The Economic Survey says economic growth would pick up from 5% to 6%, and then 7%. Great, but how? Incidentally, I am happy that they stick to 5%. The Central Statistical Office (CSO) has a well-developed method to make growth forecasts. I was their minister at the time this method was accepted when the IMF data standards proposed it. The CSO was conservative and sceptical, but accepted the move when it was argued that we are the best in the developed world and should accept the challenge. Once we accepted the IMF?s GDP standards, including forecasts and the accrual system of government accounting as a long-term goal, the CSO did a good job. This was published in their Methods book, and until we can improve that, the critiques are nowhere. Morarji bhai wanted to change the CPI and delete pan and intoxicants prices when inflation rose in the Janata period. It?s to the credit of Dr Raghuram Rajan that he resisted pressures on revising estimates without cause. However, if recent data is any indicator, it is not unlikely that the revised estimate of the CSO, to be out shortly, will be more than 5%.
How do we go from 5% to 6%, and then to 6.7%? The Survey gets into the long horizon with growth economics, not its forte, but a failing of all financial economists. This is also contrary to growth policies for the short run, on which details were expected from it, for it is not the Five Year Plan. But it does not do its own work for the next year, and even though the National Development Council has accepted the Twelfth Plan, it follows the Rangarajan Committee and the finance minster?s dream that long-term policies should not be a part of the Plan but the finance ministry?s prerogative.
The concrete steps it lays down for growth in the short run are not serious. One is the great faith in FDI to raise agricultural investment in infrastructure. This is funny, for the policy allows investment in metros. China sends such investment to what I call census towns and India does not provide that. How the Kutchi farmer will benefit from a joint venture between Walmart and others in Mumbai is not clear. In fact, many of the FDI approvals announced by the Department of Economic Affairs (DEA) secretary Arvind Mayaram have gone in consumer goodies, and how Pavers shoes not coming as a Reliance-Pavers joint venture but as a 100% Pavers investment helps agriculturists is not quite clear. The Survey talks of credible reform, but there are no details. Widening of the tax base and technology are again well known and the tax boys are well appreciated the world over for the interactive IT systems they had built up. The OECD gave them credit three years ago and so what?s new?
Demographic dividends are fashionable again. But the IMF knows from Indian contributions a decade ago, including an invited presentation from me published by them, that half of the dividend comes from tautologies and the remaining from policies where cutting down human resource expenditures, as done in 2013 and suggested in 2014, is definitely not one. That paper, for the first time, used the expression ?curse?, since dividends only go to the brave. The Indian Express carried these stories anyway, so what?s new? Chidambaram, a decade ago, had a paragraph in his speech (Para 100) on demographic dividends and then we forgot it. The Agriculture Towards 2000 business is something I love and the projections are taken without acknowledgement from journal pieces we authored in the Journal of Agricultural Economics on the rural-urban continuum to 2020 and the Indian Economic Journal on the future of Indian agriculture, as also from UNU books. One could almost sue the DEA for plagiarism of the non-agricultural share and other numbers. Models that give alternative outcomes with and without policies were also there and regularly reported by the Express group. The Survey doesn?t tell us that it is already late (three years out of the nine in the forecast period are gone), so the policies or the targets need revision and the 2014 Budget following their advice won?t take care of that.
Whether it was Kaushik Basu or Rajan, the long-term stuff in the Survey is passable, but more important, no substitute for a Survey that guides the nitty-gritty of short-run policy. There the Survey lists pain in cutting expenditures but where will the growth come from? The concern on savings and investment which we read with bated breath will not diminish with soft talk of the demographic dividend. It seems extremely unlikely that the investment upswing will begin if we don?t talk of special policies for it, like bad old investment allowances. Ditto for savings.
The author is a former Union minister