New road, old car

In any economy, there is a growth story and an inflation story. The Economic Survey is expectedly happy over the growth story 8212; GDP growth of 9.2 per cent in 2006-07, a savings rate of 32.4 per cent and investment rate of 33.8 per cent 2005-06 figures. Clearly, GDP and manufacturing growth have benefited from higher savings, investments and export/GDP ratios. Exogenous downsides volatile oil prices, delay in WTO negotiations, global macroeconomic imbalances mentioned by the Survey needn8217;t be taken too seriously in the short term at least. The endogenous downside of interest rate hikes is mentioned by the Survey only in passing. The inflation story is not good, of course. The latest WPI figures suggest an inflation rate of 6.7 per cent; let8217;s remember though the preceding 52-week average was 5 per cent. The Survey blames inflation on domestic supply-demand mismatch consequent on poor agricultural performance in essential commodities and higher global prices. Although there is a defence of forward markets while asking for better regulation, issues like RBI8217;s purchase of dollars, agro reforms to allow dis-intermediation and lower tariffs are conveniently sidestepped.

There is understandable emphasis on social sectors and there is, equally expectedly, no suggestions about better delivery systems. But the Survey contains more than this usual, unexceptionable politics. The rate of unemployment, according to last available data, has increased to 3 per cent rural sector stagnation is responsible and there has been a decline in organised sector employment, too. Are these because of labour market rigidities? Unlike earlier Surveys, this one is distinctly less forthcoming about labour market flexibility or even issues like targeting subsidies. Land acquisition is mentioned as a problem for highway programmes and for SEZs. But no position is taken on how resettlement, rehabilitation and compensation problems can be resolved. Traditionally, Surveys have pushed for reforms, unconstrained by political shackles since the Survey wasn8217;t considered a political document. This year8217;s Survey is different and is deeply reflective of UPA8217;s political position on reforms.

The UPA revels in the growth story and is unwilling to buck it 8212; 650 million telephone subscribers by 2012, market capitalisation at 91.5 per cent of GDP, tax/GDP ratio of 11.2 per cent, all this sounds good 8212; in the sense of actually reversing reforms. But it won8217;t push for liberalisation. The highway beckons, but the car is of an old model. The Survey seems to have no problems with this.