A dim reality

The euphoria witnessed in certain circles about the state of the Indian economy is more than a bit disconcerting. Statistics are selectively highlighted, inconvenient facts are deliberately ignored and attempts are made to present a picture that is far rosier than what reality would warrant. The mood is perhaps truly reflective of the ongoing

Commonwealth Games in the national capital which, in more ways than one, represent the best and the worst of the country. Ostensibly to showcase India’s capabilities to the rest of the world, we have constructed modern monuments on the backs of the most underprivileged.
Particular projections of the Indian economy that were recently put out have made those in government who are paid to be optimistic, rather giddy with joy. The latest World Economic Outlook released by the International Monetary Fund (IMF) on October 6 places the likely rate of growth of the country’s economy during the current calendar year at 9.7 per cent, above the 9.4 per cent estimate made in July. This prognostication is higher than projections made by the Asian Development Bank (8.5 per cent) and Crisil (8.1 per cent) and above than the 8.5 per cent projections for the financial year (ending March 31, 2011) made by the Reserve Bank of India (RBI), the Prime Minister’s Economic Advisory Council and the ministry of finance. In between these estimates is one made by the Centre for Monitoring Indian Economy (9.2 per cent).
It is now widely accepted that in the foreseeable future, India would be growing faster than China although, according to the IMF, China is expected to grow faster at 10.5 per cent during 2010, while in 2011, the rates of growth of the Indian and Chinese economies have been projected at lower levels of 9.6 per cent and 8.4 per cent respectively. Putting aside for the time being the veracity and credibility of the projections made by the IMF — it went terribly wrong in anticipating the scale and depth of the international recession in 2008 and 2009 — the simple point is that there is every reason to believe that India’s gross domestic product would soon start growing faster than the speed at which the economy of the world’s most populous country will expand, reversing a trend that is decades old.
A technical econometric exercise in a paper released in August by three economists with the ADB (Working Paper 609, “Using Capabilities to Project Growth 2010-30” by Jesus Felipe, Utsav Kumar and Arnelyn Abdon) projects a relatively higher rate of growth for India over the next two decades. Between 1990 and 2007, the Indian economy grew by an average of 6.47 per cent each year against 10.34 per cent in the case of China. However, between 2010 and 2030, India’s growth rate would vary between 5.78 per cent and 7.07 per cent against China’s 4.15-5.12 per cent, the ADB paper has projected.
Official spokespersons are gloating for other reasons as well. The sensitive index crossed the 20,000 mark but is yet to exceed the 21,000 peak that had been touched in January 2008. Even as a study by MCX Stock Exchange and Nielsen — the “Indian Equity Investors Survey 2010” — indicated that barely 1.4 per cent of the population of the country have invested some proportion of their savings in the stock market, cakes were cut in Indore to celebrate the recent rise in the Sensex. The fact is that the Sensex is zooming because foreign institutional investors (FII) have poured more money into Indian stock exchanges than ever before — between January and October 8, net inflows by FIIs stood at $20.4 billion or over `90,000 crore.
Finance minister Pranab Mukherjee has repeatedly asserted that the government is not contemplating curbs on capital inflows (unlike some other developing countries) that create a set of complex problems by adding to domestic money supply thereby fuelling inflationary expectations despite the RBI’s attempts to “sterilise” such inflows. Deputy chairman of the Planning Commission Montek Singh Ahluwalia has denied claims that the Indian economy is “over-heating”, a term indicating that domestic manufacturing capacity is not keeping pace with demand resulting in inflationary pressures. Yet, the IMF has asserted: “Among some major emerging economies, capacity constraints are beginning to boost prices… India has seen a sharp rise in inflation”.
That indeed, is the crux of the problem, namely, the government’s abysmal failure to curb inflation in general and food inflation in particular, which is right now is excess of 16 per cent, according to the government’s own revised official wholesale price index. Of late, having burnt their fingers repeatedly, government spokespersons have stopped making claims about when inflation would come down. The FM says he is “concerned” about the rise in prices. When Prime Minister Manmohan Singh — world-renowned economist that he is supposed to be — was last asked when inflation could be expected to abate, he snapped at the questioner saying he was not an astrologer. As for the residents of the national capital, the situation is a bit worse than in the rest of the country as the rise in food demand (thanks, of course, to the Commonwealth Games) has sent prices of vegetables and sugar soaring.
There are none so blind as those who will not see. Even as swank apartments have been pre-sold at fancy sums in the Games Village, the World Bank estimated that the present housing shortage in the country varies between 20 million and 70 million. The Bank has pointed out that between 35 per cent and 45 per cent of India’s urban population with monthly incomes ranging between `5,000 and `11,000 do not own homes.
Even as the number of dollar millionaires and billionaires in the country increase with predictable regularity each year — see Forbes magazine’s rich list — figures put out by the government state that the average Indian earned less than `45,000 a year, a tad lower than the World Bank’s estimates of India’s per capita income at $1,200 a year. That works out to be less than `4,000 a month — an amount that can be easily blown up over a meal in a five-star hotel. This, mind you, is the average national income not what is earned by those below the poverty line. Are you surprised still why the influence of left-wing extremists is extending beyond the forests in the Red Corridor where adivasis live to the concrete jungles of urban India?

Paranjoy Guha Thakurta is an educator and commentator