Whether it is inflation or employment, the Survey does not have much insights to offer.
The annual Economic Surveys presented by the Finance Ministry a day before the Budget is read out in Parliament are a foregrounder to the state of the Government’s finances and policies that influence economic behaviour. The Budget carries more weight, because fiscal policies affect fortunes and interests of those stakeholders powerful enough to influence the shape of a particular policy.
Besides, Budgets are ideological statements of intent and purpose: Governments want to help some sections of industry, industry over agriculture or services over all.
Housing or real estate seen as drivers of growth could get priority sector status, income tax exemptions just as the IT sector does. Automobiles get excise duty waivers but not mass transit vehicles. Budget-makers have been prone to lobbying, secretly before 1991, now through media events, conclaves of industry representatives and increasingly as we shall see, through think-tanks.
Budgets tend to put the Economic Surveys in the shadow; this is unfortunate because analyses of economic trends have been increasingly invested with the kind of inquiry and that should do North Block proud.
To its credit, the Finance Ministry also posts names of researchers who have contributed to the Survey’s sections. Clearly, the economic advisor’s position is crucial; this Survey flags off Raghuram Rajan’s stint as economic advisor.
As early as 2005, at a gathering of economists and Wall Street types honouring Alan Greenspan, Rajan had the acuity and courage to express doubts about the instability of financial developments till then.
The ground reality
His arguments earned him the scathing ire of Lawrence Summers, the indifference of those who believed in the “too-big-to-fail” theory and a place in the mass of chronicles of the worst financial meltdown since the 1930s.
However, the Economic Survey for 2012-13 does not bear as eloquent a testimony to his prescience, even though it does have its moments of insight not found in other documents of similar import. This is evident in its considerations of employment and productivity. It finds that productivity is lowest in agriculture where employment is highest and the reverse in financial and brokerage services.
This in itself is not surprising as a stand-alone proposition grounded in Indian reality. Stretch the observation over time and space and what we get is a distorted pattern of economic expansion: High rates of GDP and dismal employment opportunities.
Contrary to the East Asian economies and conventional economic theory, high productivity has not been accompanied by rising employment. What this means is that the rewards of rising productivity are limited, exclusionary.
Correspondingly, purchasing power too is skewed as incomes rise most in sectors with high productivity; so does final consumption growth.
What does this mean for that Demographic Dividend to which the Survey devotes its second chapter? In a world of ageing populations, India can stand proud and point to its young. But what hopes for them stuck as most are in the rural sector, or, as the Survey also obliquely notes, in the informal and low productivity sectors? As an ideal, the dividend construct is true: “more working age people will mean more workers, especially in the productive age groups, more incomes, more savings, more capital per worker, more growth.”
Right now, given the kind of growth the Survey talks of, with productivity and employment inversely related in the fastest growing segment of services, what will the productive age groups have to look forward to?
When the report informs us at the outset that the “Indian economy responded strongly to fiscal and monetary stimulus to achieve a high growth” after the meltdown of 2008, it is working up an after-the-event rationalisation that cannot stand scrutiny.
The sixth pay awards and debt waivers may have boosted demand, but their introduction did not generate the kind of multiplier effect Ben Bernanke expects from his quantitative easing. There were spurts in demand for two-wheelers and housing but not strong enough to tempt investments to generate fresh rounds of demand and growth.
The report’s view that the stimulus fed inflation is another back-handed self-compliment to its growth-generating abilities. Inflation had already hit the economy during the high growth period and interest rates had begun climbing during Y. V. Reddy’s term at the RBI.
The Economic Survey, however, reads the markers of depressed sentiments pretty well, which is not surprising since they are so well known: High fiscal deficit, consumer price inflation and current account deficit and falling investment, all of which call for “macroeconomic stabilisation.”
This requires rebalancing emphasis on investments. When the policymaker looks at the growth patterns there, the situation turns dismal: Rising numbers of stalled projects and falling project ‘starts’. As of December 2012, six sectors accounted for 80 per cent of stalled projects: Electricity, roads, mining, real estate, telecommunication services and steel.
The Survey cites CMIE data to explain the reasons for such delays and needless to say, difficulties in land acquisition, coal linkages and mining bans have been adumbrated; in telecom for instance the CMIE lists “allocation issues.” The Survey points to the fast-track vehicle — the Cabinet Committee on Investments — as the appropriate policy response to what is clearly seen as debilitating inefficiency by those not sitting at the head of the table at the CCI.
What the Survey lacks is the resonance of institution building. Soon after taking over as Economic Advisor, Rajan was reported to have said that India’s growth has not been matched by a corresponding growth or make-over or transformation in its governing institutions.
That chasm will not be evident in rural India; it is in the nightmares we call cities.