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Better still, in 2011-12 India is set to get back to the 9 per cent growth path of the pre-global crisis period and then go on to beat every other country, including China, by achieving double-digit growth.
That is what the pre-budget economic survey tells you. It claims not to give any indication of what’s in store in the budget on Friday. It makes it clear that the policy alternatives mentioned are for “debate and discourse, rather than immediate implementation”.
The survey, for instance, advocates a calibrated withdrawal of the fiscal stimulus, including tax concessions, given to counter the slowdown. But it should not be read as
a pointer to the budget.
The survey is gung ho about the state of the economy and its prospects: “… the nation’s medium and long-term prognosis is excellent.” Reflecting on the aspiration for high growth, which it argues is also a necessity for raising living standards, the survey says, “If we can put into effect some important structural policy measures, there is no reason why India cannot achieve double-digit GDP growth and a rapid diminution of poverty.”
There is a huge stake in growth for you and me too. Sample surveys by the labour bureau in the wake of the global meltdown indicated almost half a million job losses in the December 2008 quarter and 131,000 more in the June 2009 quarter . This seems to have been reversed in recent months.
When the economy slowed down to 6.7 per cent in 2008-09 from 9.2 in the preceding year and then recovered to an estimated 7.2 per cent this year, our incomes and consumption too were affected accordingly. Income per head that was growing by 8.1 per cent in 2007-09, decelerated to 3.7 per cent in 2008-09 and 5.3 per cent in 2009-10. Growth of consumption fell from 8.3 per cent to 5.4 per cent and then to 2.7 per cent.
As finance minister Pranab Mukherjee put it after tabling the survey in Parliament on Thursday, there have been few financial years in India’s history in which the outlook at the start and the end has been as different as in the present one. In April 2009, India seemed to be mired in an economic slowdown that had engulfed the entire world. At the end of the year, India has not only averted a recession but also came out of the slowdown faster than other economies.
India, which even in a slowdown grew the second fastest among major economies, is today the toast of the world which expects it and China to lead the global recovery. No wonder that within a fortnight, the president of the world’s largest economy, 13 times the size of India’s, Barack Obama has admiringly mentioned the rapid strides being made by the two Asian giants.
On January 26, the International Monetary Fund (IMF) predicted that world output which fell 0.8 per cent in 2009 would grow by 3.9 per cent in 2010. Advanced economies are forecast to grow by only 2.1 per cent after suffering a sharp decline of 3.2 per cent in 2009. IMF forecast a 6 per cent growth for the developing and emerging economies as a group in 2010, up from a modest 2.1 per cent in 2009. By these standards, India’s 7.2 per cent growth in 2009-10 was remarkable.
The bullish view of the Indian economy in the survey may, however, appear too good to be true when global recovery remains weak and the international oil and commodity markets continue to be uncertain. These could deliver external shocks to the Indian economy. India’s exports, which took a hard hit on account of lower overseas demand and fell for 13 months in a row, turned the corner in November. But exports are still not out of the woods.
On the domestic front, food price inflation is raging at over 17 per cent and has started to spill over into manufacturing, pushing the general inflation rate to 8.6 per cent in December.
Also, it may seem that the survey is downplaying the risk of a second-dip recession in the developed economies; a global oil and commodity price spiral; and the possibility that another poor monsoon could badly hit the farm sector which is not yet back to its normal performance.
The stock market too seems to have entered a phase of correction. The credit market, though unfrozen, is not exactly buzzing with activity. The possibilities of copious dollar inflows adding to the inflationary threat and instable conditions in the forex market too are real.
Then there are traditional drag factors, including a gross deficit in physical and social infrastructure, that continue to dog the economy. For instance, the survey acknowledges the recent finding of a planning commission expert group that over 37 per cent, that is every third Indian, lives below the poverty line. Other social indicators such as literacy and infant mortality continue to be abysmal.
But the survey argues rather convincingly that some of these risks could, in fact, be opportunities in disguise. In any case, the positives far outweigh the negative trends.
The survey this year stands out in the sense that unlike in previous years, it refrains from jumping into instant policy prescriptions. There is a discussion of ideas, both old and new, but that does not assume the loud activist tone of some of the earlier surveys.
The focus is on telling the amazing story of the economic recovery in a most succinct and candid manner with an analytical rigour, rarely seen in the past.
So, why does the survey see India uniquely placed to emerge as the world’s fastest growing economy in a couple of years? First, the rates of savings and investment have reached levels that even 10 years ago would have been dismissed as a pipedream.
On this important dimension, India is now completely a part of the world’s fastest growing economies. In 2008-09, the savings rate in India was 32.5 per cent and investment rate 34.9 per cent. In 2007, South Korea had a savings rate of 30 per cent, Japan 28 per cent, Malaysia 38 per cent and Thailand 33 per cent.
As the demographic dividend begins to pay off in India, with the working age-group population rising disproportionately over the next two decades, the savings rate is likely to rise even further.
The rate of investment growth, though better at 5.2 per cent in 2009-10 than 4 per cent in 2008-09, is still below the GDP growth rate, unlike in the pre-global crisis phase. “The investment picture is not yet clear,” says the survey, pointing out that production of machines, which is an indicator of investments taking place in building fresh capacity, has shown a recovery but not in all segments of capital goods.
The most redeeming aspect of the economic recovery in India is the fact that the manufacturing sector, which had seen continuous declines in its growth rate for almost eight quarters since 2007-08, saw a doubling of the rate from 3.2 per cent in 2008-09 to 8.9 per cent in 2009-10. Manufacturing today drives overall industrial growth which climbed to 16.5 per cent in December 2009, a record in 19 years.
In 2009-10, there has been strong growth in automobiles, rubber and plastic products, wool and silk textiles, wood products, chemicals and miscellaneous manufacturing. The growth has been modest in non-metallic mineral products. There has been no growth in paper, leather, food and jute textiles. There was a slump in beverages and tobacco products.
According to the survey, the strength of the recovery so far has been helped by a favourable base effect and mild inflation in manufactured goods. The other strong positive is that business confidence is high again. Conditions on the stock market with an improvement in capital flows and business sentiments, as per the Reserve Bank of India’s business expectation survey, are encouraging.
 Limited.JPG)
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