This year

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This year's eco survey is a catalogue of crises

Sukumar Muralidharan

What's new in eco survey

  • The frame of reference: it's shifted subtly
  • The global context is the new subjct, not the stakeholders

Catalogue of crises

  • The agriculture scene is dismal
  • The industrial scene is indifferent

More in the story

  • The mess that we have landed in
  • The way out of the mess

An unpleasant spectacle could often be rendered more congenial, by changing the frame of reference.

In the new format of the Economic Survey that precedes the Union Budget, the first volume sets out the philosophical foundations and the second goes into hard statistical analysis.

And the frame of reference, like last year's Survey, is subtly different.

It is no longer the Indian economy and its various stakeholders that are the subject, but the Indian economy in the global context.

In philosophical terms

The survey this year finds satisfaction in the aggregate rate of growth of the economy and looks ahead to a consolidation of the gains achieved through years of steadfast commitment to "reform".

It regrets that with all the political investment made to reform, the response on the ground has lagged, in part because the comfort zone still seems ample.

Crisis, it observes, is often a major driver of reform. It focuses minds and dissolves the obduracy of sectional interests standing in the way of the general good.

Under the veneer

This is a rather curious note on which to introduce the year's economic progress report.

Once the veneer of good cheer is penetrated, it is a catalogue of crises on many dimensions.

For one thing, it records, the situation in agriculture has been dismal on account of two successive years of poor monsoons. This is only the fourth time in 115 years that such a misfortune has hit the Indian economy.

The specific years are not mentioned, but the last such instance was clearly in 1965-66. Those were two years of monsoon failure that knocked the entire Indian economic planning exercise off trajectory, leading to a long and fairly turbulent search for alternatives.

Another aspect in which the current conjuncture refers back to the mid-1960s is in being the first time since then that both exports and imports have fallen in aggregate value terms.

The external trade scenario has been of little consequence in aggregate statistical terms, since the "wedge" between exports and imports has grown, which has meant that the foreign trade contribution to growth has been positive.

How the budget due on Monday will conjure up resources remains to be seen

The Survey explains with the patience of a pedant that even in deficit, foreign trade could contribute to growth if the negative balance shrinks in relation to the previous year.

While industry has been no more than indifferent, services have grown buoyantly. The net in terms of growth has been positive. And this has been especially commendable because of the extremely hostile global environment.

India is now entwined more than ever before with the global economy. But the degree of autonomy presumably is sufficient for the country to take an independent path even in the face of overall adversity.

India's burden

The burdens that the Indian economy carries are onerous. When global growth has slowed to 3.1% from 3.4%, India's has increased to 7.6% from 7.2%.

India is carrying a greater burden of responsibility for global economic well-being than before. But while pleading that it is not making an "advance apology", the Survey concedes that a sharp downturn internationally could seriously damage the country's prospects going forward.

India's economy today is more than at any time in the past, driven by private consumption. This has been according to advance estimates, the single-biggest contributor to growth over the current year.

The vortex

It is worthwhile stepping back a moment to consider this aspect.

With agriculture registering paltry, if not negative, growth over two years, half the country's population has seemingly gone missing from the growth story - in terms both of their contribution as producers and as consumers.

Purchasing power has been under stress. The demographic basis of growth, in short, is perhaps becoming narrower as the reforms process proceeds.

Existing inequalities between the globalised metropolitan frontier and the rural agrarian sector have, in other words, perhaps accelerated over the year.

There is a formula that the Survey puts forward to break out of the impasse. This involves opening up the clogged arteries of the economy and getting the streams of production and investment flowing again.

A different antidote is called for; the Survey suggests it may lie in broader regulatory changes

Bank credit has stagnated, though the Survey is unsure if this is cause or consequence of growth. More than half the funds flow to the productive sectors comes from bank credit. And the turning off of this tap has been of serious negative consequence.

Till last year, bank credit was thought to be constrained by a multiplicity of regulatory norms.

The policy response was to relax some of the more stringent requirements on bank advances. But this year's experience has brought little reward.

The Survey concedes with some reluctance that corporate and bank balance sheets remain stressed. This seriously impedes any possibility of private investment picking up momentum.

The way out

A different antidote is called for which, the Survey suggests, may lie in broader changes in the regulatory policy regime.

The Indian economy, it notes, has moved from "socialism with restricted entry to 'marketism' with no exit".

This anomaly calls for correction, possibly by the enactment of a bankruptcy law.

Amid reports of severe debt-induced stress in the corporate sector, a bankruptcy law seems a policy imperative to loosen up large volumes of funds locked up in unproductive uses.

While industry has been no more than indifferent, services have grown buoyantly

The need seems especially great in the country's infrastructure sectors: highways, airports and construction. But that, in turn, calls for a revaluation of the assets built up in these sectors.

And restoring them to realistic valuations could damage the balance sheets of banks heavily invested in them, shrinking the cushion they have for expanding credit still further.

A fiscal stimulus, drawing on sources that have not yet been tapped, could be the way out of this low-level equilibrium.

How the budget due on Monday will conjure up those resources remains to be seen.

Edited by Joyjeet Das

Sukumar Muralidharan