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FIRST SIGNS OF RECOVERY

- Opinion polls and beyond

Rahul Gandhi feels that opinion polls are a “joke”. His remark was in response to a recent opinion poll, which predicts that the Congress will put in its worst performance ever, and just about cross the three-figure mark in the general elections. The timing of his remark was slightly surprising since several earlier polls painted an even gloomier picture for the Congress. Perhaps, Rahul Gandhi has finally realized that generals cannot admit defeat so early in the contest — they need to keep up the morale of their troops.

Of course, the elections are more than a month away and that is a long time in politics. New alliances can be made and old alliances broken. So, the current forecasts may well be wrong. However, there is such a tremendous groundswell of opinion against the United Progressive Alliance and the Congress that it would take more than a miracle to prove all the polls wrong. The UPA government is widely perceived to have been amongst the most corrupt regimes in India, with scams of large proportions, some of them involving leaders of the UPA, being unearthed with monotonous regularity. Its management of the economy has also been lambasted by all and sundry. The aggregate rate of growth has dipped alarmingly during much of the UPA II’s regime. All the government’s effort has been directed at fire fighting exercises — to prevent the economy from sliding further and further down a slippery slope. There has been virtually no major initiative in terms of long-term reforms, the sole exception being the Food Security Act.

There is a feeling that the typical voter does not really care about whether the government implements reforms or not since many structural reforms will only bear fruit in the long run. Even if this is true, the Congress cannot hope that its record of economic management will get even a passing grade from the voter. What has angered the aam aadmi most has been the persistent increase in prices. The rate of inflation has crossed 10 per cent for several years in a row. Prices of common items of food have increased at an even faster rate during the latter half of 2013. Of course, an offsetting change has been the overall increase in money incomes. Despite the increase in money incomes, large sections of the population must have experienced a temporary fall in living standards. There is little doubt that the price rise played a large part — perhaps it was the single most important factor — in causing the dismal performance of the Congress in the December elections to several state assemblies.

Perhaps recent events have been instrumental in making the Congress wonder whether it would have significantly better prospects only if the election could be pushed back by a few months. Suddenly, there has been a flurry of good news about the economy. The most relevant one relates to the behaviour of prices. The rate of inflation has fallen to a nine-month low of just under 5 per cent. What is more important is that the rates of increases in prices of several staple food items have also recorded a steep decline. For instance, the overall rate of inflation in vegetable prices was under 4 per cent in February — compared to over 16 per cent in January. The consumer price index for agricultural labourers at the all-India level shows no change at all for the month of February. Of course, this is an aggregate figure — prices did rise in some states, but these were balanced by prices actually declining in several other states.

‘Advance’ estimates released by the Union ministry of agriculture show that there was a record production of rice, wheat, cotton and oilseeds during the course of the last year. Several years of government efforts and initiatives — for instance, the idea of creating pulse villages — have finally started bearing fruit. This year’s pulse output has also been very high. This has already had an effect on the retail prices of pulses, and different dals may finally be affordable on a much larger scale than has been the case in recent time. Similarly, very satisfactory production levels of oilseeds and sugar will ensure that edible oil and sugar prices remain in check in the next few months.

India’s manufacturing sector has put up a dismal show in the last couple of years. The prolonged slowdown is due to a combination of factors, including high inflation and hence rising input costs. With demand stagnating both here and abroad, companies have been loath to make new investment plans. This has been particularly bad news for the capital goods sector. This has had an inevitable effect on the rate of growth of GDP. But the first signs of the green shoots of recovery are visible. Activity in the country’s factories in January grew at their fastest pace in nearly a year, helped mainly by export orders. The HSBC India Purchasing Managers’ Index, which is an index measuring the economic health of the industrial sector, posted a reading of 51.4 in January, the highest since March 2013. If agriculture can maintain its steady rate of growth on the back of a good monsoon in the coming year, then the improved performance of the manufacturing sector will inevitably translate into a respectable rise in the GDP growth rate.

There are other signs that the domestic economy is being nursed back to health. The government has been successful in controlling the fiscal deficit. The revised estimate of the fiscal deficit will be quite close to the estimate announced by the finance minister. One fly in the ointment is that some of the fiscal discipline has been achieved at the cost of public investment — which is not good news for growth prospects. As far as the external value of the rupee is concerned, the Reserve Bank of India has been very successful in restoring stability.

The growth impetus will also be helped by an external environment that is looking much brighter. There is little doubt that the economy of the United States of America has recovered from the 2008 recession, although the US growth rate continues to be disappointing. On the other side of the Atlantic, the German economy has been growing steadily. Most of the other Eurozone countries seem to have put their houses in order. One no longer reads about the possibility of sovereign debt defaults. Financial stability will soon translate into positive growth rates in GDP. This augurs well for Indian exporters.

Unfortunately for Rahul Gandhi and the Congress, it is the next government — virtually certain to be led by the Bharatiya Janata Party — that will reap the benefits of an economy poised for faster growth. All the positive vibes have come far too late in the day for voters to have second thoughts about the efficacy of the UPA ministry. Opinion polls are sometimes wrong. But they do need to be taken seriously, particularly when all of them deliver the same message.