This government is a bundle of nerves. It sees ghosts where none exists. It sees enemies even among friendly and neutral commentators. And it has men and women who are ready to shoot to kill even without orders (under a political version of AFSPA — Angry Friends Special Powers Act).
What did Dr Raghuram Rajan, Governor, Reserve Bank of India, say that deserved a snub from the Commerce Minister? He said that the estimated growth rate of GDP of about 7.5 per cent makes India the “one-eyed king in a land of the blind”. The government should be flattered that the Governor has endorsed its estimate of GDP growth.
Going by GDP growth alone, India is at the top among large economies, not withstanding the dichotomy between the GDP growth rate and other economic indicators. Compare 2015-16 with two years that had almost similar growth rates (see table) and the dichotomy is visible.
Be that as it may, India could well be the fastest growing large economy in 2016 (or 2016-17). Next in line are China at 6.5 per cent (on a base that is five times bigger!) and Philippines at 6.3 per cent. Of the BRICS countries, Brazil (-3.6) and Russia (-1.5) are expected to register negative growth and South Africa a small, positive growth of 0.7 per cent. Crude oil, India’s benefactor, has been the spoiler in the cases of Brazil and Russia.
The Other Eye
One eye may seem bright. That is the eye of growth, foreign investment and aspiration. But there is another eye. That is the eye of fiscal stability, employment, education, health care, inflation, poverty ratio and other parameters that are equally important indicators of a healthy and growing economy. In that eye, India has poor vision.
Take, for example, the budget balance. Of the 42 significant countries tracked by The Economist magazine, India’s fiscal deficit (-3.9 per cent) was larger than the fiscal deficit (or surplus) of 33 countries. We still have a long way to go on the road to fiscal stability.
India’s inflation, although declining since November 2013, is still comparatively high. At 5.2 per cent, it is higher than the inflation of every other country tracked by The Economist magazine except South Africa (6.2), Brazil and Turkey (8.3), Russia (8.4) and Egypt (8.8).
Unemployment is a key indicator. Official data for India released in January 2015 puts it at 4.9 per cent, a gross under-estimate because of factors such as under-employment, low workforce participation, gender disparity and informalisation.
The benchmark interest rate (on 10-year government bonds) for India is 7.44 per cent, much above the comparable rates of most advanced and emerging economies. Countries with higher interest rates are the faltering economies — Greece, Russia, Turkey, Pakistan, Brazil, Colombia, Venezuela and South Africa. High interest rates erode competitiveness.
I shall write a separate column on how far behind our peers India is on human development indices.
Dr Rajan was therefore spot on when he under-played GDP growth. He was not disparaging India’s growth rate, he was gently reminding the government that much more remains to be done. I may add my voice and remind the government that in five out of the 10 years of the UPA government, the growth rate exceeded 8.5 per cent. The average for the 10 years was 7.54 per cent (old series). Impressive as 7.5 per cent (new series) may be, there is unfinished work.
Dr Rajan was not obliged to explain what he had meant, but he did explain a few days later and reminded his critics that a central banker has “to be pragmatic and cannot get euphoric”. The raj dharma of the Commerce Minister is to devote her whole time and energy to address the problems of India’s trade sector which is marked by a terrible export performance in 2015-16 that was 16 per cent lower than the performance in 2014-15. That black spot alone has consequences such as worsening the current account deficit, putting millions of jobs in jeopardy, and driving thousands of small and medium enterprises into the NPA column and possible closure.
While Dr Rajan’s choice of words is being needlessly debated, I think the Commerce Minister’s choice of silence is inexcusable.