Propping up the economy on hope

One does not nowadays hear the previous refrain about India's economic fundamentals being strong. The unexpected fall of GDP growth to 5.3 per cent in the last quarter of 2011-12, from 9.2 per cent for the same period last year, has brought down with it the rate of annual growth itself to 6.5 per cent, to hit the lowest level in nine years. This has created an alarming situation quite unlike any that the country had gone through since 1991.

On present showing, India's economic parameters are forcing analysts and raters to take a grim view of the emerging economic scenario. As early as in March, the Standard & Poor's came out with its findings of weak asset quality and earnings across India's banking sector in 2012, with credit growth predicted to fall to 16 per cent, from 23 per cent the year before.

Referring to the fright and flight of foreign investors leading to a balance of payments crisis, it has now warned that unless the Government reins in the fiscal deficit, it may have to downgrade the rating on India's sovereign debt.

On June 4, the Federation of Indian Chambers of Commerce and Industry (FICCI) piled up statistics to add to the encircling gloom. Just a few from among the more disturbing of them: While in 2007-08, the Government overspent its income by one-third, and financed about one-fifth of its expenditure through borrowing, in 2011-12, the amount Government had to borrow came to two-third of its total earnings and one-third of its total expenditure, with fiscal deficit crossing 68 per cent of its revenue. The result is that there is very little left for investment and growth-oriented projects.

SOMBRE PICTURE

The FICCI computation also shows that the plunging of GDP from 9 to 6 per cent means being robbed of 30 million jobs that would have otherwise been created. This will make nonsense of the so-called demographic dividend as the addition every year of 13 million young people of working age without providing openings for their livelihood is a clear invitation to a social upheaval analogous to an Indian Spring.

One would have thought that the emerging picture would be seen to be sombre enough to give a jolt to the Government to do whatever it takes not only to put the economy back on the rails but also to inject into it the needed vigour to make up for lost time. But no!

All the latest official pronouncements are so laid-back that they seem like competing for some sort of a Nobel Prize for complacency!

The Finance Minister, Mr Pranab Mukherjee, for starters, is positive that the economy would regain its momentum in the current financial year.

Here's the basis for his optimism: “The interest rate cycle has been reversed; mining sector growth has turned around; progress has been made on fuel linkage for coal based power projects; there is a turnaround in the quarterly investment growth rate, which had been negative in the preceding quarters of 2011-12; … a normal southwest monsoon has been predicted for 2012-13 and there has been a rapid decline in international oil prices in recent weeks. Further, there are no major adverse results on corporate performance in the last quarter of 2011-12. All these factors should help in the recovery of domestic growth momentum.”

FEEDING ON HOPE

The Economic Affairs Secretary goes several steps further and questions the very calculation of the GDP by the Central Statistical Organisation.

Quoth he: “I am not sure (of) these numbers (CSO revised estimate) …because they do not capture the momentum in the SME sector, which is one of the important manufacturing sectors in the economy. SME side is not fully captured….The GDP growth … this fiscal will be definitely higher than what was given for the just ended financial year 2011-12.'' The economy, he asserts flatly, will grow by seven per cent plus in the current fiscal.

What about inflation, Sir? “The fall in global crude oil prices will have a positive impact on the inflation front in the coming days.” And the rupee, Sir? “The RBI is constantly monitoring the exchange rate and that will take care of it.”

As of now, there is no evidence backing up these assurances, and the people, Micawber-like, have to feed themselves on hope alone.

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