In NDA's economic cuckooland: Chasing the growth mirage

After the Central Statistical Organisation's "quick estimate" of 10.4 percent growth for Oct-Dec 2003, Mr Singh even says he "pities" the sceptics.

However, Mr Singh himself confessed (April 5): "I am not an economist …" That surely forfeits his right to speak with supreme authority on economic subjects. Yet, he prattles on about the sustainability of 8-to-10 percent GDP growth. Law Minister Arun Jaitley --no economist either -- has the gall to dismiss as "illiterates" those who say that the 10.4 percent figure is a statistical blip, reflecting exceptionally high agricultural growth in one quarter.

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It's a safe bet that these gentlemen won't "pity" Moody's, the international credit-rating agency, which has just predicted that India's growth will slow down to 6.5 percent. Mr Singh, in the style typical of feudals, will kowtow to it. Why, Mr Jaitley might even accept a brief from this "illiterate"!

Moody's is joined by the Indian credit-rating agency, ICRA, which says the current year (2004-05) will end up with 6.4 percent growth. So will the next few years. Some other economists (e.g. CRISIL's Subir Gokarn) put the forecast lower, at only 2-3 percent.

It doesn't matter much to most Indians, whether there is 3 percent GDP growth or 8 percent -- so long as they remain excluded from its benefits. Yet, the official claim is wrong on four major counts.

First, the 10.4 percent growth in Oct-Dec 2003 does not reflect real economic acceleration. During that quarter (compared to Oct-Dec 2002), services grew by 7.7 percent, as contrasted with the 9 to 10 percent growth registered earlier. Manufacturing grew by 7.4 percent, instead of 10 percent-plus during recent high-growth years.

The one-time quarterly high of 10.4 percent is mainly attributable to agriculture, which picked up by a very sharp 16.9 percent due to a good, evenly distributed monsoon. This represents recovery from a downturn/depression, no upturn.

Second, point-to-point comparisons mean little in economics. Suppose in 1998, India's foodgrains output was 200 million tonnes. It slumps to 180 mt in 1999. With a better monsoon, it recovers to 185 million tonnes and further to 190 in 2001. Now, point-to-point comparisons would show a "moderate" rise of 2.8 percent in 1999-200 and a further 2.7 percent the next year.

In reality, food production would have decreased by 10 mt between 1998 and 2001.

Third, it's absurd to quibble over numbers, especially future projections, when official statistics are imperfect. Ninety percent of India's workforce is in the unorganised sector. But there's little reliable data available on this sector.

In 2002-03, the CSO altered its "quick" estimates three times. Huge gaps between the "quick" and final estimates make firm comparisons meaningless.

Fourth, as eminent statistician S.M. Vidwans -- a United Nations consultant, and former member of the Indian Statistical Commission -- argues, official estimates of India's fastest-growing sector, services, have become increasingly unreliable. Services' composition has changed. The physical size of many services is hard to measure.

For instance, for information technology, the government relies on the industry's own self-estimates, which can be wishful. You can accurately record the tonnes of steel or number of bicycle being produced. But not the village moneylender's turnover.

To examine the official claims, contrast the NDA's six-year rule (April 1998-March 2004) with the preceding six years. In the second period, GDP growth averaged 5.32 percent -- 22 percent lower than the 6.8 percent average for the pre-NDA period.

In agriculture, growth was 1.51 percent earlier, but (--)0.94 under the NDA. The 8.58 percent uptrend in industry before 1998 almost halved to 4.47 percent under the NDA.

So the "explosive growth" era claim is hollow. As for 8 percent in a single year such solo peaks are not unique to the NDA's rule. India recorded even higher growth in 1967-68, 1975-76 and 1988-89.

Sustainable growth depends on public investment, the infrastructure, savings and investment, etc. India's public investment has been recently falling. The infrastructure remains poor. And the domestic savings rate has slumped from 26-27 percent of GDP to 22-23. Foreign investment (just about 1 percent of GDP) can't make up the slack.

India's global export ranking has declined. Today, with only 0.8 percent of the global share, India is no longer amongst the world's 30 top exporters. Even in services, India's global export-share is a marginal 1.42 percent.

Economists adopt a useful macro-economic measure to evaluate prospects for sustainable growth -- (incremental) capital-output ratio, or the number of units of capital needed to produce one unit of additional output. In India, the ICOR is 4.3. For 8 percent GDP growth, an investment ratio of at least 32 percent of GDP would be needed. With a 23-25 percent investment ratio, India can at best sustain 6 percent annual growth.

The people can't eat GDP growth. Growth means little unless it raises employment and incomes and reduces disparities. But unemployment has doubled over the past four years.

Here are the home-truths. India belongs to the bottom fourth of the world's nations, ranking 127th (of 173 nations) in the UN Human Development Index. Fiftysix percent of rural Indians have no electricity. Nine out of 10 pregnant Indian women are undernourished. And half of its children grow up stunted.

It's only sick minds like Mr Jaswant Singh's that see "explosive growth" in these disturbing statistics. It's they who deserve to be pitied. More important, they must be sent packing in the elections.

Praful Bidwai is an eminent Indian columnist.