dna edit: The growth dream

The latest growth figures are in, and they show that the new dispensation in Delhi has its work cut out in its quest for ‘acche din’. For the second year in a row, the economy showed sub-5 per cent GDP growth —  4.7 per cent this time around, a marginal improvement from 2012-2013’s 4.5 per cent, which was a decadal low. It is the continuation of a steady downward trend that began on UPA II’s watch — and therein lies the rub. The Modi administration’s predecessor has much to answer for when it comes to poor governance, sclerotic decision-making processes and widespread corruption. But it also had to work within the constraints of unhelpful external conditions, triggered by the global financial crisis, that have improved only fitfully since 2008. Delhi must now negotiate tricky territory, pushing against many of those same constraints while moving to eliminate the domestic inefficiencies that exacerbated the former’s effects — all the while keeping in mind changing macroeconomic verities regarding the importance of equitable growth.

The latest growth figures come on the back of 4.7 per cent growth in the agriculture sector — which accounts for about 18 per cent of the GDP — with manufacturing, conversely, dragging down the graph, shrinking to 0.7 per cent in 2013-14 from 1.1 per cent in 2012-2013. The coming year is likely to see negative pressures on the former as well, what with forecasts of a poor monsoon. That, in turn, could push inflation up — one of the key factors for popular discontent with the UPA administration in past years — and limit the manoeuvring space available to the RBI for lowering lending rates and giving growth the boost it needs.

But these are not unsolvable problems; the solutions have been popular talking points for years. They range from building much-needed infrastructure in the agricultural sector — whether it be feeder canals to increase irrigation coverage or improved supply chain logistics for routing produce from farms to markets — to tax reforms and incentivising investment in the manufacturing sector and associated infrastructure. The problem, under the UPA, had been one of decisive, transparent implementation and clear-headed policy decisions. Unhindered by the necessities of placating coalition partners, the Modi government has a better opportunity to deliver on both these fronts than any administration since liberalisation.

But it must also consider the pattern of that growth and the long-term global economic environment. The IMF has found that of the two percentage point decline in emerging market growth rates since 2012, internal factors accounted for only a quarter of a percentage point while external factors accounted for one and a quarter percentage points. Those external factors are unlikely to see an uptick anytime soon; according to various authorities such as the IMF and the UN Department of Economic and Social Affairs, there will be no return to the pre-crisis economy. And that means the halcyon — if brief — days of India achieving near 10 per cent growth might be over. That makes it all the more crucial that the nature of the growth that occurs going forward must be carefully calibrated. Bullish stock markets and positive investor sentiments are well and good — but there are an increasing number of prominent economists who point to the importance of equitable growth that targets sectors capable of boosting the real incomes of the middle class and poor, invests in human capital and provides for public goods and a social safety net. In the new administration’s drive to achieve headline figures that can be used to show a clean break from its predecessor, this must not be forgotten.