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Journalism of Courage
With inflation below 5 per cent, and therefore in RBI8217;s comfort range, and growth estimates and projections ranging between excellent to good, it is inevitable that some economic observers would argue the going is too good to be true. These columns have argued that while plenty of problems 8212; including policy stasis 8212; remain, the India story is really true. That is, inflation shouldn8217;t create panic and severe scepticism about growth sustainability is unfounded. To reprise these arguments is always enjoyable; given recent judgments on overheating, it is also necessary.
The sustainability question is based on low savings/investment ratio, infrastructure constraints and manufacturing8217;s relative non-performance. On the first and third, data has proved sceptics wrong. Savings/investment rates have sharply increased and manufacturing has done well, fuelled largely by export performance. That leaves infrastructure, where transport connectivity has significantly improved. Power remains a big problem 8212; manufacturing has resorted to in-house solutions. But a binding constraint to 9 per cent growth is hard to find. As for overheating, those arguing for this thesis often confuse sectoral trends capital market, real estate, skilled labour of demand outstripping supply with macro-diagnosis of excess demand. Consider the generalisation that the Sensex shooting up is evidence of overheating in stock market. While it is true that there are limited scrips available and privatisation of PSUs would help, the Sensex is hardly representative of the entire Indian stock market. Similarly wage inflation in certain states that attract investments isn8217;t evidence of general wage inflation, though there are supply-side constraints to skills too, as with real estate and land.
