Leapfrog or Hopscotch?

Leapfrog or Hopscotch?

Leapfrog is a hurtling over hurdles game, using friendly neighbourhood lads obligingly bent over for the purpose. Hopscotch involves one-legged hopping, except for the relief spot half way up that allows for a jumping jack motion using both legs, if only for a moment, before the hopping resumes. And the way the terrain is laid out, when you get to the head square, you need to about turn around towards the starting square; in short, it goes both ways.

Hopscotch also involves throwing markers at squares, balancing on one leg to bend down and pick up said markers without mishap, turning about, and proceeding down the return leg, without doing any of it outside the delineated boundaries of the squares, or muscling into one occupied by a marker already.

Such calibrated exercise, is Hopscotch, that it makes for a good metaphor for economic planning and policy implementation in India. Leapfrog then would be the sports model equivalent metaphor, designed and built for economic growth above all other considerations. But we don’t play this game, certainly never officially.

So what is more important now--containing inflation by tightening the stays on liquidity, hopping awkwardly between attempts at price control and promoting growth? Or is it wiser to pour scorn on our present sea of troubles by leapfrogging over them? Shall we promote breakneck growth, exhilaratingly, recklessly, with a view that we only live once in this life, notwithstanding reincarnation?

Shall we cock a snook at the resultant inflation as just so much froth and lather that will be left behind in the wake of our resultant prosperity? There really are so many questions, especially if you are willing to daydream dangerously.

It is hard, and not a little thankless, to be prudent, as the RBI Governor Dr. Duvvuri Subbarao knows full well, as he bears the brunt of tacit disapproval from his political overlords for his frequent, if largely ineffectual, tightening of liquidity to try and contain inflation.

The RBI Governor would be better off executing this piece of classic macroeconomic theory, if inflation was indeed succumbing to his prescriptions. Instead, he’s having to watch food prices, industrial input prices, the cost of all kinds of services, being buffeted by record petroleum and commodity prices.

And these are spiralling ever skywards, fuelled not so much by shortages versus demand, as ample liquidity generated by the US and Western Europe, as they struggle to revive their economies. Their interest rates, along with Japan’s, are at near zero levels, and they raise them at 0.25% rests when they do, alongside huge stimulus packages running into billions of dollars.

And so, as a side effect of all this money sloshing about the world’s financial systems, Commodities, including Precious Metals, have been going up to unprecedented levels, chased by the monies being invested in them looking for a quick buck.

Dr. Subbarao, presiding over the central bank of a $1.6 trillion economy, is therefore up against these beyond his control realities. Those of a partially globalised economy that India has become.

Meanwhile, in the domestic sphere, the tightening of the fiscal screws are demoralising business and industry, making them reluctant to invest in fresh capacities or modernisation, and slowing economic growth at the same time.

This, in turn, is putting pressure on the political imperatives. Inflation is hurtful to the poor. Slower growth is damaging to the economy on the whole. Together, this double jeopardy could substantially harm the UPA Government’s 2014 re-election bid. Finance Minister Pranab Mukherjee cannot be happy about this, particularly on top of the Pork Barrel of rampant corruption and shocking drift in policy matters.

A case may therefore be made out in favour of the Leapfrog. One needs to say it even if no one is listening. India can, it was estimated by Mr. Motilal Oswal, Chairman of the leading Bombay Stock Exchange Brokers in 2007, be a $5 trillion economy by 2020.

In December 2010, Mr. Oswal revisited his firm’s original thesis, without any dilution, stating: “We published our first note on the concept of NTD (next trillion dollars of India's GDP) in 2007. The core NTD thesis is this: It took India about 60 years post independence to clock the first trillion dollars of GDP. With nominal GDP growth of 14-15%, at constant exchange rates, India's next trillion dollars (NTD) will come in just 5-7 years. We juxtapose the NTD idea with the GDP growth experience of China to arrive at India's GDP of almost US$5 trillion by 2020.”

And this, at our usual game of economic Hopscotch, not Leapfrog. Even though we are a little behind Mr. Oswal’s forecast today, having added $0.6 trillion since 2007, we are broadly on track. And the second part of Mr. Oswal’s forecast has us more than doubling it again in the next five to seven years! And yet, there are many financial analysts, both Indian and foreign, who agree most soberly with Mr. Oswal’s prognostications.

The momentum of a large economy on a roll cannot be underestimated, but then we cannot afford to get in the way of the juggernaut either. So the stalled Reforms need to be advanced despite the UPA Government inexplicably making heavy weather out of their near majority of a mandate. And obsessing about inflation is not the only way.

We could, for instance, carry the farming sector into the modern era, just as this year, with industrial growth choked off by the liquidity squeeze and high input prices; and both the services sector and exports under pressure because of sluggish growth and global softness in demand; agriculture will come to the rescue with a projected 6.6% growth rate, monsoons willing; to clock us in at an estimated 8.5% GDP figure overall.

Besides, we never have counted the informal sectoring black economy, which is, we all know, as big as the official one. And therefore when we reach two, we will actually be at four. So, in 2020 we would be at $10 trillion, if you counted everyone on the bus. Now, that is almost as big as the economy of the United States at around $13 trillion today.

So why do we focus on all sorts of trouble instead of going in for policies that promote growth above all else? Perhaps we are pessimistic in our calculations out of force of habit. Or perhaps it just does not suit our temperament to play at Leapfrog. We actually prefer Hopscotch. Perhaps they should enter Hopscotch as a category in the London Olympics next year, if not into the economic theory books at the World Bank and the IMF.

(1,102 words)

1st June 2011
Gautam Mukherjee


Footnote:Hopscotch
Hopscotch began in ancient Britain during the early Roman Empire. The original hopscotch courts were over 100 feet long and used for military training exercises. Roman foot-soldiers ran the course in full armor and field packs to improve their footwork, much the same way modern football players run through rows of truck tires today.
Roman children drew their own smaller courts in imitation of the soldiers, added a scoring system and "Hopscotch" spread throughout Europe.

Published (without above footnote) as Leader Edit in The Pioneer with same title "Leapfrog or Hopscotch?", on 3rd June, 2011, and mirrored online at www.dailypioneer.com and The Pioneer ePaper. Archived under Guest Columnists at www.dailypioneer.com