The Economic Survey wants us to believe that the economic woes facing the country today with growth slackening, inflation mounting and burgeoning fiscal deficit are all due to external factors such as capital flows, price volatility and the financial meltdown. Its the typical penchant of Congress regimes to blame the foreign hand . One would have thought that having got an electoral mandate, at least an honest admission would be there of its failure to continue the reforms programme so successfully continued during the NDA regime. The slackening growth we see is also due to choking of reforms during 2004-2009. A stalled disinvestment programme, failure to promote foreign investments at desired rate , failure to channelize sufficient investments into infrastructure have all resulted in sapping a growth curve which was poised to enter the double digit domain ( remember it clocked 9.7% in 2007) and dipping it to 6.7%.
The survey is silent on the important fact that 5 years of reform hibernation has taken its toll on the growth momentum of the Indian economy. Political opportunism has costed us dearly.
The economic survey is a huge “wish list” apparently projecting the reformist hurry having missed the bus on too many occasions in the last five years. It remains to be seen how much of this would actually translate into actionable initiatives.
Reforms are welcome but whether its too much too fast –only tall claims made which would never see the light of the day.
The macro economic scenario admitted in the survey shows the runaway fiscal situation poised to spin out of control. The survey admits the deficit at 6.2% in 2008-09( as against the FRBM target of 3%). Everyone knows that the deficit has soared into double digits and hovers around 16% or so. In terms of policy prescriptions to rein in the situation, very little has been said except for a wish that FRBMs targets would be achieved by 2010-2011 which looks hardly realistic.
The fiscal consolidation achieved in the period upto 2007-08 where the deficit was only 2.7% helped the average annual growth of about 8.8%. But the entire fiscal front went haywire in 2008-09.The Govt. has failed to rein in the fiscal deficit. Its impact on growth would be soon visible. The quality of the deficit (Revenue deficit as a proportion of fiscal deficit) has sharply declined from 41.4% in 2007-08 to 73.9% in 2008-09. The larger the revenue deficit , the more the likely inflationary pressures and growth slippages. It would be illustrative to look at the absolute figures in this regard. The revenue deficit in 2007-08 stood at 52569 Crores was budgeted to be at 55183 crores in 2008-09 and now in the revised estimates of 2008-09 stand at 241273 crores. Can we have better example of fiscal irresponsibility. The Finance Minister owes it to himself to explain the profligacy . It is really worrying that the figures of fiscal deficit does not include the substantial and significant liabilities on account of oil, food and fertilizer bonds citing them as non-cash transactions. To say the least, the situation is alarming.
The economic survey has observed a selective silence over many aspects of the human factor central to any economic planning. The job losses in various recession hit sectors do not find any serious appraisal except for saying only 1 lakh and odd jobs are lost in the exports sector. The figures are much more in reality. The data from all unorganized sectors have not been captured. There could not be a more callous attitude. The plight of the farmers driving them to suicides is hardly discussed in any detail. The insecurity bogging the minds of the urban unemployed or those apprehensive about the pink slip hardly finds mention. The fact that the rich – poor divide has worsened having the potential of disturbing the social equilibrium is not discussed. India ranks 132 out of 179 countries in the 2006 Human Development Index report. Is this survey about the 40% Indians? The rest 60% have only one prescription- doles. Is there a long term vision for these teeming millions?
The growth is projected at 8.5% to 9% in 2009-10 . Much of the growth momentum would depend on attracting high levels of investments. The survey doesn’t spell out how India can become an attractive and competitive investment destination for global capital.
The survey takes comfort from the fact that despite the slowdown in growth, investment remained buoyant ; investment to GDP ratio increased to 32.2% in 2008-09 from 31.6% in 2007-08. The marginal increase actually reflects the investment commitments of the earlier year as an overhang over a GDP base that grew less than expected. It actually has the features of an investment cooling off which is a matter of concern if higher growth rates are to be achieved.
The survey talks about boosting of demand through various fiscal stimulus. But it’s a classic case of Govt. Policy going helter skelter in the face of a crisis that the policy makers failed to anticipate or rather allowed themselves to be led up the garden path by well calibrated statements from the western capital markets. When the FIIs were exiting the Indian bourses and ECB credit lines were drying up leaving Indian businesses high and dry, the monetary policy sought to squeeze them further. While the regulator was tightening its fist, acting on impulse from the global cues on inflationary expectations, the Government was announcing stimulus packages by fiscal prescriptions. There could not have been a more confusing scenario where monetary policy and fiscal policy were pitted against each other.
The survey very candidly admits that the fiscal stimulus and the consumption push by a surge in Govt. expenditure (20.2%) would show their effects gradually after a lag. At the least, this is a thinly veiled admission of the bleak future ahead on the fiscal front and the specter of inflation staring at our face. The WPI going negative hardly gives comfort while the CPP brimming over to double digits already.
The survey admits that domestic food price inflation remains higher than overall inflation. It also admits that this can not be explained by the cliché that this is because of the global inflationary trend. Beyond this, there is no attempt to spell out the correctives required. With the WPI going negative, there is clearly the role of imperfect market conditions taking their toll. Unfortunately, the survey fails to capture these crucial inputs. Is the inflation because of demand push or due to supply constraints? Probably both factors are at work. What are the short term and long term measures to combat this. Why have all the measures such as stock limits, ban on future trading, ban on exports not yielded results so far? Are there gaps still which have been left unplugged? No serious attempt has been made to shed light on this crucial aspect of high food prices affecting consumers. For if this is not checked, all the so-called goodies in the form of farm loan waiver or the sixth pay commission payouts would just vanish in no time. Then what does the Govt do. Hand out more doles , obviously of a larger quantum if the aam admi is not to be made worse off. Then what happens to the already precarious fiscal situation. The long term perspective is sadly missing where the Government is able to see the aam admi beyond standing in long queues in the hope of a Govt. Dole and having a self sustaining livelihood.
