Business Economics & Services Team (BEST)
Indian Growth Story -Upside and Downside
It is a mental game for economists and policy makers to debate on future contours of growth. They can throw up all types of opinions and perceived rationales to drive home their points of view. Some three years back, in the peak of slow down, we heard from the top government functionaries, acclaimed analysts and newspaper editors and columnists that slow down would get bottomed out by early 2014 and the growth will be stabilized and consolidated by the end 2014. But such predictions still remains as wishful thinking as the economies around the world are trying to come out of the low growth trend even now.
Yesterday, the union fiance minister said that the government will take all efforts to go beyond the growth of 5% to keep the economy rolling, even while some of the opposition parties are alleging that the finance minister is frustrated. I think it is too early for him to get frustrated since he is there only for the last six months or so. His frustration can be there or even more pronounced, if the economy refuses to budge and continues to falter on one count or the other.
That is possible looking at the scenario he is confronted with. First, the governance apparatus is slowly loosing sight on the prime minister's mantra-vikas (growth). The reason is that a cohesive approach eludes the ruling party. Exhortations made by the prime minister and responsible ministers in his council either directly or indirectly, for shunning the path of confrontation as far as the non-developmental issues are concerted, are falling on deaf ear. Let the left hand know what the right hand is doing. The prime minister and the party apparatus should convince the people across that development is the only issue before them and that is the basic agenda that r runs across its manifesto. Anything other than that can lead to an implosion and the party will not be able to resurrect from that.
Secondly, the government should introspect on the real progress that it has made so far. Doling out schemes with grat fanfare may get media headlines but that also will hike up the expectations from the government. Delay or non-fulfillment of promises will slowly get convoluted into a negative syndrome. That is a universal phenomenon. In that case, should the government contemplate setting aside the number game? Whatever growth or inflation figures that are coming out from the government, people are increasingly getting aware are because of the base effect. To put in a layman's language, it means that if the growth figures for a quarter of the year is high, it can so happen that the related figures for the same period in the last year can be very low. That also can happen to rate of inflation. You can have inflation at zero level and still have a higher absolute price level, even higher than the prices in the previous quarter. The policy makers tout these figures to suit their conveneince.
Also, it can happen that the growth figures can be misleading. Sometimes, higher growth may not get translated into higher employment and income. Especially in the case of manufacturing, higher growth does not lead to higher employment and income since whatever investment that goes into the manufacturing sector is mostly in capital and many such capital investment can replace labor.
Therefore, the growth strategy should not be denominated in terms of investment, capital and money disbursed. It should audit the real life situations. There should be a monitoring system to gauge the effectiveness of schemes at the grass roots level. Whatever initiatives started by the previous regimes should not be discarded purely on account of the political reasons. There are merits in programs like NRECA, self-employment schemes etc. They have to be implemented more intensely and wahtever pitfalls they have suffered earlier should be plugged.
Also, the government should not expect the good auguries to last long. For example, the sharp decline in the oil prices. It is mostly on account of the oil politics played out by certain vested interests. Somewhere down the line, the oil politics may get subdued or totally eclipsed, then the prices of oil will start rolling up. That will have manydeleterious impact on an oil importing country like India. The recent spurt in import of gold and other luxurious items have to be curbed. A strong monitoring authority should be set up to weed out de-merit imports, to save the precious foreign exchange. Also, the decline in oil prices should not be an alibi to reduce the intensity of oil exploration and tapping alternative sources of energy.
Exports have to receive more importance. The reasons behind the fall in exports have to be analyzed. Also, service exports have to be stepped up since the foreign exchange outgo on account of services is almost nil or minimal unlike items in merchandize exports like gems and jewelery, where most of the imports are for re-export purposes with value addition, threshold limit of value addition has been incrementally brought down. Equally significant are the steps fro augmenting electronics production in the country since estimates do indicate that foreign exchange outgo in terms of electronics imports is going to vault to US$ 400 billion in the foreseeable future,surpassing the oil import bill. Atleat the domestic production has to be somewhere in the region of US$ 100 billion to partially offset the huge imports that will be necessitated.
