters. He believed that it was India’s destiny to keep on growing at eight per cent and more far into the future. The growth rate started falling almost as soon as he had spoken. For the last two quarters it has been 5.8 per cent.

The Economic Survey adroitly reconciles his vaulting ambition with plummeting growth. It says that the high expectations were based on the stellar growth in the last five years; one only had to look at the previous five years to return to reality. This may sound opportunistic: choose whether you want to be upbeat or downbeat, then find the part of the past that matches your expectations. Perhaps it would be more honest not to give in to paroxysms of hope or despair just because one is in power. Certainly, the people would have more confidence in the finance ministry if it stuck to rigorous realism.

The 5.8 per cent growth posits agricultural growth of 2.7 per cent in the last quarter. But the Survey argues that this year’s agricultural output would be below last year’s. So the Central Statistical Organisation will revise the recent figures and reduce them further to below 5.8 per cent. The Survey gives two estimates for 2008-09 growth — 6.7 per cent in Table 1.1 and 6.1 per cent in Table 1.3. One can imagine an explanation — that incomes grew less than expenditure because indirect taxes went up. But last year, indirect taxes went down rather than up. One also wonders how the contribution of fixed investment to growth in 2008-09 was so high according to Table 1.3 when both machinery and cement industries had slumped. The CSO has some revision to do; when it completes it, the figures may well look very different.

Right at the outset the Survey says that the investment ratio went up from 31.6 per cent in 2007-08 to 32.2 per cent in 2008-09, and cites this as evidence of “the resilience of Indian enterprise, in the face of a massive increase in global uncertainty….” But then, Table 1.3 pointedly omits to give a figure for gross capital formation in 2008-09. So an impression is difficult to avoid that the Survey has read more into the CSO’s figures than they support. If the figures in the Survey are doctored to look good, only the CSO should doctor them, and it should do so consistently. If one departs from the probable truth, it becomes all the more important to be credible.

The Survey says that the recession in developed countries was a major factor in India’s slowdown. If we look at the sources of growth given in Table 1.3, it is true that the balance of payments makes a negative contribution to growth, and that this negative contribution went up in 2008-09. But the message of that table is loud and clear. A slump in consumption was the prime cause of the Indian slowdown; its contribution to growth fell from 54 per cent in 2007-08 to 27 per cent in 2008-09. The Survey’s explanation of this striking fall is that the share of consumption in gross national expenditure was on a declining trend. The evidence given is for two years, 2002-03 and 2008-09. The figures for intermediate years show fluctuations, but read together, they show no trend at all. Something happened in and only in 2008-09 that led consumers to cut down growth in their expenditure sharply. We know from production figures that they cut down expenditure on industrial goods. This is the origin and the crux of the downturn India is experiencing, and I am afraid the Survey does not really get to grips with it.

Instead, it says that the fall in the share of private consumption was “cushioned” by a rise in the share of government consumption. This is bizarre. People put a brake on their spending on clothes, sandals, holidays and so on, and the government showers money on farmers who defaulted on their loans, makes losses on grains it sells in ration shops, and gives collectors money to spend on so-called public works. The Survey says that the latter expenditures are cushioning the former. The spenders are different, what they are spending on is different; what relief do poor private consumers get because the government is blowing up money?

The idea that government expenditure can make up for a fall in private expenditure is Keynesian. Keynes did suggest that if private expenditure was insufficient to provide employment to all, the government should spend — on anything, even on building pyramids or on digging holes and filling them up. His idea was that the government expenditure would create incomes for those on whom it is spent, and that what they spent out of those incomes would create further income. This was the idea behind the multiplier.

But even if it was Keynes who formulated the multiplier, it cannot become a matter of faith. One must ask: what did the farmers do with the money they should have repaid to banks and did not? My guess is that those farmers are pretty well off, and that they saved it. Government expenditure on public works partially creates incomes for those who work on them. But the interesting thing is that the government has provided money for 100 days’ work, but nowhere in India do the people it employs work for 100 days. In most areas they work between 25 and 50 days. And the total employment has never gone beyond a few crores at a time — a fraction of the labour force. Most do not want work; and those who do, do not want to work more than a certain amount. Here my guess is that poor people with meagre assets and ambition make a decision on how much manual work to do; it is based on how much money they need to survive. Once they have earned that much, they do not take work even if it is offered to them. So government public works have taken workers away from private employers, but have created little additional income or consumption.

If I am right, the multiplier must be pretty low — it could be close to zero. How would one know? If it is, government expenditure will lead to no additional private consumption; it will only lead to a rise in the share of government in national expenditure. And that is what has happened: its share in the rise in expenditure went up from eight per cent in 2007-08 to 32.5 per cent in 2008-09. The government’s policy of spending more is almost completely ineffective against the downturn. I bet that is something the Economic Survey will never say — or even discuss.

So much for what is happening. The Survey also argues that growth will “return” to the Chidambaram path before long. Despite all the curve-fitting, the belief that India will grow at eight per cent and more is based on four years’ experience. The sample is too small to carry conviction.