The great growth debate

When the great snowstorms envelop the northern hemisphere, a particular species of birds migrate to India amongst other places. Rathi Kant B...

When the great snowstorms envelop the northern hemisphere, a particular species of birds migrate to India amongst other places. Rathi Kant Basu, a civil servant from my state, called them academicials. Senior academics, who are, or have been, officials and the other way around. They come in December, or in January, and seldom stay after Valentine8217;s Day. This time, the great Joseph Stiglitz dropped a bomb by saying that India8217;s growth rate in the nineties was not more than that in the eighties. Now this is true, but is very uncomfortable for all.

The average growth of the economy, as I had shown on India completing the half-century of Independence, was 4 per cent annual compound. It was 3.26 per cent until the mid-seventies and it was 5 per cent subsequently. From 1980 we clock around 6 per cent annually. Government economists take a good year at the end and show it as higher and Opposition wallahs take a bad monsoon and show that the nineties are worse. Growth is now becoming a built-in part of the structure of the Indian economy. Leaders of all hues find it difficult to give systemic credit, for then where would they be.

Last year, in an academic piece, I had wondered why Stiglitz made no references to India, but talked of Malaysia and China. But in the early nineties in the development debate, India got star mention in the writings of the likes of Robert Wade and Lance Taylor. My guess was that at that time India had a strategic view on growth and policy and now it doesn8217;t. Stiglitz apparently tracks the debates in India and when I asked him his candid reply was India has not done badly and it has not done anything unusual so there is nothing to say about it.

The sahibs in Delhi think tanks feel bad at all this and they crib about India being ignored.

But the serious attack on the Stiglitz position came from an Indian economist who works at

the University of Maryland. The brilliant Arvind Panagriha wrote that Stiglitz misses the point that Indian growth is more stable in the nineties as compared to the eighties. He is right, but Arvind has missed a point. Even as regards stability, the big change takes place in the eighties and between the eighties and nineties the change is there, but is much less.

In the decade of the fifties, GDP growth was less than 2.8 per cent in fifty per cent of the years and in the remaining years, it was more than 5.7 per cent. In the decade of the sixties, this behaviour growth was less than 3.1 per cent or negative for fifty per cent of the years and in the remaining years it was more than 5.1 per cent. However, from 1975-76 to 1996-97, a growth performance of less than 3.1 per cent was there in only three of the twenty-one years. There are therefore two characteristics of growth in recent decades. It is higher. It is more stable. The nineties sees the process initiated by the Bretenwoods Consensus budgets, with its upsides and downsides. The real question is, can we do better? Rajiv Gandhi, who had a strategic vision of the economy, raised the issues just before the election he lost, when he wanted an 8 per cent target for his eighth plan. He showed with numbers that if we keep on raising productivity at the pace since 1985, decentralisation and panchayati raj leads to resource mobilisation and we engage the world in concentric circles of expanding influence of peace and regional prosperity, we will grow faster. We have achieved the last and our election debates should be on the first two. It is silly to crib about the government in power making policy announcements. Irresponsible promises have to be exposed, but India will be stronger in April if the parties listen to the president and spell out their vision and what they will do about it.

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For starters, what do we do when we correctly allow the rupee to become almost convertible, but don8217;t lay out a concrete strategy of fiscal and banking reform. Every clever operator abroad takes us for a ride by trading on interest rate differences and creating 8216;8216;volatility8217;8217; in our shares. The return on government securities and debt funds is negative since the last monetary policy announcement. But our macho central bank keeps on accumulating useless dollars from the last five years with a high interest rate and keeps us at a low investment and growth rate and now even the poorer investor is suffering. A little more action and a little less shine is OK, thank you.