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Growth forecast feeds ‘Sub-5’ fire

Mumbai, April 1: The symbolism of the hand with a slightly nicked finger won’t be lost on India’s electorate.

On Sunday, Yashwant Sinha had labelled P. Chidambaram as a “Sub-5” finance minister — trying to drive home the point that he had a peculiar habit of running a perfectly robust economy into the ground.

Sinha said he had done it twice already — in 1997-98 and 2012-2013 — by nudging the growth rate below 5 per cent. And Chidambaram is well on his way to do an encore this year, just before the Election Caravans start to roll.

On Tuesday, the withering criticism from the NDA’s former finance minister, which Chidambaram termed “puerile”, seemed to acquire a ring of truth when the Reserve Bank of India said GDP growth in 2013-14 would in all likelihood be lower than 5 per cent.

In early February, the Central Statistical Organisation (CSO), the government’s statistician, had said the economy would grow at 4.9 per cent this fiscal while presenting its advance estimate.

The dog days for the Indian economy had started in the very first quarter (April-June) when it recorded a growth rate of 4.4 per cent — the slowest in over a decade.

Even as the rupee wobbled and investments in new projects shrank, the growth rate rose by a blip to 4.8 per cent in the second quarter (July-September). It then wilted a little bit in the third quarter to 4.7 per cent.

“GDP growth at 4.7 per cent in the third quarter… has not been enough to suggest that the advance estimates of 4.9 per cent during 2013-14 could be realised. The economy will now have to record a 5.5 per cent growth in the fourth quarter to realise that growth (forecast), which on current assessment looks difficult,” the RBI said in its report on Macroeconomic and Monetary Developments 2014-15 (MMDR) that accompanied governor Raghuram Rajan’s policy statement today.

Chidambaram and Sinha

A fan chart in the document shows that the RBI expects GDP growth in the fourth quarter (January-March) to lie in the range between 4.5 and 5.3 per cent, short of the desired 5.5 per cent.

Professional forecasters polled by the RBI have trimmed their fourth quarter growth forecast to 4.9 per cent from 5.2 per cent earlier. The RBI doesn’t endorse their forecast but includes it in every MMDR document with a caveat.

The Reserve Bank’s forecast for the next year — 2014-15 — isn’t rosy either.

“Real GDP growth is projected to pick up from a little below 5 per cent in 2013-14 to a range of 5 to 6 per cent in 2014-15 albeit with downside risks,” Raghuram Rajan said in the central bank’s first bi-monthly monetary policy review.

The MMDR buttressed this point by saying: “If the electoral outcomes fail to provide a stable government, the downside risks to growth could accentuate.”

The Congress and the BJP have been trying to score brownie points over each other by shovelling a blizzard of statistics into the public domain over the past week.

In its manifesto for Elections 2014, the Congress said: “In the 10 years of UPA-I and UPA-II, India achieved an average annual growth rate of 7.5 per cent. During the NDA tenure, the average annual growth rate was 5.9 per cent.”

But the BJP has denounced the UPA for trying to steal credit for 9 per cent plus growth rates achieved in three of the first four years of UPA–I (2004-2009). It termed it a “harvest that the Congress was able to reap” because of the decisions taken by the NDA government.

Said BJP spokesperson Ravi Shankar Prasad: “We left an 8.5 per cent growth rate for the UPA in 2003-04. The UPA is leaving a behind a growth rate that is down to 4.5 per cent. Everything is down except inflation and corruption.”

The Congress manifesto said: “We will restore India to 8 per cent plus growth rate within three years.”

The promise rings a little hollow at a time when growth in the past six quarters has stubbornly failed to rise above 5 per cent.

There are clear signs that have started to emerge that the “new normal” for the Indian economy is a growth rate of around 6 per cent — and political parties will have to live with that fact and stop promising the moon.

The RBI said India’s potential growth appeared to have dropped from 8 to 8.5 per cent between the second quarter of 2005-06 to the third quarter of 2008-09 (a total of 14 quarters) to around 6 per cent between the second quarter of 2012-13 and the third quarter of 2013-14.

“The wide range of estimates using alternative techniques…suggests that currently the potential growth may be even somewhat lower than 6 per cent,” it added.

But Chidambaram had yesterday said “the year will end more or less as we planned”.

“We will end the year with a fiscal deficit of 4.6 per cent as planned, our reserves today have crossed $300 billion, the current account deficit which was originally estimated at under $60 billion is now likely to be $35 billion. What we set out to do after my return to the finance ministry in August 2012 has been substantially accomplished. The economy is more stable. No one talks about downgrading anymore. The fundamentals have strengthened.”

Congress spokesperson Abhisek Singh said today: “Facts cannot be overshadowed by rhetoric, polemics, slogans and oratory. The competition is between the UPA-I and UPA-II, not with the NDA. The GDP grew at 8.4 per cent in UPA-I and 7.3 per cent in UPA-II while the NDA best was 6 per cent. The agriculture growth during NDA was 2.9 per cent while the UPA-I had 3.1 and UPA-II 3.6 per cent. Industrial growth during NDA period was 5.5 per cent while the UPA I & II had 9.2 and 6 per cent respectively. Services grew at 7.8 per cent during NDA while UPA I registered 9.9 per cent and UPA-II 8.9 per cent.”

The finger-wagging debate over economic growth figures this week may have raised the quality of the debate after the burst of slanderous name-calling among the leading protagonists in Election 2014.

It also put the spotlight on two people who have opted to step away from the contest — Sinha and Chidambaram — but have shown considerable aggression in defending their legacies of deficits and weak growth.

They seem to have read Dylan Thomas who had exhorted his cancer-afflicted father not to “go gentle into that good night” and instead “rage, rage against the dying of the light”.