Those who are gloating about the current state of the Indian economy need to become circumspect. Yes, the country was spared the worst ravages of the international recession, foreign exchange reserves are comfortably high despite the burgeoning trade deficit because of inflows of portfolio funds, and tax collections are buoyant. But wait! There's much that is worrisome on the other side of the report card. Inflation, especially food inflation, is at disconcertingly high levels, industrial production data is suspect, the infrastructure remains creaking and despite a lot of tall talk about inclusive development, there are no indications that economic growth is being accompanied by redistributive justice of the vertical kind (that is, across economic classes) or of the horizontal variety (across geographical regions).
To an extent, the state of the economy is reflected in the way many have reacted to the Commonwealth Games. A question: Will a few evenings of exhibitionistic extravaganza make the rest of the world forget the fact that the impressive buildings, the flyovers, the metro and the modern-day monuments of concrete and steel were built on the backs of some of the poorest construction labourers from some of the most backward parts of the country, workers who were denied even minimum wages by rapacious contractors and their greedy benefactors in positions of power and authority? What is worse is that sections of the elite have deluded themselves into believing India should now be making a serious bid for the next Olympic Games now that we are sitting on the high table in the Security Council of the United Nations (even if we are among the 'non-permanent' members). The gross error of judgment that the Bharatiya Janata Party-led National Democratic Alliance government made while crowing about 'India Shining' is being replicated in a different form by the present United Progressive Alliance government, now a year and a half into its second term in New Delhi.
Projections about growth rates of the country's economy have overjoyed government spokespersons. The most-recent World Economic Outlook released by the International Monetary Fund on October 6 places the likely rate of growth of the Indian economy during the current calendar year at 9.7 per cent, above the 9.4 per cent estimate made by the IMF in July. This projection is higher than those made by the Asian Development Bank (8.5%), CRISIL (8.1%) and government bodies such as the Reserve Bank of India (RBI), the Prime Minister's Economic Advisory Council and the Ministry of Finance, all of which claim a rate of growth of 8.5 per cent for the financial year (ending March 31, 2011).
It is now also 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 relatively lower levels of 9.6 per cent and 8.4 per cent, respectively. A paper released in August by three economists with the ADB (Working Paper 609, Using Capabilites 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. Whereas 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. Between 2010 and 2030, India's growth rate is projected to vary between 5.78 per cent and 7.07 per cent against China's 4.15-5.12 per cent, the ADB paper has claimed.
Without looking that far ahead into the future, what has caused concern at home are the discrepancies in the official data of the government on the index of industrial production. In September, the RBI acknowledged: “Though the year-on-year growth rate for the first four months of the year (April-July 2010) remains robust at 11.4 per cent, the high volatility over the past two months (July and August) raises some doubts about how effectively the index reflects the underlying momentum in the industrial sector…”
The sensitive index of the stock exchange at Mumbai has crossed the 20,000 mark but had not yet exceeded the 21,000 peak that had been touched in January 2008 at the time of writing (October 11). On the one hand, a study by MCX Stock Exchange and Nielsen - the Indian Equity Investors Survey 2010 - indicates that barely 1.4 per cent of the population of the country have invested some proportion of their savings in the stock market, the fact is that the Sensex is zooming because foreign institutional investors have poured more money into Indian stock exchanges than ever before - between January and the first week of October, net inflows by FIIs stood at $20.4 billion or over Rs 90,000 crore, and this figure is expected to cross the magic Rs 100,000 crore mark before the year is over.
Even as Finance Minister Pranab Mukherjee has asserted time and again that the government is not contemplating curbs on capital inflows, other economists have argued that the Indian economy is showing indications of over-heating on account of demand-pull inflation. The IMF has stated: “Among some major emerging economies, capacity constraints are beginning to boost prices… India has seen a sharp rise in inflation.”
That is indeed the huge problem - taming the monster of inflation - for which the government seems to have no solution in sight. Food inflation has been running in double-digits for the better part of the last two years and shows no signs of abating despite frequent claims to the contrary. The last occasion the Prime Minister (the world-famous economist that he is) was asked when inflation would subside, he snapped impatiently at the questioner remarking that he was not an astrologer. On this score at least, those who are paid to be optimistic have stopped saying anything of late since they had put their feet into their mouth a little too often over the last year or so.
The monsoon has been much better than expected. In comparison to the drought that prevailed in 2009 because of which agricultural production hardly grew, there are reasonable expectations that farm output might go up by as much as 4 per cent during the current fiscal year. This, in turn, would provide a fillip to the demand for fast moving consumer goods as well as consumer durables, all of which is good news for the manufacturing sector at a time when the RBI continues to tighten liquidity thereby keeping interest rates hard and high. The question then naturally arises as to why the powers-that-be are failing so miserably in controlling the runaway rise in food prices - which is right now above 16 per cent, according to the government's own revised official Wholesale Price Index (WPI).
The fancy apartments built for the Commonwealth Games were pre-sold. However, the World Bank has estimated that the present housing shortage in the country varies between 20 million and 70 million. The Bank added that between 35 per cent and 45 per cent of India's urban population with monthly incomes ranging between Rs 5,000 and Rs 11,000 do not own homes. While the number of crorepatis in the country rises each year, the latest set of statistics put out by the government estimates the average Indian's annual income at barely Rs 45,000 at current prices, or less than Rs 4,000 a month - an amount that the rich will not think twice before blowing up over a meal in a swank restaurant.