Indian Growth Story -Upside and Downside
It is a mental game for economists and policy makers to debate on future contours of growth. They can throw up all types of opinions and perceived rationales to drive home their points of view. Some three years back, in the peak of slow down, we heard from the top government functionaries, acclaimed analysts and newspaper editors and columnists that slow down would get bottomed out by early 2014 and the growth will be stabilized and consolidated by the end 2014. But such predictions still remains as wishful thinking as the economies around the world are trying to come out of the low growth trend even now.
Yesterday, the union fiance minister said that the government will take all efforts to go beyond the growth of 5% to keep the economy rolling, even while some of the opposition parties are alleging that the finance minister is frustrated. I think it is too early for him to get frustrated since he is there only for the last six months or so. His frustration can be there or even more pronounced, if the economy refuses to budge and continues to falter on one count or the other.
That is possible looking at the scenario he is confronted with. First, the governance apparatus is slowly loosing sight on the prime minister's mantra-vikas (growth). The reason is that a cohesive approach eludes the ruling party. Exhortations made by the prime minister and responsible ministers in his council either directly or indirectly, for shunning the path of confrontation as far as the non-developmental issues are concerted, are falling on deaf ear. Let the left hand know what the right hand is doing. The prime minister and the party apparatus should convince the people across that development is the only issue before them and that is the basic agenda that r runs across its manifesto. Anything other than that can lead to an implosion and the party will not be able to resurrect from that.
Secondly, the government should introspect on the real progress that it has made so far. Doling out schemes with grat fanfare may get media headlines but that also will hike up the expectations from the government. Delay or non-fulfillment of promises will slowly get convoluted into a negative syndrome. That is a universal phenomenon. In that case, should the government contemplate setting aside the number game? Whatever growth or inflation figures that are coming out from the government, people are increasingly getting aware are because of the base effect. To put in a layman's language, it means that if the growth figures for a quarter of the year is high, it can so happen that the related figures for the same period in the last year can be very low. That also can happen to rate of inflation. You can have inflation at zero level and still have a higher absolute price level, even higher than the prices in the previous quarter. The policy makers tout these figures to suit their conveneince.
Also, it can happen that the growth figures can be misleading. Sometimes, higher growth may not get translated into higher employment and income. Especially in the case of manufacturing, higher growth does not lead to higher employment and income since whatever investment that goes into the manufacturing sector is mostly in capital and many such capital investment can replace labor.
Therefore, the growth strategy should not be denominated in terms of investment, capital and money disbursed. It should audit the real life situations. There should be a monitoring system to gauge the effectiveness of schemes at the grass roots level. Whatever initiatives started by the previous regimes should not be discarded purely on account of the political reasons. There are merits in programs like NRECA, self-employment schemes etc. They have to be implemented more intensely and wahtever pitfalls they have suffered earlier should be plugged.
Also, the government should not expect the good auguries to last long. For example, the sharp decline in the oil prices. It is mostly on account of the oil politics played out by certain vested interests. Somewhere down the line, the oil politics may get subdued or totally eclipsed, then the prices of oil will start rolling up. That will have manydeleterious impact on an oil importing country like India. The recent spurt in import of gold and other luxurious items have to be curbed. A strong monitoring authority should be set up to weed out de-merit imports, to save the precious foreign exchange. Also, the decline in oil prices should not be an alibi to reduce the intensity of oil exploration and tapping alternative sources of energy.
Exports have to receive more importance. The reasons behind the fall in exports have to be analyzed. Also, service exports have to be stepped up since the foreign exchange outgo on account of services is almost nil or minimal unlike items in merchandize exports like gems and jewelery, where most of the imports are for re-export purposes with value addition, threshold limit of value addition has been incrementally brought down. Equally significant are the steps fro augmenting electronics production in the country since estimates do indicate that foreign exchange outgo in terms of electronics imports is going to vault to US$ 400 billion in the foreseeable future,surpassing the oil import bill. Atleat the domestic production has to be somewhere in the region of US$ 100 billion to partially offset the huge imports that will be necessitated.
