This Article is From Apr 25, 2016

Dear Nirmala Sitharaman, Raghuram Rajan Was Right About "One-Eyed King"

Commerce Minister Nirmala Sitharaman is a lady of many sterling qualities, chief of which is that being a Tamilian, she adds a light all-India touch to what would otherwise be a North-of-the-Vindhyas regional government. Nobody would accuse her of having a sense of humour - which does not mean the ability to sharply put down others (that she possesses in abundant measure), but the capacity to laugh at yourself. 

Hence her rebuke to RBI Governor Raghuram Rajan that his remark about the one-eyed king in the kingdom of the blind "unnecessarily giving people like Mani Shankar Aiyar to give quirky interpretations like 'who is the one-eyed king that Raghuram Rajan is referring to?'"

I plead guilty. I did ask the question. For if Nirmala Sitharaman, the minister on whose watch our exports have sunk steadily in every month over the last 15 months, actually believes her government have delivered on the promise of "acche din", then we are truly in the Kingdom of the Blind, and perhaps she is the One-Eyed Queen because she finds the "manufacturing and production numbers encouraging". 

"Encouraging" that her government has just confessed to the Supreme Court that fully a quarter of the people of India are suffering the worst drought in memory? Encouraging that water trains are running towards the Latur station, but Marathwada's thirst is such that the water is consumed long before it reaches the villages around Latur town? "Encouraging" that "production" in agriculture is perhaps negative in 2015-2016 (the final figures are yet to come in) after having recorded stagnation the previous year in the sector on which more than half our population and perhaps two-thirds of our families depend as their primary source of income? "Encouraging" that in many parts of the country, farmers have been overwhelmed by crop failures in at least two and up to three successive years and her government is clueless about tackling the humongous human problem this entails, such as farmer suicides? "Encouraging" that Minimum Support Prices for key agricultural products in this terrible year have risen by the lowest in a decade or more? 
 

"In the land of the blind, the one-eyed man is king", Reserve Bank Governor Raghuram Rajan said when asked for his take on the 'bright spot' theory.

"Encouraging" that manufacturing has been at the lowest growth in this century? (It might be marginally recovering now - but from what levels?) "Encouraging" that employment generation is virtually at a standstill while millions of youth seeking to join the ranks of the work-force are left frustrated at the very threshold of their adulthood? "Encouraging" that our banks are bankrupt and awaiting the infusion of at least one lakh core rupees from Ms Sitharaman's government in order that they might barely survive? "Encouraging" that our foreign exchange reserves slip relentlessly downwards, and that the rupee's exchange rate that stood at Rs 40 to the dollar at the high noon of the Manmohan era is now down to Rs 66 - and showing every sign of sinking further? "Encouraging" that the Modi government has comprehensively botched the oil dip bonanza? 

"Encouraging" that Global Financial Integrity estimates black money outflows at double the incoming FDI? "Encouraging" that the Panama Papers have revealed more, much more, than Modi's government have unearthed in two years in office, although dedicated, so they claim, to recovering 15 lakh rupees per Indian from illegal stashings abroad? "Encouraging" that Vijay Mallya is safely tucked away in Blighty?  
 

Union Minister Nirmala Sitharaman was critical of RBI Governor Raghuram Rajan's description of Indian economy as the "one-eyed king in the land of the blind", saying better words should have been used.

It was precisely against such woolly thinking that Governor Rajan warned when he made his remark. On the outbreak of the controversy, fuelled by Arun Jaitley's fatuous remark to CNBC ITV that "India is the fastest growing economy" and "any other country in the world would be celebrating", Governor Rajan patiently explained at his lecture to the graduating class of the National Institute of Business Management, Pune, on 20 April that "I cannot get euphoric if India is the fastest growing large economy" for "we cannot get carried away by our current superiority in growth". 

While the Governor restrained himself, the IMF World Economic Outlook, cited by Statistics Times, soberingly points out that our GDP growth in 2014, a better year than 2015, shows us as not the fastest but "the 15th fastest nation in the world." Jaitley gets out of that googly by comparing us only to the "large economies". But, in response, Rajan points to our also being "still one of the poorest large countries in the world on a per capita basis" (touché) with "manufacturing capacity utilization (being) low at 70%" (Nirmalaji, please note). He also cautions that the Chinese economy "is now five times our size at current exchange rates" and pointedly underlines "that the average Chinese citizen is over four times richer than the average Indian."

For putting matters in perspective, and telling the truth, the Mumbai financial markets are awash with rumours that Governor Rajan's "one-eyed king" remark "could reduce his odds of getting a second term". This would be tragic for it would be tantamount to preferring Propaganda over Truth, Goebbels over Gandhi.  

This column has been repeatedly saying that we are the "world's fastest growing economy" not because we have done exceptionally well, but because the global economy is doing exceptionally badly. It is not any great achievement of ours, but China slipping to 6.5 percent that has put us on top. Indeed, as again this column has pointed out in the recent past, our much-vaunted GDP growth rate of 7.6 percent is a statistical illusion. How can the economy in reality be doing so well if key sectors like agriculture, manufacturing and infrastructure are doing so badly? Drawing from an article by Mohan Guruswamy in The Deccan Chronicle, I had attempted to explain to readers the difference between "GDP at current prices" and "real GDP". The latter is calculated by discounting GDP at current prices by the rise in prices (inflation) over the previous year. Thus, if GDP growth in current prices had been 7.6% and the inflation rate 2.2%, then the "real" rate of growth of GDP would have been 5.4%. But owing to the precipitate decline in oil prices and those of other key commodities in global markets, in 2015-16 the economy experienced not inflation but deflation of 2.2 percent. The Wholesale Price Index dropped. Hence, the "real GDP" in the last financial year was 2.2 percent higher, not, as usual, lower than GDP growth at current prices of 5.4 percent. That is how "real" GDP is claimed to be 7.6%. At current prices, GDP is more than five percent below what Jaitley projected it to be in his 2015-16 budget. That is the statistical gillie-gillie.

At this point, policy-makers need not exultation that leads to complacence, but wide-awake realism of the kind that the RBI Governor is attempting to inject into the economic discourse. The Governor's is the white stick that should enable those blinded by their own propaganda to find their way out of the gathering darkness. Throw the stick away and the economy is doomed to flounder on empty slogans.

(Mani Shankar Aiyar is former Congress MP, Rajya Sabha.)

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