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DARING REALISM

Whether it is an act of courage, foolhardiness or realism, the finance minister’s economic surveyors have diverged from him. When the Central Statistical Office came out a fortnight ago with its advance estimate of 5 per cent growth in this financial year, the finance minister accused it of using dated data, without disclosing the dateless data he had up his sleeve, and of extrapolating data, omitting to say why he expected future growth to be so much above trend. Those who looked forward to the unveiling of his Houdini act in the Economic Survey will be disappointed. His surveyors have adopted the CSO’s figure. What is worse, they also give the CSO’s estimate of increase in gross domestic expenditure, which is only 3.3 per cent. Of the three concepts of output, the third figure, of gross domestic income, is missing because the CSO does not estimate it. But the point is that domestic product is likely to grow at 3.3-5 per cent this year, depending on how much the slowdown shrinks indirect taxes. Just two years ago, it grew 10.5 per cent.

What is behind this precipitate fall? People’s purchases of gold and jewellery grew 32.4 per cent two years ago; this year they are likely to show an 18.1 per cent fall. People in the government have extreme views about gold; P. Chidambaram unwisely raised duty on gold and inadvertently raised the incentive to smuggle it, and the Reserve Bank of India issued a sprawling, paranoid report on it. But people spent less on clothes and shoes in 2011-12, and slowed their spending on furniture and recreation; that somehow does not get officials so worked up. The point is that people are buying less gold because they are feeling poorer; but that cannot explain the slowdown. Growth of investment in machinery and equipment fell from 14 to 2.5 per cent; the fall in equipment purchases reduced manufacturing growth from 9.7 to 1.3 per cent.

As has been pointed out here, India is witnessing an investment-led collapse of industrial growth. There are contributory factors. In particular, India is running a large and rising payments deficit, which means that it is buying more of imports than the exports it is selling. And the government went on a buying spree to win the last election, and then became more cautious. All that is past; the important question is, what is to follow? There, the survey’s figures of planned investments are extremely alarming. Some seven trillion rupees are stuck in stalled investment projects; and the value of newly planned investments has come down from Rs 5 trillion a quarter in the middle of 2010 to less than a trillion. This is reminiscent of the land of the rising sun. From record growth in the 1980s, Japan’s economy slumped to years of absolute decline. Let us hope that India does not follow it into sunset.