By
Randeep
Wadehra
The March end GDP figures show
that the growth rate for the quarter has dipped to 5.3% thus pulling down the
overall growth rate to 6.5%. After reaching 9+ percent growth in GDP in 2006
the curve seemed to have reached a plateau, with 9.6% in 2007 and 9.3% in 2008
– the year world’s fourth largest global financial services firm, the Lehman
Brothers, went bust sending the western economies into a tailspin that had a
rather disastrous effect on the rest of the world. In 2009 the growth rate of
India’s GDP dipped further to 6.7% confirming the worst fears of various
experts that the economy was all set to tumble down further. Fortunately,
things looked up a bit when the GDP grew by 8.4% in 2010 as well as 2011.
However, the economy seems to have hit the second dip in the financial year
ending 2012 with the Central Statistical Office’s estimates indicating a sub-7%
growth.
Clichéd as it may sound but we
must ask: are we regressing into the “socialist” Hindu rate of GDP growth? It
would appear so given the latest quarterly figures – 5.3%. With this slide in
the GDP growth there is a reason to worry about the manner in which the economy
is being managed. The almost freefall in the Rupee, the rising rate of
inflation, the downtrend in core industrial sector production – everything
points to more dismal things to come. Where has the government gone wrong? Does
it really believe that India’s economy can be held to ransom by the economic
health of Greece? Even a person with rudimentary acquaintance with the Indian
economy would tell you that ours is a domestic market driven growth. External
factors like the slowdown in the West or the near bankruptcy of Greece etc will
have but peripheral impact upon our economy’s health.
In order to check high inflation the
Reserve Bank of India was forced to resort to fiscal measures; it had to raise
policy rates 13 times between March 2010 and October 2011, which resulted in
the increase in the cost of capital that has hurt private consumption, and
adversely affected investments in various sectors of the economy. All these have
led to a deceleration in gross fixed capital formation (GFCF). According to the
CSO data, the GFCF grew by only 3.5% in the first six months of 2011-12,
compared with 10.7 per cent in the corresponding period of 2010-11. It has been
the experience that if the GFCF fall by 1% the potential GDP output declines by
.02%.
It needs to be recognized that India’s
household sector has been contributing substantially to the economy’s positive
performance. The Gross Domestic Savings, at 32%, are among the highest in the
world. 70% of these savings come from the household sector. These could have
been used more efficiently to develop capital-formation instruments and
structures. Let us not forget that the media-hyped Foreign Direct Investments
never crossed the 5% mark of the GDS. This, when hardly any incentive is given
to the household sector, compared to the FDI sector. Just imagine the response
if there were better returns on domestic savings! Moreover, these savings are
seldom mobilized for optimum use in the industrial and tertiary sectors.
As various expert analysts point
out, there is a need for focusing on mining and agriculture sectors. These two
sectors have suffered heavily due to delays in formulating and implementing
relevant policies. For example, the policy delays relating to environment ministry’s
clearance for various mining projects have had a dilatory effect on production
of coal and various minerals. Similarly, the delays in land use policy have
affected the performance of agriculture sector. As for the manufacturing
sector, the problem lies largely with infrastructure development at the
“grassroots” level. While big corporate houses have had to face comparatively
less obstacles on this score it is the non-corporate manufacturing sector that
is facing formidable odds when it comes to availability of power, storage,
distribution and other services that are so vital for their growth. Nevertheless,
power and infrastructure remain two stumbling blocks in the path of the
manufacturing sector’s and hence the Indian economy’s growth.
It is important that the
rural-urban divide is reduced. India presents a strange contrast. Some of the
richest persons in the world live here; yet, abject poverty drives people to
suicides! The trillion dollar plus economy is too lopsided. It is possible to
profitably develop our rural areas. They need not be industrialized or even
urbanized. We don’t really need a 100% urbanized nation. Villages are vital to
a nation’s sustenance and growth. What is needed is making available
appropriate infrastructure that would not just boost economic activity but also
improve the quality of life in the countryside. Towards this end the policy
makers need to recalibrate their focus. Instead
of looking upon the vast hinterland as an unavoidable drag the emphasis should
be on turning it into a productive powerhouse that would add to India’s
economic muscle. There is a need to ensure equitable distribution of, and
adequate access to, energy and water. Similarly, it needs no emphasis that
interdependence/cooperation among agriculture, industry and service sectors
would do a world of good to the development of our rural areas.
The manner in which we are
allowing our human resource go waste is pathetic. A majority of our youth live
in villages and small towns. In intelligence and productive potential they are
second to none but thanks to substandard education their potential for
contributing to Indian Economy’s growth story is being stymied. Skills-based
education in the rural areas must become a top priority. If any student in the
rural area is interested in acquiring more sophisticated skills (s)he should be
able to move to the university of one’s choice; the entire education
superstructure should be based on a healthy value system and made accessible to
all the deserving students irrespective of their social/economic status.
Moreover, there is a need for
developing a symbiosis between industry, research & development set-ups,
and a government policy that would attract the best talent among scholars,
scientists and entrepreneurs. The all-inclusive growth should prevent
development of sense of alienation among the marginalized sections of the
society. Only then would it be possible for India to become a nation that is prosperous,
healthy, secure, safe from terrorism, peaceful and happy; and which
relentlessly continues on a path of sustainable growth.
Published in The Tribune dated June 11, 2012
No comments:
Post a Comment