The Eagle's View Of The Indian Economy

The Eagle’s View of the Indian Economy

The ultimate fate of India seems to hover above the fray in some ethereal manner. Even as we face myriad economic and political challenges daily, most learned observers seem to believe in our long term future, thereby implying and endorsing the essential stability and achieved success of this country.

One recent report from the Paris based think-tank OECD (The Organisation for Economic Cooperation and Development), says the Indian economy has probably overtaken Japan’s making it the world’s third biggest already. This even as it says India’s economy is likely to grow at 6.7% in 2014, after having posted a decade’s low of 3.8% in 2012. In fiscal 2013, the projections show approximately 5% growth in GDP.

Another Reuters poll of 37 economists, many of them living and operating in India, expect a 5% growth in the economy for 2013 too. But these economists are pessimistic about the future citing “years of fiscal profligacy, a long struggle with high inflation, high interest rates, persistent political gridlock and a fragile global economy,” which have collectively “put India back in a rut”.

The Government is expected to give out its own figures on the fiscal deficit very soon now.

OECD meanwhile keeps the upward trajectory in its future outlook for India, expecting China to outstrip the US as the world’s largest economy over the next few years, but says it will slow its rate of growth by 2020. 

And that’s when India is expected by OECD to be growing faster than China too. Sometimes when one reads about this kind of rosy picture being painted, one can perhaps be forgiven for thinking a Paris based think- tank may be having a particularly optimistic day. But this is a serious analysis from a highly respected body.

The difference in perceptions with regard to the Indian economy are largely a consequence of the quality of governance in this country. Policies are always slow going into implementation, which ends up distorting outcomes because quite often external circumstances change, making various assumptions out-of-date. 

There is also enormous corruption which vitiates outcomes. Our own fiscal administration from the different bodies that participate in economic matters often retard the pace of both policy-making and administration. Sometimes different bodies are at loggerheads such as the PMO, the Finance Ministry and the RBI.

In a country of many poor people even as the middle class grows to out-number them gradually, many decisions tend to be welfare- oriented rather than strictly sound economics. Affirmative action is now embedded in the thinking of the Government and it is constantly involved in quotas and reservations to uplift various sections of our diverse society. Women’s reservation too is gaining some traction in some areas. All this and more have their effect on growth in GDP.

On the positive side, India has always tried to stretch its resources to address very many needs. Whatever is and has been done is never adequate, but compared to doing nothing it is both commendable and in sum total over the years, able to make a difference. This is a big departure, over the last 66 years, from colonial administration, when vast swathes of the economy were allowed to languish while only those areas that were useful to the British were dealt with. Part of our great divide, albeit narrowing, between the poor and the middle class, have their origins in imperial times.

The real difference we have made to ourselves, after the initial and interim period, of building a framework for a relatively modern India as informed by a socialist outlook, came in 1991. Once we unfettered private enterprise to some extent, the economic growth of this country accelerated. So much so that if we cannot deliver 9% growth in GDP per annum we don’t think we are doing well.

It is also true that if we do not go back to 9% growth we cannot lift many more millions of our poor out of the morass of their poverty. But the best part of our situation is that the private sector and the unorganised economy tends to push ahead, despite the lag in government policy and support.  Indian business is used to working in challenging conditions, and it has served to hone the skills of our managers and workers alike. So is the glass half full or half empty?

(721 words)

May 31^st, 2013

Gautam Mukherjee