| Speed up or drop out
It is the season for a mid-year review of the economy. This time it is not a winter of discontent. Rather, commentators are painting a fairly rosy picture of the Indian economy in 2003-04.
Consider a few of the forecasts. The Reserve Bank of India has now upgraded its forecast for gross domestic product growth in 03-04 to 6.5-7 per cent. Its earlier projection was 6 per cent. The Confederation of Indian Industry projection is 7.2 per cent, while the Centre for Monitoring Indian Economy has forecast a growth rate of 7.4 per cent, as against 4.3 per cent in 2002-03.
The International Monetary Fund’s World Economic Outlook (September 2003) projects India growing at a rate of 5.6 per cent in 2003 and 5.9 per cent in 2004. According to the IMF, only two countries (China at 7.5 per cent and Vietnam at 6 per cent) will have growth rates higher than India. This, at a time when the projected global growth rate is only 3 per cent for 2003 and the projected average growth rate for the United States of America, European Union and Japan, together, is only 1.8 per cent in 2003 and 2.9 per cent in 2004. So, by all reckoning, India is one of the fastest growing economies in the world today.
Nonetheless, there are a number of riders here. First, the high growth rate projections for India’s GDP in 2003-04 is solely the result of a good monsoon this year, set off by a bad one last year. In other words, India started from a low base last year.
According to the CMIE estimates, growth in agriculture will be 10.7 per cent (as against -3.2 per cent in 2002-03), whereas growth in industry will be 5 per cent (as against 6 per cent in 2002-03); services will grow at 7.3 per cent (as against 7.1 per cent in 2002-03). Clearly, the credit for the substantially higher GDP growth rate in 2003-04 should go to the weather gods. In fact, both industry and services will grow at a lower rate than last year, if the CMIE are to be believed.
Second, even this high growth rate, assuming that it eventually turns out to be the case, is not unprecedented. We have had a more than 7 per cent growth rate for 3 consecutive years — 1994-95, 95-96 and 96-97 — and then the growth rate came down. So, one should not be too elated.
It is true that, in terms of the standard indicators, the Indian economy is in fairly good health. Inflation, in terms of the wholesale price index as well as consumer price index, has been falling over the entire financial year. The RBI projects an inflation rate of 4.5-5 per cent for 2003-04. The low inflation rate has helped to keep nominal interest rates and the cost of borrowing, by both government and the private sector, low.
Foreign exchange reserves are over $ 90 billion, enough to pay for 16 months of imports as against 15 days’ import-cover in 1991. Foodgrain stocks are somewhat down but still quite comfortable (40 million tonnes in June 2003). Overall food security is no problem.
The latest sales and profit figures are above expectations for many companies, ranging from the “old” (such as steel, cement, auto) as well as the “new” economy industries (like information technology and pharmaceuticals).
The share market is bullish but not so bullish as to be a mere bubble. Of course, the daily ups and downs in the stock market have a lot to do with the inflow and outflow of money from foreign institutional investors, but the broad upward trend has more to do with the strong fundamentals of the economy and the earning potential of many companies.
Offshore outsourcing by the US and European companies is benefiting Indian industry and labour. The good monsoon and its effect on rural demand after a time lag should further increase the sales and profits of many companies. Non-oil and capital goods imports are up, indicating an industrial recovery.
Export growth was fairly high at 10 per cent in the first six months of 2003-04, despite the rupee rising against the dollar, though not against all major currencies. The business confidence index — which measures the confidence of businessmen about future business prospects — is going up.
Despite a great deal of apprehension, Indian industry is now competing fairly successfully with the Chinese even in many lines of manufacturing — not to speak of software and pharmaceuticals, which are our globally acknowledged areas of strength. India is on the way to becoming a manufacturing hub for auto and auto-components for several big global players.
Many also believe that India could be a major technology and research and development centre in future, given the availability of top-class scientists, engineers and technicians at very low cost. This process will get a boost as India is going to have the same patent protection laws as the developed countries.
Medical services and higher education also offer great future opportunities for India. However, to seize the opportunities, we need to develop world-class infrastructure in some of our best hospitals and colleges. In other words, mere potential, if it is not supported by policies and infrastructure, will remain unrealized.
Can we hope to have a sustained economic boom' The current boom is largely consumption-driven. It should get a fillip as rural demand rises further as a result of good monsoons. However, a sustained boom has to rely on rising real investment expenditure (not purchase of existing shares in the share markets).
Data indicates that the investment-to-GDP ratio has declined significantly after 1997-98. Investment (both domestic and foreign) depends on the quality of physical infrastructure (power, transport, communication), an area in which public investment is crucial. It would also depend on labour productivity and discipline, stability and the transparency of government policies and the speed of implementation of policies, specially at the level of the state governments.
Everyone knows how government policy is changing in the areas of telecommunications and civil aviation and how long it takes to get clearances. Foreign investment will go where it will get a more favourable investment climate. Even Indian investors may find it easier and profitable to invest in other countries and supply to the Indian market from those bases, specially as restrictions on movement of goods and capital come down as India signs more free-trade agreements with other Asian countries.
So, a rising consumption demand in India is no guarantee that an investment boom will follow. If investment goes abroad, so will the potential jobs and the government’s revenue.
Finally, we should not suffer from “growth mania”. Growth is not an end in itself. It should be a means to a better life for the majority of people. So, the question remains: how are the benefits of growth being distributed'
To judge this, we need regular information on changes in such parameters as the ratio of people below the poverty line, income distribution among different classes, states and regions, employment growth, cereal intake of poor people, some index of popular perception about the quality of public services — not just a business confidence index. Often, information on such things — unlike growth rates — is not readily available or become available after a long time lag.
Growth, to be meaningful to common people, must be accompanied by two other things — productive employment generation and efficient delivery of basic public services at affordable prices to the targeted groups. The latest available data shows that the growth rate of employment in the organized sector (public and private) has been only about 1 per cent per year — much below the growth rate of population or work force. There is no clear evidence on how much meaningful employment is being created in the unorganized sectors to fill the gap.
Further, really poor people have no choice but to depend on BPL ration cards for food, government schools for education, government hospitals for treatment and unfiltered ground water for drinking. What good is a BPL ration card if food is not available at ration shops in remote areas' Or what good are government hospitals if poor dying patients are turned away as no bed is available or the family does not have enough money to get the patient admitted'
The well-publicized story of the death of Shabana Parveen — the little daughter of a cart-puller in Calcutta who died as a result of being held up on the way to hospital — is not an isolated incident. Such fate awaits thousands of poor people in India. What would all our talk of a 7 per cent or 8 per cent growth rate rally mean to such people' Can we and should we really feel good about India’s achievements'