The Hindu Business Line : Avoiding the ‘R’ word

On Tuesday, the Union Finance Minister told a conference of editors that, while economic statistics all over the world were crashing, there was no need for undue concern in India. Among other things, he is reported to have said that while the first quarter GDP performance (till the end of March) was a growth of 7.9 per cent, the figure for the second quarter “was also set to show positive growth”. Giving a macro picture, he added that “we may expect a mod eration in the growth rate in the current year to a level between seven per cent and eight per cent”, which would still make India “the second-fastest growing large economy in the world”.

China in a spot of trouble

This is nothing short of great news for the average Indian citizen. Indeed, even China, which is probably the “fastest growing large economy” which the Finance Minister referred to, is passing through a spot of trouble with reported unemployment figures causing more than a whiff of concern. A recent report said that Beijing was seriously concerned by the rising unemployment figures, the apprehension being that, since nearly 150 million migrant workers had moved to the factories of South China from their rural homes in the central and western parts of the country, a steep increase in unemployment could lead to a break-out of widespread violence, which would be a serious matter for the authorities. According to an official survey, the demand for labour by factories rapidly curtailing output had fallen by as much as 5.5 per cent in the third quarter of the year across 85 cities.

It is against this background that the Finance Minister’s homily on the use of the ‘R’ word when referring to the current Indian economic situation should be seen. He is, of course, correct in his view if the technical definition of “recession” is considered, but he is also wide off the mark if he feels that by taking shelter behind such a mechanistic screen he can deflect attention from the growing signs of an economy gradually falling into line with what is happening to economies the world over.

India’s fundamentals are strong

In fact, the real message emanating from all this talk about the Indian economy not being in “recession” till now is simply that our fundamentals are much stronger than what they are in other economies, for which every Government in New Delhi since Independence has been partly responsible. As they say, Rome was not built in a day. Similar is the case with the Indian economy which, admittedly, has passed through many vicissitudes, each twist and turn contributing to its present innate strength. Indeed, it can even be said that the reforms era, initiated by Dr Manmohan Singh when he was the Finance Minister in the Narasimha Rao Government, would not have been half as successful as it has subsequently turned out to be if the strong domestic production base of the economy was not there in 1991, when he took charge of Finance.

Having said this, the point can perhaps be made that the Finance Minister would probably be doing a more effective job in pumping up confidence if he were to continually impress upon the domestic economic players the seriousness of the external situation (the biggest bank bail-out in history, and all that) and the onset of “recession” in the strongest economies, simultaneously underscoring our innate strength and ability to ride out the “world economic cyclone” with minimal adverse effects, keeping the inevitable costs somewhat under control. What is the point of focusing attention on the “R” word every now and then when it is already there on everyone’s mind?

RANABIR RAY CHOUDHURY