Economic
Highlights
New
Delhi, 26 February 2011
Economic Survey
NO ROSY PICTURE, ONLY POLICIES
By Shivaji Sarkar
The Economic Survey showcases the Government’s
efforts well. However, it reveals a picture of a country that does not match its
propaganda. It also does not subscribe to the Government’s views on price rise
– rather it questions it.
The biggest myth created about
growth projections is quite contrary to those noticed in the industrial growth
in December, 2010. The figure of industrial growth is suspect. It pegs the
growth at 8.6 per cent through the year basing the figures on a nine-month
average of industrial index of production (IIP). The average is drawn on the
strength of a high roll over from the last financial year and figures of April
(16.5 per cent), May (11.5 per cent), and July (13.8 per cent).
The fact that there is a gradual
deceleration in productivity is not taken into account. Since August last the index
for industrial production (IIP) has been sliding. It touched 5.6 per cent in
August, 4.4 in September, 10.8 in October, 3.63 in November and 1.6 in
December.
The data of Central Statistical
Organisation (CSO) also revealed that consumer non-durables production
contracted by 1.1 per cent in December.
It’s obvious that the Government
needs to showcase but it should not be at the cost of credibility. The figures
are always not revealing. If the same figures are compiled up to October, the
average goes up to 11.3 per cent.
Clearly, conclusions should not be
drawn on the average but on the overall trend. This remains deceptive. The
survey accepts this reality stating that moderation is a global phenomenon. It
says, “Some sectors have shown extreme volatility”. It also expresses concern:
“The impact of favourable monsoon on the domestic-demand-driven industrial
sector has not been wide”.
The survey also predicts a further
moderation “in the industrial sector’s contribution to the GDP.” It pegs some
hope on the last quarter closing in March.
Indeed, it is not a rosy picture as
evidenced by the poor performance of the basic goods and consumer non-durables,
which constitute about 59 per cent of the IIP--a sizeable chunk of the
industrial sector has not contributed towards overall IIP growth. The growth
has mainly been driven by capital goods and consumer durables. The basic goods
segment with a weight of 35.5 per cent in IIP, contributed only20 per cent.
The manufacturing sector with a
weight of 79.36 per cent in IIP is supposed to be the key driver. The output
growth has dipped from a peak of 18 per cent in April to one per cent in
December. The survey says that the final figures in March would remain at par
with last year’s growth rate.
In other words it indicates
stagnation. Three key sectors – wool, silk and man-made textiles, beverages and
tobacco products and wood products – have seen negative growth of minus 0.6 per
cent, minus 3.1 per cent and minus 13.8 per cent respectively. The chemicals
sector has grown at a mere two per cent. Even computer sales growth has turned
negative. There has been some turnover in food products, cotton textiles, metal
and leather products.
Despite increase in corporate
profits “to pre-crisis levels”, the high prices have started showing their impact.
It increased corporate expenses on account of high commodity prices, increased
staff costs and interest outgo. The cost on sales has also increased owing to
higher transport and other costs. In many cases profit after tax has plummeted
in comparison to 2009-10.
High Government borrowings at Rs
381,000 crore and debt servicing are major concerns. It is an indicator that
prices might rise further and that Government calculations for the 12th
Plan projections might have to be heavily curtailed impinging on future growth.
Food supply and security is yet
another area that finds mention almost all through the survey. It does not seem
to agree with Planning Commission Chairman MS Ahluwalia’s view that higher
consumption has any link with higher prices
The survey sees a link in “local
cartelisation or other conditions such as sudden flows of speculative capital
into thin commodity futures markets”. It also does not agree with what Prime Minister
Manmohan Singh has repeatedly said: that
higher domestic food prices are due to rising international prices as India is
largely buffeted from international prices as ‘‘world trade in agriculture is
often very thin, with large restrictions and tariff wedges”. It sees sudden
speculative activity as a potential reason for severe price fluctuations and
cites the recent onion prices as an example.
The rise in rural demand is a factor
to rising prices. But the Survey laments that investment in agriculture – a key
factor for food security and stabilising prices – has remained weak. Gross capital
formation (GCF) – investment – in agriculture in relation to GDP has remained
stagnant at around 2.5 to 3 per cent.
Area under cultivation is also
gradually coming down. The trend has been repeated this year during kharif
season in Bihar, UP, Jharkhand and West Bengal
which is lower by 5.4 lakh hectare for rice and 3.4 lakh hectare for coarse
grains.
Some small increases have been
noticed in oilseeds and significant increase in sugarcane cultivation. While this
should be welcome, it also sees further compromise with food security as
products such as sugar benefit the organised corporate more rather than the farmers
and other agri workers.
The Survey is silent on how the acreage
under cultivation could be increased as more and more farm land is going into
industrial and housing activities. While it talks of a land policy for
industry, as part of its second generation reforms, it is silent on creating a
National Agricultural Land Policy.
The fact that all this is telling on
poverty is also clear as the Survey now confirms that 41 per cent people are
under below poverty line on the basis of $ 1.25 earning capacity set by the
United Nations. It virtually rejects the plan panel figures of 26 per cent.
Undoubtedly, this would call for
higher investment in the social sector and the Government has to do it. Many
private-public partnership offers have not been taken up by the private sector,
including in the railways.
Panacea for FDI, which is coming
down, is also a difficult solution. Overall the Economic Survey does not paint
a healthy growth proposition though it suggests many policy changes. ---INFA
(Copyright, India
New and Feature Alliance)
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