Economic Highlights

New Delhi, 23 September 2011

US Sensitive, India ….

IGNORING HARD REALITIES

By Shivaji Sarkar

India needs to learn from the US tragedy and listen to the IMF for putting politicians in the forefront. Clearly the country’s obsession with mere GDP growth is ignoring many wayside developments. The US, at a critical phase, is taking it cool and avoiding knee-jerk decisions. But India is going on prescribing policies to heat up the economy, hardening interest regime and taking no step to bring down the inflation.

Significantly, the US in a far worse scenario is trying to address the real issues by softening interest rates, cautiously considering tax options and does not mind telling the world that the number of poor, by US standards, has increased to 15 per cent from less than ten per cent a decade ago.

India on the other hand is playing a game of see-saw with the number of its poor, the jobless, high inflation and trying to unrealistically harp on growth figures, which are plummeting every day. Finance minister Pranab Mukherjee says growth would be over 8 per cent, others are far less hopeful and now the IMF avers it might be around 7.8 per cent this fiscal. In reality, it could be less than that.

The Planning Commission has come out with a painful approach to poverty by stating that someone earning over Rs 32 in a city and Rs 26 in rural areas is above the poverty line. This imaginary line certainly does not tell the reality. The panel might be drawing a ‘misery line’!

The Plan panel’s out-of-the-box approach to poverty does not take into account its own standards set decades back. It states that if one consumed less than 2200 calories in rural areas or 1800 calories in urban areas, he would be considered to be below the poverty line (BPL).

With a compounded food inflation of 15 plus per cent a year for the last over three years, possibly only an “economist” sitting in its corridor could expect to have all those calories for Rs 32. One needs to know that even a foot-path vendor does not sell a bowl of ‘dal’ for less than Rs 30 and four chapattis for not less than Rs 15 --- a minimum of Rs 45 a meal even though that would not fill his stomach. The panel does not explain how it reached this wonderful figure.

Obviously, it had a different consideration. It wanted to reduce Government expenses and decrease the benefits for the poor. In absolute terms this figure would reduce the number of poor to less than one-third it estimated at 26 per cent of the population sometime back. Though there were simultaneously other figures that suggested that those living below the poverty level constituted over 42 per cent – about 50.4 crore people of 121 crore people.

The US has done just the opposite. It has estimated that economic recession that started after 2000, has added to its number of poor. It did not bring down the bar for the sake of statistics or political consideration. It has put the bar at $ 22000 a year for a family of four. In a country where the average monthly wages are at $ 4500-5000, it is quite a high bar.

The IMF’s latest warning in its Global Financial Stability Report (GFSR) possibly gives the clarity on the difference of approach by India and the US. It calls upon the politician to take charge of the situation to wriggle world economy out of “danger zone”. The US despite many of its problems is still being headed by politicians and so their decisions have a tinge of pragmatism. They know that if hard decisions were taken and more miseries were heaped on the people it would lead to a disastrous situation and volatile reactions from the people.

The Plan panel being headed by economists do not have such considerations. The figures were more important and so they play on it.

Interestingly, for the first time the IMF finds politicians more useful for their pragmatism and understanding the pulse of the people.

The UPA II Government needs to heed to the advice and put a politician in charge of the Planning Commission so that it could take pragmatic and not impractical decisions. The new yardstick, if that could be called so, for deciding the poverty line does not even consider that the poor need to travel, educate their children, require shelter and health care. If all these costs are included even those earning Rs 7000 a month would qualify to be in the category of extreme poor. How could the economists say that those earning above Rs 960 in a city or Rs 780 in a village are not poor?

The IMF has given another onerous prescription for countries like India. It has stressed that controlling inflation should be the priority. It also says that the high cost of economy and pause of growth could lead to reversal of capital flows as foreign investors might look for more cost-effective options.

Is the US doing that? Implicitly IMF suggests that for its domestic economy, Washington has shown more concern. The US Federal Reserve Chairman Ben Bernanke is examining whether to adopt more explicit economic targets to lower unemployment without fuelling inflation. The Fed is also considering steps it might take to boost the ailing economy in the short-run.

The RBI Governor D Subbarao has also struck more caution of the financial scenario but he is peeved by the quality of data provided to him by Government organisations, which he says are away from reality. Undeniably, a comment on the Plan panel’s approach.

While, the RBI accepts the country is in a crisis, the Planning Commission seems to ignore that as it is obsessed by imaginary growth figures. Shockingly, it is unconcerned about the 9 per cent unemployment, same as the US, but in absolute terms almost three times more do not have jobs here. Neither does it take into account the number of under-employed, stagnation in wages and increased cost of living.

This is where the onus has to be taken by politicians, the IMF says, for accepting realities and course corrections.

Importantly, India’s approach is far from reality. The country has to modify its policies at all levels. Plainly, euphoric decisions or figures will not bring the growth trajectory back. It has to take decisions to reduce taxes, interest rates and evolve a pro-people marketing strategy to lower prices. Growth is impossible to achieve if people are not partners in progress. ----- INFA

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