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How bright is India's sunny economy?
Monday, 02 February 2004, 20:30 IST
By Satyabrata Rai Chowdhuri*
As India's "Polls 2004" draw near, Indians are witnessing mind-boggling turns and twists in the political arena. A new Chief Election Commissioner has been named, Prime Minister Atal Bihari Vajpayee and opposition leader Sonia Gandhi are on a battle march, and parties of all hues are desperately seeking strategic partners. And above all, pundits have started predicting that Vajpayee and his Bharatiya Janata Party (BJP) will romp to victory with a massive majority.
Vajpayee has already proved the Cassandras wrong by surviving for six years. Now he feels it is time for him to return to power for the third time in a row. If he wins, he will be the first non-Congress politician and the second leader after Jawaharlal Nehru to achieve that unique political distinction. No wonder, he is "feeling good" about the present and will "feel great" in the near future.
Vajpayee's "feel good" syndrome is largely the result of the fact that the Indian economy never had it so good. GDP growth projections at 8 percent, forex reserves at $100 billion-plus, inflation still moderate, corporate sales and profits up, stock markets making even small investors feel happy, consumers spending like never before, houses, cars and higher education loans cheaper than any time in living memory, and Americans feeling threatened enough to pass laws banning Indians from taking their jobs - has the Indian economy ever had it so good?
By these parameters, never. The only time Indians ever came close to it was on the second quarter of 2000 - 8.2 percent achieved via Pay Commission largesse to government employees.
To spur further the feel-good element in the country, the government has announced a surprise mini-budget consisting of a wide range of changes that will benefit a number of sectors, namely non-farm goods, steel, power projects, electricity meters, mobile phones, computers, aviation fuel, electrical appliances and bulk drugs. To boost air travel, excise duty on ATF and inland travel tax of 15 percent have been scrapped. Those earning less than 
150,000 and pensioners without taxable income don't have to file IT returns any more.
All this has been clearly done with an eye on the polls and to make the urban elite happy. As PC and mobile phone prices go down by at least 10 percent and air travel becomes cheaper, it will inevitably contribute to the disposable income-triggered consumer boom.
It was, indeed, the defining moment for Finance Minister Jaswant Singh. From middle class pocket protection to 9 percent growth ambitions, he has travelled far in 18 months. Right now, with seemingly little effort, he presides as kingpin of the BJP's successful poll campaign. "The economy will do even better in the next two quarters," he said, and then unleashed a slew of IT relief and duty cuts, to make the consumer delirious, tip the sensex up to 6,108, and launch a March poll preamble.
As a result, even as India still stands low on major global rankings - the latest Global Competitiveness Report puts India at 56, behind China at 44 and Brazil at 54 - it is picking up encomiums from all corners. After the awesome Goldman Sachs BRICS report, 94-year-old management legend Peter F. Drucker told Fortune that India was becoming an economic powerhouse and knowledge centre very fast and that its progress was better than China's!
But gripped by this feel-good frenzy, no one could overlook another reality - the not-so-shining side of India's economy. The feel-good celebration is, in fact, a very selective one, because only 20 percent of the Indians are part of it. The feel-good reflects middle-class amnesia on issues like poverty.
It is a completely urban phenomenon -- all the positive indicators, like the sensex or forex reserves, are middle-class bench-markers. There is no room in it for the poor and the dispossessed, the Muslim craftsmen displaced after the Gujarat riots, the tribals who lost their land to the Narmada dam in western India, the fishing communities who disappear after each cyclone. In areas like infant mortality, homelessness, poverty, health and education, India's performance is definitely not 'shining'. This fact has been underlined by the World Bank's country director for India, Michael Carter.
While the feel-good syndrome is sweeping a large section of people off their feet, the prime minister and his finance minister would do well to bear the following seven-point realities in mind: (a) the over 8 percent growth in the second quarter may be an aberration, between 1999 and 2003, the average growth rate has been 7.6 percent; (b) the combined central and state government debt is close to 75 percent of GDP. Interest expenditure may cut into necessary investments; (c) employment growth had fallen to just 1 percent in 2001; not many jobs created in manufacturing and agriculture; (d) current sops may adversely affect fiscal deficit (centre and states combined is 10 percent) if disinvestment targets are not met; (e) there are still 300 million people below the poverty line. A National Sample Survey showed that 33 million were added to the list in 2002-03 itself; (f) exports may be looking up, like in the auto sector. But rating agencies are still not sold on our economy and (g) food prices have gone up, a sure sign inflation is rising. It has almost doubled to nearly 6 percent in the past two years.
