Economic Highlights

New Delhi, 11 January 2014

                                                                                GDP Obsession

                                                                 NEED FOR BENEVOLENT POLITICS

                                                                           By Shivaji Sarkar

The nation is clearly in General Election mode and seems obsessed with wanting a forward- looking Government that would take it out of the morass. There is growing concern for finding a leader with qualities which can set the system right and change the rules of the game. There is an under-current of moving away from the western mode of economy to evolving a new indigenous model – for genuine inclusive growth.

The GDP-style growth without any attempt at social equity is a matter of concern. So if a gas company gets double the price in foreign currency, it shows immediate “improvement” in GDP figures. It doesn’t take into consideration the higher price charged from the consumers – citizens, who are the actual owners of the gas being sold by the company. It also doesn’t take into consideration the resultant increase in cost of fuel, manufacturing costs et al.

A GDP-based economy would also not take into consideration the all-round inflation that such a move will cause in further slowing down of the economy. This set of economic theory is also neither concerned about the further loss of the purchasing power of the people nor the job losses that are obvious consequences of such a move.

One single pre-election sop to a large company might have paid dividends to some political organization. A nation that is clamouring against corruption is aghast at the silence of the entire political dispensation, including the newly-formed Aam Aadmi Party. None has spoken a word against the most people unfriendly decision of the Government.

This is exactly what happened in the US in the 1950s and 60s. The oil companies have been on a virtual loot of resources and the governments there preferred not to act. Today, they have grown bigger and are in a position to dictate terms.

Besides escalating inequality and unemployment, the US has been plagued by soaring debt that has already exceeded its GDP. India is not much behind. The Government’s debt is increasing and a slowing economy is causing losses in realization in revenue. The tax revenue growth has come down to 12 per cent from an estimated 18 per cent. Almost one-third of the budgetary expenses are funded by borrowings. It is likely to go up by March 2014. Even corporate external borrowings are reaching dangerous levels.

The total fiscal deficit of the States and the Centre has reached alarming levels. Along with this, the non-performing assets (NPA) of banks are on the rise. If borrowings and NPAs are added, the total GDP would reach a negative level. It is a different thing that in economic terms a borrowing is also considered an “income” and as such could be added to the GDP, at least for notional purposes. But what should the NPA be considered?

The NPA is the real indicator of the economy. It shows that more and more people, corporate and entrepreneurs are unable to repay the debt the banks have lent them. It is telling heavily on the health of the banks – custodian of people’s money. Should we allow them to go the Lehman Brothers way and still “feel happy” about the GDP growth? The US had done it and is yet to come out of the mess it had allowed itself to get in. The “recovery” there is less real than projected.

India has little to cheer while all of its manufacturing, industry and even the services sectors are slowing down. The manufacturing share in GDP declined to an abysmal 15.1 per cent in 2013-14, the lowest level in ten years. This compares unfavourably with China, where manufacturing contributes a whopping 30 per cent to its GDP, despite hit by a global recession. India recorded compounded 10 per cent growth in the sector from 2005 to 2011. It slumped to 2.7 per cent in 2011-12, a meager one per cent in 2012-13 and may be less than this fiscal.

The latest data shows that the services sector has clocked decade-low growth of 5.9 per cent, which is natural. If the primary sector does not function, demand for the secondary sector, like the services has to suffer.

Would then 2014 make a difference? That remains the moot question. It has the potential to make a difference provided the Indian political dispensation – under a new Prime Minister – takes a bold decision to steer the country on an entirely different path than it pursued since 1991’s Manmohanomics – a World Bank-IMF prescription – leading to a situation where growth and the people’s welfare have taken different directions.

The much-touted “reforms” were for the profit of a handful on the one hand and on the other exploitation of the masses through a series of indirect taxation – toll taxes, service tax, high prices and service charges - and manipulative speculation that caused enormous price rise. Additionally, while FDI has helped little in building infrastructure, it has led to large outflows, sometimes more than what was invested, in terms of repatriation of “profits” and “technical fee”. The GDP figures therefore look more notional as it does not take into account the outgo.  

Global problems might have added to the woes of the Government but it has to take the blame for the failure in proper macro-economic management. This is so because it has solely been obsessed with GDP figures without ensuring social equity.

Undeniably, the grim fact is that Government-sponsored steps have caused more miseries. Prices of LPG, CNG, PNG, petroleum products – all have increased due to irrational policies of boosting profits of oil companies. It has made transport and all other services expensive. As economy contracted, more people lost jobs.

The new Government, whichever it may be, would have to make policies for reduction of taxes, starting with abolition of personal income tax, make a move to move up on the Global Hunger Index (presently at 65 of 79 countries), while it is home to 42 per cent the world’s undernourished kids and ensure that the farming community comes out of the difficulties.

The road is not difficult. But corporate strangle on both national and regional political parties has convoluted the dreams of India at Independence. The new Prime Minister has to unleash the untapped potential of people’s power to emerge as an equitable economic power house. India just doesn’t need good economics; but benevolent politics that would stop exploitation of its people. -----INFA

(Copyright, India News and  Feature Alliance)