The food production situation shows that no major shortfalls are expected. But inflation in food prices has not abated. Despite the growing connectivity to the world economy, inflation rates in India appear to have been primarily affected by domestic constraints and administered prices. The rise in MSP in 2008-09 was in the order of 30% in rice, wheat and 40% in pulses. Should the Govt. have taken measures to stagger the burden on the consumers. It remains to be seen what concrete measures are taken by the Govt to ease the food prices.
The slippage in growth to 6.7% in 2008-09 from a high of 9% in 2007-08 and 9.7% in 2006-07 is a matter of great concern. The most remarkable fall has been in the manufacturing sector where a 8.2% growth has given way to a meager 2.4%. The industrial(manufacturing) growth has been steadily declining in the past 8 quarters of 2007-08 and 2008-09. In fact Q4 in manufacturing is a negative rate at 1.4%. Agriculture also took a hit slipping from 4.9% in 2007-08 to 1.6%in 2008-09.
The slowdown in manufacturing over successive quarters started from Q1 of 2007-08. This was more or less replicated by the mining sector and closely followed by electricity. However, in the third quarter of 2008-09, the manufacturing sector witnessed a sharp drop in growth which turned negative in the fourth quarter. Growth of the mining sector declined over successive quarters of 2008-09 to reach a zero rate in the fourth quarter. The IIP which was at 10% and above in Q1 of 2006-07 has steadily declined and turned negative in Q4 of 2008-09. The main reasons have been higher input costs( both raw materials and fuel), interest costs, greater dependence on external debts rather than equity exposed the industry to financial shocks in September 2008. Does it indicate a failure on the policy front to arrest such a sustained decline?
The survey shows the utter failure of the policy planners in reading the signals emanating out of the global crisis. The failure was apparent when global commodity prices shot through the roof with international crude prices leading the pack, and the Govt. watched silently or bumbled to blame the Western economies of diverting food grains to alternative fuels where the real culprits were the unregulated hedge funds making a fast buck by fuelling inflationary expectations on a global scale. One would have expected that when the survey has taken pains to pin the growth slippage on global linkages of the Indian economy, it should have paid some attention to the factors behind the price manipulations resorted to by rouge capital masquerading as private equity and hedge funds. The Survey is conspicuously silent on Indian interests in such funds , as it would be too naïve to rule out the likelihood of such proxy funds of Indian origin making the killing on the back of such a commodity spiral.
The Survey is equally spectacularly silent on the taxpayer’s money stashed abroad. It only reflects on the acquiescence of the ruling powers in this unholy nexus. After all , in a globalised Indian economy, what are the merits of a survey report which fails to capture assets worth several times GDP kept out of the mainstream Indian economy.
The survey fails to capture the current demographic pattern of spread of economic resources. Whether the poor are crossing the poverty line? If so , how many?
Is the farm productivity on the decline? Is the manufacturing sector attracting investment at the desired rate to climb back into the growth momentum trajectory?
The survey singularly fails to dwell upon the possible opportunities that arise from the global crisis. Can we leverage on the back of the US approach to tighten control over its taxpayers in keeping money in tax havens outside US , and get Indian taxpayers to disclose their assets. If the recession is prolonged , what are the measures the Govt. should do to help businesses survive within the dipping price spiral? How to convert the foreign investor’s penchant for portfolio investments into a long term commitment through FDI.? What are the various attributes of an attractive investment climate that India lacks today? Merley hiking controls of foreign entities through relaxation of FDI limits are not the answer. There are deep rooted reforms overdue- be it corporate law, tax laws, labour reforms, judicial reforms, banking reforms and a plethora of vexatious regulations and controls that frustrate the foreign investor.
The survey takes pride in the increasing rate of Gross Capital formation. One would have expected the disaggregated figures of how much of the same is through domestic capital flows and external capital flows. Nevertheless, it has to be borne in mind that for sustaining growth momentum, the investment flows have to be much more. If the GCF represents capital accumulations, which don’t get channeled into creation of productive capital assets, it is a matter of concern. But there is hardly any information on this.
The survey candidly admits that only 1.9% of the Indian households face hunger and most of them are in Orissa, West Bengal ,Assam & Bihar. The survey states that more than 50% of the population faced hunger in 1992-93 came down to close to 45% in 2004-05 but figures beyond that are not available. Similarly , below poverty line population which stood at 36% in 1992-93 came down to 27.5% in 2004-05 . But no current data is available. Has the poverty figures worsened?
The exports sector continues to reel under the impact of the global crisis. Export growth has become negative from October 2008 to March 2009. The negative trend continued in April 2009 with export growth at (-)33.2 per cent. India still languishes at 1.1% of the world trade. The need of the hour is to reinvent our export strategy so that the trend is reversed. Transaction costs reduction through trade facilitation measures can be a big help. Creation of trade infrastructure should get the priority. There is also a moderation in services exports which was at 22.1 % in 2007-08 and now dipped to 16.3%.
The Gross Capital Formation (GCF) in agriculture as a proportion to the total GDP has shown a decline from 2.9 per cent in 2001-02 to 2.5 per cent in 2007-08.
The time and cost overruns in respect of Central Sector projects (Rs. 100 Crores & above) presents a sad story. While the cost over run is at 11.6%, a staggering 50.7% of projects are delayed.
To sum up, the short and medium term prospects show a hapless Govt. not ready to combat the specter of inflation, no clarity on how it intends to steer the economy in the face of a prolonged and deepening global financial crisis and very little directional push in long term goals of infrastructure development.
Press 
