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Signs of economic revival: Why the key is improved government functioning

A Goldman Sachs report released on Monday such changes could help economy leapfrog a generation of creating physical infrastructure and boost GDP growth.

Written by Subhomoy Bhattacharjee |
Updated: October 7, 2016 5:04:50 pm
consumer price index, inflation, GDP, GPI, RBI trend rate, Indian economy, indian retail indflation, business news, economy news, india news Prices of cereals are not rising so those farmers have flat incomes and while prices have risen for cash crops due to scanty rains, most of those farmers too are not doing well. For landless labourers the pressure to migrate to cities is sharper. (Source: File photo)

The Indian price level has remained flat despite three adverse crop cycles since last year: a drought in kharif 2014, excess rains during the rabi and a drought in some regions again now. Yet the consumer price index which stands at 3.66 per cent is less than the RBI trend rate. Along with this satisfaction on prices, the index of industrial production for April to July has clawed back to last year’s level of 3.5 per cent.

Does this mean the economy is performing better? In urban areas, where wages have been flat, a lower level of consumer prices does mean the income with the salaried class is better than last year. This, despite the sustained high prices of pulses and that of items like the cost of health care and education.

In rural areas this means trouble, though. Prices of cereals are not rising so those farmers have flat incomes and while prices have risen for cash crops due to scanty rains, most of those farmers too are not doing well. For landless labourers the pressure to migrate to cities is sharper.

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Overall, the picture shows up in the weak demand for consumer non-durables.

So despite the happy signals from the consumer inflation and sounds of life from the industrial sector, the other indicators are spread too widely across the landscape to show up any significant pattern in the short run.

However, the indicators look better for the medium term taking into account the impact of two measures — the Jan Dhan Yojana and the LPG transfers is one those In a very short span of time, these have started putting cash where it is needed. Every day, the banking system is now opening an average of 200,000 accounts.

The other is that of moving government services to online modes. Nearly 800 services have done so already. Thus, in the partial holding of the price line and in cash transfers, the change in the economy is that of improved government functioning.

In a Goldman Sachs investment report released on Monday, Tushar Poddar writes, “These changes can allow the economy to leapfrog a generation of creating physical infrastructure in retail, banking, and government services…the coming together of these forces can provide a substantial boost to GDP growth”.

A World Bank report on government effectiveness had pointed out that in the past decade, India’s ranking deteriorated the most in Asia. The clear improvement in this area now is the most visible upturn in the economic data.

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