The Indian Economy Is
Stressed Out
The Indian economy is stressed out to the point of crisis.
And the principal reasons are the number and open-ended nature of the burdens
placed on it by the very Government meant to manage it in good health. The
Government of India imposes financial commitments daily in an unplanned and
cavalier manner. And this on top of planned and budgeted expenditure. And with
this it also grows its size to cope.
But when unplanned and ad hoc expenditure rivals what has
been officially debated and sanctioned via 5 year plans, the annual budget
balancing exercises, aided by the work and input of the many ministries, the
PMO, the planning commission, other quango
bodies and think-tanks; then things are truly out of control.
How can a series of after- thoughts be allowed to threaten
the viability of the whole effort? How can money be sanctioned and spent
without even a glance at the income side of the ledger?
If the GOI was a
company, it would have gone bankrupt long ago. After all, a company cannot
print its own currency and sanction an endless stream of loans to itself! Not
that as an economy we are very far from collapse in 2013 after 9 years of UPA
rule. This, despite the formidable powers of the Government to sustain itself
by hook or by crook.
The economy that UPA inherited from the previous NDA
Government was robust. The statistics then and now tell the very different
stories. But the next Government coming in 2014, most unlikely to be the UPA as
it is facing the brunt of public disenchantment, will have a very hard time of
it. It will inherit the remains of a scorched earth policy and very high
expectations of change from the same public.
The only way out is bold and urgent reform with the necessary
political vision to boost the economy in no uncertain terms.
Something most thinking people realise a Government led by
the economically savvy Narendra Modi is
well placed to deliver. But the situation is so grave that the way out is not
optional. If we don’t change our ways drastically, India will become the
biggest banana of banana republics.
Our size, as the 7th largest country in terms of
land mass, and the second largest population in the world, will see to that. We
are currently a titanic disaster in the making.
In 2009, the GDP of the Indian Economy was USD 3.5 trillion
based on a purchasing power parity (PPP) calculation, placing it as the 4th
largest in the world. But its composition was badly askew in favour of the
service sector, which accounted for 62.5% of the economy.
Manufacturing made up
a modest 20%, and agriculture, wherein most Indians, some 52% of the population,
were engaged, accounted for just 17.5% of GDP.
But that was also roughly when the world economy also
collapsed. It was in 2008 actually, beginning with the debacle on Wall Street
and the US main street, but things coasted well enough for a while in India before
external pressures made themselves felt.
The 62.5% of the
service sector then was largely export driven and instantly began to struggle
to survive let alone grow. India was never much good at manufacturing anyway
and our demand for manufactured goods is domestically driven. We tend to be backdated in our technology and
are hampered by acute lack of infrastructure and its great cost. Nevertheless,
the domestic demand could have sustained except for foolish Government policy-
making.
Because, we reacted to the global mess, not with a boost and
stimulus to our own economy, which was doing fine, but with a tightening of
monetary credit, as we did not want the same borrow- and- spend contagion to
come here.
The then RBI chief kept remarking that he thought the Indian
real- estate sector was overheated and stopped bank lending to it. Little realising
that while buildings were in the making they consumed a host of manufactured
items, thus sustaining all the supply lines- of cement, steel, brick, tiles,
sanitary-ware, electrical cables and fixtures, air-conditioning plant and
machinery, lifts, etc. etc.
So by Government
action we reduced manufacturing growth to zero or minus, even as inflation,
mainly due to high cost of imported oil, has raged at 20% or more at the retail
level. The Service Sector too has lost market share, heft, strategic salience
and profitability. Other exports have also been in the doldrums.
Agriculture, a poor performer at the best of times, because
of woeful under- investment in modernisation, headed southwards too. With
growth levels of between 1 to 3 per cent in the main, it started to feel the
pinch of distribution and transportation costs. And this meant massive food
inflation at the consumer level.
And corruption, always endemic in a country like ours, with
24% of the population below the poverty line and 65% of even the capital Delhi’s
population living in slums or less, has seen an exponential growth since 2009.
That is when UPA’s second term began.
We are now entering a period of stagflation, because despite
talk of reform nothing has been implemented on the ground, and is unlikely to
see the light of day in the remaining time left to this Government.
Election fever is already taking hold via the series of
assembly elections on the cards. Most observers agree we can expect nothing
worthwhile till the new Government comes to power. Let us hope the softening of
commodity prices globally will see us through till then.
(922 words)
April 29th,
2013
Gautam Mukherjee
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