Many distinguished economists feel that until and unless these problems are firmly tackled, the latest measures announced by the finance minister seem destined to end as a political sop opera. In this connection an economist has come up with a new phrase saying that the Indian economy has got used to a "homoeopathic rate of reform". By that he meant that while reforms were happening slowly, they were addressing the ills of the economy in a more fundamental manner.
*(The author is Emeritus Professor, University Grants Commission, and was formerly a professor of International Relations at Oxford University.)
Source: IANS
150,000 and pensioners without taxable income don't have to file IT returns any more.
All this has been clearly done with an eye on the polls and to make the urban elite happy. As PC and mobile phone prices go down by at least 10 percent and air travel becomes cheaper, it will inevitably contribute to the disposable income-triggered consumer boom.
It was, indeed, the defining moment for Finance Minister Jaswant Singh. From middle class pocket protection to 9 percent growth ambitions, he has travelled far in 18 months. Right now, with seemingly little effort, he presides as kingpin of the BJP's successful poll campaign. "The economy will do even better in the next two quarters," he said, and then unleashed a slew of IT relief and duty cuts, to make the consumer delirious, tip the sensex up to 6,108, and launch a March poll preamble.
As a result, even as India still stands low on major global rankings - the latest Global Competitiveness Report puts India at 56, behind China at 44 and Brazil at 54 - it is picking up encomiums from all corners. After the awesome Goldman Sachs BRICS report, 94-year-old management legend Peter F. Drucker told Fortune that India was becoming an economic powerhouse and knowledge centre very fast and that its progress was better than China's!
But gripped by this feel-good frenzy, no one could overlook another reality - the not-so-shining side of India's economy. The feel-good celebration is, in fact, a very selective one, because only 20 percent of the Indians are part of it. The feel-good reflects middle-class amnesia on issues like poverty.
It is a completely urban phenomenon -- all the positive indicators, like the sensex or forex reserves, are middle-class bench-markers. There is no room in it for the poor and the dispossessed, the Muslim craftsmen displaced after the Gujarat riots, the tribals who lost their land to the Narmada dam in western India, the fishing communities who disappear after each cyclone. In areas like infant mortality, homelessness, poverty, health and education, India's performance is definitely not 'shining'. This fact has been underlined by the World Bank's country director for India, Michael Carter.
While the feel-good syndrome is sweeping a large section of people off their feet, the prime minister and his finance minister would do well to bear the following seven-point realities in mind: (a) the over 8 percent growth in the second quarter may be an aberration, between 1999 and 2003, the average growth rate has been 7.6 percent; (b) the combined central and state government debt is close to 75 percent of GDP. Interest expenditure may cut into necessary investments; (c) employment growth had fallen to just 1 percent in 2001; not many jobs created in manufacturing and agriculture; (d) current sops may adversely affect fiscal deficit (centre and states combined is 10 percent) if disinvestment targets are not met; (e) there are still 300 million people below the poverty line. A National Sample Survey showed that 33 million were added to the list in 2002-03 itself; (f) exports may be looking up, like in the auto sector. But rating agencies are still not sold on our economy and (g) food prices have gone up, a sure sign inflation is rising. It has almost doubled to nearly 6 percent in the past two years.
Many distinguished economists feel that until and unless these problems are firmly tackled, the latest measures announced by the finance minister seem destined to end as a political sop opera. In this connection an economist has come up with a new phrase saying that the Indian economy has got used to a "homoeopathic rate of reform". By that he meant that while reforms were happening slowly, they were addressing the ills of the economy in a more fundamental manner.
*(The author is Emeritus Professor, University Grants Commission, and was formerly a professor of International Relations at Oxford University.)
Source: IANS