Thursday came with a torrent of news on the economic front. In the morning, addressing the Hindustan Times leadership Summit, the Prime Minister declared that he was prepared to pay the political price for the transformational reforms he is carrying out on the economic front. During the course of the day came the news that the Organisation of Petroleum Exporting Countries, and its allies like Russia, had agreed to extend the cuts in petroleum crude production for another nine months beyond March 2018. In another development, the Bombay Sensex and Nifty both came crashing down by 1.3% each at the end of the trading session. The markets were spooked because the news on the fiscal deficit front was far from comforting. It climbed to 96% of the budgeted target for the whole year at the end of October itself. Then came news of the quarterly growth figures inching up to 6.3%, compared to 5.7% in the previous quarter. All hell broke loose after that with the ruling party and its supportive media hailing it as evidence of Unstoppable India' and condemning the so-called prophets of gloom. Let us analyse the developments I have mentioned above now.
The Prime Minister's statement surprised many. If the goings-on of the economic front are so good, why should he be called upon to pay a political price? Was it therefore to collect sympathy for him personally for the Gujarat assembly elections? Or does he know something about the thinking of the people that we are not privy to? The enigma remains shrouded in mystery.
The stand of OPEC is a cause for serious concern for India. Prices of crude have already recorded a sharp jump and gone beyond $60 per barrel. All our economic stability at present is born out of moderate crude prices, i.e., fiscal deficit, the current account deficit, inflation, the strength of the rupee and the ever-rising stock markets. They are under control not because of any policy action on the part of the government, but because of factors well beyond its control.
The slippage on the fiscal front is indeed a matter of serious worry. If it is entirely on account of the front-loading of expenditure, then clearly we will have to control expenditure going forward. It is not good news for the economy given that private investment remains in poor shape. If other factors are responsible for it - like sluggish tax receipts - then it is a matter of greater concern. Gross Fixed Capital Formation which represents investment has no doubt grown by 4.7% in Quarter Two, adding 1.3% to growth, but as analysts have pointed out, GFCF as a percentage of GDP has actually declined. As far as bank credit is concerned, advances to agriculture and allied activities rose by only 5.5% in October compared to the same month last year, and loans to industry contracted by 0.2%, as did credit to infrastructure, basic metals and metal products, vehicles, parts and transport equipment and cement and cement products, according to RBI data. This cannot be good news for the economy going forward.
Coming to the growth rate of 6.3%, which has been the cause of much joy and jubilation, let us analyse the various components of this growth. The centre-piece is the high growth recorded by manufacturing during this quarter which stood at 7%. It is another matter that during the same quarter of last year, it was 7.7 %. There is no doubt that it has gone up from a measly 1.2% in the last quarter, but as Harish Damodaran and Sandeep Singh have pointed out in an article in The Indian Express
, according to the IIP data compiled by the same Central Statistical Office, it was only 2.2% during this period. And this raises serious questions about the manner in which we are calculating GDP. It no longer is based on changes in production figures but changes in the figures of value added, even if production remains static or actually declines. Be that as it may, the quarterly growth has still risen by only 60 basis points.
The most worrying, of course, is the continued stagnation in agriculture, forestry and fisheries which have recorded a growth of only 1.7% compared to 2.3% in the previous quarter. Rural distress still remains the most important issue in our economy with the vast majority of our people still living in rural areas and still dependent on agriculture and allied activities. Similarly, construction growth has also decelerated. These are sectors which provide the most employment.
I cheer the moderate recovery in growth recorded in the second quarter of the current fiscal. I wish the Indian economy the best in the coming days. My quarrel is with those who tend to go gaga over the slightest improvement or inconsequential certificates from external agencies. You can begin to tackle a problem only when you recognize that it exists. If you live in denial you will not even begin to do so. We have lived in denial as far as the ill-effects of demonetization and a faulty implementation of GST are concerned. Now we say those effects are behind us. We cannot be running with the hare and hunting with the hound.
When I pointed out the problems we faced in the economy at the end of September, I was roundly criticized by many for basing my conclusions only on the figures of one quarter, though my observations were based on the figures of five quarters. The slight improvement in one quarter now cannot be the basis of a seminal shift in our economy.
India needs to grow at the rate of 8% to 10% if we want to fulfill our commitment to eradicate poverty and create employment opportunities for all. (Yashwant Sinha is a senior BJP leader and former Union Minister of External Affairs.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.