Sums and ladders

We are now supposed to have the best macro indicators in the last 50 years. This is part of the India Shining mindset and has become almost like dogma. You can’t question this, or point to warts, without being accused of being anti-national. Expressions like best depend on the yardstick used. Unless you are unlucky enough to be a citizen of sub-Saharan Africa (barring Botswana), most socio-economic indicators improve over time. You would expect per capita income or literacy rate or the poverty ratio to be the best in 50 years. Why 50? You would expect it to be the best in 5,000 years.

At a macro level, there seem to be two ingredients to this shining mindset — the external sector and GDP growth. On the external sector, whatever yardstick is used, there is no denying that the 1990s have been a decade of successes. A visible manifestation is foreign exchange reserves crossing $100 billion. Do we need $100 billion? Whatever criterion we use and even if the unlikely phenomenon of the entire volatile component flowing out overnight were to materialise, we don’t need more than $50 billion of reserves. In other words, $100 billion is excessive, especially as reserves fetch a return of around 2.5 per cent. Argued thus, we were probably better off in 2000-01 than in 2003-04 — 2003-04 is not the best in 50 years.

Let’s get back to real GDP growth of 8 per cent in 2003-04. Is this the best track record in 50 years? Not quite. We had similar growth figures in 1958-59, 1964-65, 1967-68, 1975-76, 1977-78, 1983-84, 1988-89, 1995-96 and 1996-97. You will rightly argue that those were growth rates in individual years, not sustained over time. Absolutely true. But where is the evidence that this 8 per cent figure is a sustained one? We have it only in 2003-04. During the Eighth Plan (1992-97), we got annual average real GDP growth of 6.8 per cent. During the Ninth Plan we got 5.6 per cent. Over a period of time, the Eighth Plan performance was better than during the Ninth. If anything, we under-performed during the Ninth. And if you choose to focus only on the Tenth Plan, the 4 per cent in 2002-03 and the 8 per cent in 2003-04 places you on an annual average trend of 5.7 per cent. Not that different from the Ninth Plan’s trend.

India may shine in the future, as the Goldman Sachs BRIC report promises us. But at least on this GDP growth yardstick, there is no evidence of India shining in the present.

Digressing a bit, why was there no Economic Survey this year? That this was an interim budget is no answer. There have been interim budgets in the past. True, the Constitution doesn’t mandate a survey. But since surveys started, even when there were interim budgets, there have been surveys. So was the survey scrapped because it would have subjected official data to scrutiny and made it difficult to sustain the best-in-50-years proposition? I find this a plausible hypothesis because of last year’s survey. The first chapter in last year’s (2002-03) Survey argued that thanks to reforms, India had moved to a higher growth trajectory. There was a graph (Figure 1.4) to establish this. And you guessed it. The graph ended with 1996-97. Dragging this beyond 1996-97 would have made it impossible to establish this proposition.

Other than growth, the survey would also have made it difficult to argue that the employment record is the best in 50 years. Here is a quote from last year’s survey: “As per the results of the latest quinquennial survey of National Sample Survey Organisation on Employment and Unemployment (55th Round; 1999-2000) the rate of growth of employment, on Current Daily Status (CDS) basis, declined from 2.7 per cent per annum in 1983-1994 to 1.07 per cent per annum in 1994-2000.” It was rightly concerned that 10 million jobs a year weren’t being created. In India Shining ads, we now suddenly have a figure that 8.4 million jobs have been created. There are serious methodological problems with the way the Planning Commission has worked out this figure. But let that pass. Data comes through NSS and NSS has thin samples and large samples. The last large samples were in 1993-94 and 1999-2000. Here is a quote from Economic Survey 1999-2000, before the 1999-2000 NSS data were processed. Note that this is a survey that originates with the NDA government. “However, recent thin samples of household expenditure, which are not used for official poverty estimates because of their small sample size, do not show clear positive trends in poverty reduction.” From this one deduces that thin samples are unreliable and shouldn’t be used. But since consistency isn’t always a desirable trait, the Planning Commission uses thin samples following the 1999-2000 large sample to churn out the 8.4 million figure.

How do you expect the employment scenario to shine if agriculture is in a mess? You won’t be able to prove that the agricultural performance is the best in 50 years. Or that public investments in agriculture, health or education are the best in 50 years. Or that the deficit situation is the best in 50 years. Best not to have an Economic Survey.