Stagflation is hardly an expression that can be used in India. After all, when final GDP figures for 2010-11 are available, the economy will have grown at close to 9%. But the expression captures the Indian policy dilemma for 2011. Global recovery is uncertain and unlike 2003 to 2007, when high growth occurred in a relatively benign environment, the external environment is more malign. In principle, India is capable of growing at 10%-plus, a point that government spokespersons used to make not long ago. China is slowing down and is stabilising at 8.5%. India is accelerating and will stabilise at 10.5%, with Indian growth overtaking the Chinese numbers in the next few years. There is plenty of slack in the system. Infrastructure reforms will add 2% to GDP growth, more than 1% from the power sector alone. Agro reforms will add 1.5%, legal reforms another 1%. Finally, efficient public delivery of goods and services will add another 1%. Backward states are catching up and India isn?t Delhi. If Bihar can grow at 12%, so can other historically backward states. If one adds up all those numbers, the mind begins to boggle. All this is true. But does the government want it? Does it want it in 2011?

It doesn?t look like that. When the global downturn occurred, there was talk of a fiscal stimulus. A large chunk of this was public expenditure and it predated September 2008. The rest was loosening of monetary policy and indirect tax concessions. Inflation has an energy component, a manufactured goods part and food. Of these, food inflation is understandably the most emotive. We are repeatedly told, inflation will decline to 6% in December 2010 or March 2011, or whatever. Statistically, that is correct. These numbers are on a base. And if the base of inflation was high in the preceding year, the rate of inflation will decline. But that?s not the same as saying that inflation as an issue will go away. Particularly in the case of food, underlying causes (high demand, shifts in demand, stagnant supply) remain. Onion and tomato episodes shouldn?t colour that. Monetary policy is inappropriate in targeting that, or even inflation caused by energy. However, monetary policy will be tightened. Reforms of direct taxes have been diluted. But if there is any intention not to dilute indirect tax reform, remaining exemptions should be excised in the budget for 2011-12. There is a fiscal consolidation agenda too and spectrum and disinvestment alone can?t plug the deficit gap. We don?t yet know what effect the scams will have on such future decisions. In addition, there will be greater public expenditure demands?right to education, right to food and perhaps other rights, too. Therefore, it doesn?t look rosy for private investments and private consumption expenditure.

Indians don?t have a right to growth. The Congress mindset seems to be that we don?t want growth unless it is inclusive. It is a separate matter that growth can?t be inclusive. Development can be inclusive. But that apart, we don?t want high growth. High growth made the NDA lose. Relatively low growth made us win in 2009. Why do we want 10%-plus growth and reforms that stimulate it? Instead, we are happy enough with growth within a band between 8% and 9%. How many countries in the world will get that? It is enough to ensure our place at the global high table. The year 2010 was the year of recovery from global downturn and in 2010-11 we will obtain growth at the higher end of the band. In 2011-12, we will settle for growth at the lower end of the band, at around 8%. Since 2004, there have hardly been any significant reforms, apart from better road connectivity. If India is chugging along at between 8% and 9%, that?s because there is plenty of slack in the system, entrepreneurship has been unleased and because backward states have jacked up growth. There is, of course, the counter-factual of lost growth opportunities, but who cares about that? At some point, the Congress will have to figure out its economic philosophy. The reason one highlights the Congress is because the other parties (including BJP) have imploded and at present, they are irrelevant.

Will the results of the state elections in 2011 lead to a shakeout and a better articulation of the Congress philosophy? Probably not. So we continue with a reformist stance (even if nothing is done) by the government and a Leftist stance by the party.

In more specific terms, we therefore have growth of 8% and inflation (depending on the indicator) of around 5.5%. We should also have the results of the large-sample NSS, probably establishing a further drop in poverty (with an unchanged poverty line) and an increase in inequality (of consumption expenditure and more pronounced in urban areas). That should establish that growth is good for poverty reduction. However, because inequality will increase, it will be interpreted as an argument for more inclusion, whatever that may mean, and fewer reforms and lower growth. The Census 2011 figures won?t surface in 2011. But if they do in a limited way, they will establish greater urbanisation. Those are the processes that Simon Kuznets identified many years ago and Montek Singh Ahluwalia has himself written on. Inclusion should really mean integration of more and more areas into the growth process, not a complete integration of every area and every segment. This is an important distinction.

The author is a noted economist