The Aryavarth Express
Agency (New Delhi): The GDP release from the National Statistical Office on Friday, showing a growth of 8.4% in the fourth quarter has befuddled economists and experts and the financial markets. These releases of the GDP numbers start a veritable season of oneupmanship among the economists and commentators to prove how good they are in statistical jugglery and finding loopholes.
This time the detailed figures have caught people off guard. Economists give their projections and estimates of what could be the possible forthcoming growth figures. This has become an established game and newspapers to new agencies and others express their views on growth prospects. This is a standard game now.
What had happened is none could come near the actual figures in their forecasts. Almost to a man, it was between 6% and 6.5%. Now, it has turned out to be much higher at 8.4%. How do you reconcile your shortfalls with the reality as shown by NSO.
This begs the question how true are the NSO calculations. It is just a statistical manipulation in the election season. After all, a general election is set to happen in the next two months and a growing economy is an asset. The government can claim its success in steering the Indian economy to a high growth trajectory.
There is no gainsaying that the Indian economy is on a roll. There is a momentum of growth and you can see it around you if you happen to visit a market. The stores are full and flowing, people are buying the stuff, there is a spending spree among certain sections. If you are travelling on the metro trains, you find people reasonably well dressed and well-shod.
And unlike in the old days, you don’t come across many who are really deprived of the basic minimum. The earlier idiom of the “Have-nots” has disappeared and does not any longer appeal, including on the TV sets.
The fact of the matter is the economy is on its own steam and no government really can push the growth path up substantially. It can of course derail it and bring curse upon the country with a sagging economy.
The critical factor appears to be the government’s acts of omissions than commissions that determine the course of the economy — both in the short term as well as in the long.
Take two examples. The sudden move to demonetise the currency by the present government was a rude shock to the economy and it created a situation in which a large part of the players were badly hit. Parts of the economy —mainly informal small scale players — had come to a halt. That was in the short term. The economy leapt back later but some damage was done.
The second example —that of long term set back—is more controversial and would be denied by many. India’s earlier predominant policy of restrictions and sheltered economy reserving the commanding heights of the economy, so called, had proved to be a disaster. Keeping the telecommunications sector reserved crimped the entire segment. We all remember —that is, those who are now old— how difficult it used to be to get even a mere telephone connection or thereafter put a call through.
Without freeing up the telecommunications industry we could never have the IT revolution in the country and its subsequent impact on the overall economy. Industry in India was emasculated by the Industrial Policy Resolution of 1956. One of the first acts of reform in 1991 was to scrap that into the dustbin.
The reason for going into such forays from the immediate business of last quarter GDP growth is to say that at long last India has more or less a stable framework within which to work and this gives a measure of freedom to the ground level players to take their rational decisions.
There is no doubt that there is a certain buoyancy in the Indian economy, no matter what the bubbles over the decimal point changes have been over the quarters.
One principal reason for the buoyancy appears to be the stable fiscal framework. Unlike in the past when excise duties, customs and a myriad of other taxes used to be changed with every budget, we now have a stable tax regime. The GST system has ruled out impromptu changes in excise rates by the centre and sales taxes in the states.
As a financial journalist I remember how after every budget Nani Palkhiwala, eminent lawyer, used to wax eloquently how Indian industry was enslaving the Indian economy from achieving its full potential. Pesi M. Narielwala, another expert, would underline the need for a stable tax regime for manufacturing industry to plan its moves.
After initial hiccups, the GST framework is now functioning with some degree of certainty and satisfaction for the round level players. The tax collections are rising in sync with the rhythm of the economy. This year, the GST collections have pleasantly surprised the North Block mandarins as well. We now seem to have a reasonably stable tax regime.
No less important is that industry is free to take its decisions, unbound as it has been for the last thirty years by absence of industrial licensing policy. It is difficult to now remember how absurd a policy of restrictions could be. There was time when industry would be pulled up for producing more than licensed capacity by achieving productivity gains. The reforms of the 1991 era have not been reversed since and it is only now that we are witnessing the good results of those decisions.
Quibbling over which government achieved what gains is meaningless. The economy is a continuum and the gains come in small grains over a stretched period. The important lesson for economic policy-making is that it is like the Hippocrates’ Oath for the medicine man: Don’t harm, if you cannot do any good. (IPA Service)
By Anjan Roy