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Economic Survey:NO ROSY PICTURE, ONLY POLICIES, by Shivaji Sarkar, 26 Feb, 11 Print E-mail

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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