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The Shiningest One

Talk of 8% growth is fine, but the NDA's efforts still can't better Manmohanomics

The Shiningest One
T. Narayan
The Shiningest One
cIt wasn't luck, but careful planning that made the NDA government go in for its 'mini' and 'interim' budgets in January and February. Conveniently sandwiched between the quick estimates for the second quarter of 2003-04 and advance estimates for the full year, as per a well-established CSO release calendar. Both gave the magical figure of 8 per cent growth—solid stuff that makes the Rs 65-crore India Shining campaign look like cola ads for teenagers.

From feelgood to feelgreat, with the NDA? Is there really something special about this particular eight per cent? Nice try, Jaswantji, but eat your heart out, you still can't better the performance during the Rao regime (see Go Figure!). If we leave out the 1.3 per cent growth in 1991-92 which bore the brunt of the depleted treasury, the reforms period under Manmohan clocks an impressive 6.4 per cent in four years, something the NDA will achieve only if next year too gets eight per cent. Even including 1991-92, growth in the five reform years falls only marginally short of the 5.8 per cent in the NDA's six years. It's about the same if we leave out the good rains year.

Let's take the plan period, since the Tenth Plan target is to achieve eight per cent. Even during the Eighth Plan (1992-97), we got an annual average of 6.8 per cent, while the Ninth Plan (1997-2002) clocks 5.6 per cent. Want to take into account the first two years of the Tenth Plan (2002-07)? Four per cent last year and 8 in the current give you 5.7 per cent. Only an average of over nine in the next three years can help meet the target now.

That then takes care of the historical perspective, post-reform. But what about Jaswant's vote-on-account speech that claimed the situation now was the best in 50 years? The graph next page (see Boom after bust) gives an account of the years when we achieved a real gdp growth of over 7.5 per cent since 1951. All except two of the eight years we achieved this were preceded by a bad year—worked on a low base, the growth rates were higher than usual. The only time good growth was repeated was in '96-97, thanks mainly to the Pay Commission largesse which inflated the services sector contribution to gdp.

The current year too serves to establish this trend strongly. There are two interesting things to note about the growth estimate (see Where we've grown faster). The first is that it comes overwhelmingly from the rain gods—farm sector growth is a whopping 9.1 per cent over a pathetic negative five per cent last fiscal (and the statistical phenomenon of low base works here too). On average then, we have a farm growth rate of 2 per cent for the first two years of the Tenth Plan, which is poor by all standards.

The only other big contributor to gdp is the trade, hotels, transport and communications sector, giving a record 11 per cent over a high seven per cent last fiscal. This sector is growing at a real fast clip since the reforms and there lies our great big hope for jobs.

In sum then, there's nothing special about 2003-04 except it was a bountiful monsoon and gave good growth. The associated hype is just the NDA's move to make this the lynchpin of its poll campaign. And few can deny them the right to do so, especially since the father of reforms and the original giver of good growth, the Congress party, is so desperately and somewhat stupidly trying to disengage from its own performance.

Still, it's remarkable how the government has managed to use the figures to its advantage. That the CSO releases its advance estimates for the year in January-February is wellknown. But what the general public is unaware of is how the CSO arrives at the advance estimates. For instance, for the agriculture and manufacturing sectors, the advance estimates are based on data on rabi sowings, which itself are advance estimates, and eight months' data on the index of industrial production (IIP).Both of these have been extremely good this year. Wheat production is expected to touch 75 mt, while rabi sowing of pulses and oilseeds are up by 28 and 13 lakh hectares respectively. Naturally, the forecast is as sunny as it can get.

Shorn of the election rhetoric then, there is no reason to disbelieve the data. All the advance estimates are compiled by extrapolating the previous year's quick estimates with the growth rates observed in each of the physical indicators of various sectors for a part of the year, in this case the first two quarters only. These estimates would be revised in June, the time of the actual budget presentation.

However, where the NDA does have an edge compared to the previous governments is that times have changed. And irreversibly. Pre-1991 growth was fragile and volatile, since reforms came in rare bursts; even the record growth of 10.5 per cent during Rajiv Gandhi's time could not be sustained due to the heavy borrowing. In contrast, says Arvind Panagariya, Jagdish Bhagwati professor of political economy at Columbia University, "growth in the '90s was more robust and far less volatile. Despite wellknown vulnerabilities resulting from fiscal deficits that are as large today as in the late 1980s and the slow pace of banking reforms, few pundits are predicting an external crisis today. However, the ultimate critical thing to sustaining eight per cent growth is to achieve considerable expansion of the revenue base and reallocation of expenditures away from subsidies to public investment."

Far more important than the eight per cent this year is the eight per cent forecast by Jaswant next year. It can be sustained provided the NDA, if it returns, starts work on really putting the shine on India. Says V. Ananth Nageswaran, director, global economics and asset allocation, Credit Suisse, Singapore: "More political will is needed to bring about lasting and sustainable fiscal consolidation. The other thing is a qualitative improvement in fiscal expenditure away from salaries and allowances and subsidies to the poor, women and children on their health and education." Feeling good can then be a more permanent affair.
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