The lost decade

On the face of it, the hypothesis looks absurd. We can see the dramatic prosperity in the number of cars and hyper-malls around us, poverty levels have fallen substantially8230; all of which is captured by GDP growth. At 6 per cent in the 90s, this is the best in the world, except for China.

So where8217;s the problem? Goswami argues that, at 27 per cent of GDP, the share of India8217;s manufacturing sector is perhaps the smallest in South Asia 8212; it8217;s 49 for China and 46 for Malaysia. This 27, by the way, has also fallen by around one per cent during the last five years. With such a small industrial sector 8212; whose growth, at around 3 per cent this year, is perhaps the lowest India8217;s had in a decade 8212; there8217;s no way India8217;s GDP can grow beyond 6 per cent. And in a bad monsoon year, like in 2000-01, it could go down to 4.

The problem is, Goswami argues, in line with the old BJP-swadeshi argument, that while imports and entry of foreigners has been liberalised, not much has been done to free local industry. Now one can argue that industry itself is to blame for not becoming competitive, or one can argue that high rates of interest, poor infrastructure, no freedom to close firms, and so on, are the reasons for this problem. The fact, however, is that as a result of this, India8217;s overall investment levels today are lower than those a decade ago, and it8217;s getting worse each day. The number of fresh investment projects being planned in manufacturing had fallen to Rs 4,308 crore by April 2001, or under 7.5 per cent of the peak five years ago, says a CMIE survey.

The power sector, needless to say, is a real mess. The much-hyped private participation in power never really took place thanks to lopsided policies of opening up the generation business without taking care of the transmission end. Anyway, little private power came up, and losses theft, actually of the power sector grew, in the words of new power secretary R.V. Shahi, from Rs 3,000 crore in 1991 to 30,000 in 2001. Six months ago, power minister Suresh Prabhu had told this newspaper that, come June, there would be almost no theft in 63 circles in the country, that account for a large portion of the annual power theft 8212; he8217;d do this by installing a series of meters on even the transmission lines, and this would allow the authorities to know just where the theft was taking place, there8217;d even be remote metering for households, and so on.

Well this, he told us when we met him for a follow up story, has now been pushed forward by around 6-8 months, as persuading the electricity boards to go along was an uphill task. Prabhu8217;s new targets, and the so far minor successes he8217;s already achieved are the subject of another feature in this newspaper on a later date, but two things are crystal clear. One, nothing concrete except the theft got done in India8217;s power sector in the 90s. Two, if things aren8217;t changed dramatically, this sector alone can plunge India, literally and figuratively, into the dark in the current decade.

What about the financial sector? Is it on the verge of collapse, and will it take India down 8212; there8217;s a whole industry now, of China-sceptics, who believe, China8217;s tottering financial sector will be the reason for its ultimate collapse. Goswami argues that India is far from this situation, for a very simple reason. India8217;s total loans and advances from the banking sector add up to under 25 per cent of GDP. And since the net non-performing assets are around 7 per cent 8212; so, even if you take into account some non-reporting, the systemic economy-wide impact is just 2-3 per cent of GDP. By contrast, for Thailand, the credit-to-GDP ratio is 157 and the net NPAs in 1998 were 43.9 per cent 8212; therefore, the risk to the economy of a bank collapse was a whopping 69 per cent 157 multiplied by 69 per cent NPAs.

Phew! But that8217;s at the macro-level. At the micro level, the fact is that several million investors are at risk thanks to UTI, and both IFCI and IDBI have chronic problems. Add to this the fact that, in the last 10 years, there8217;s been a major scam in India8217;s stock markets and virtually no convictions for the scamsters, and you8217;ve got a really serious problem. That, while the financial system may be secure in the sense it won8217;t collapse, India8217;s investors don8217;t want to be a part of it.

It8217;s hard to see how the next decade can be much better than the last, unless some major steps are taken to address these issues. In which case, the best option perhaps is to become a software engineer, and apply for an H1B visa. But getting that too, sadly, is becoming more difficult nowadays.