The Hindu : The year of the rising

Online edition of India's National Newspaper
Sunday, Feb 08, 2004

Opinion

Opinion - Leader Page Articles

The year of the rising

A growing economy, low inflation, increasing consumer choice, a rising stock market - all this came in 2003-2004. Alok Mukherjee on the state of the economy.

IS INDIA actually shining? Is there an all-pervasive feel good factor in the country? The answer to both the questions could have been a `Yes,' except for the fact that the Vajpayee Government's hyperbole has led to deep cynicism about the claim.

The average citizen is not very comfortable with macroeconomics and the National Democratic Alliance political managers should have realised that. Questions are being asked as to why there are still poor people in India when the Government is sitting on a pile of $100 billion. The jobless youth wants to know why the Government is not able to give him a job if the economy is doing so well. The villager wants to know if he can summon a doctor using that brand new cellphone.

A vast continent-sized economy like India has its problem, the problem of diversity. India is a country where the very rich of the world live; it also houses more than 260 million of the poorest of the poor. India has a vast middle class, which, with its nebulous definition, includes those living on the fringes of the poverty line to those just a notch below the millionaires' club. With such diversity, it is well nigh impossible for every Indian to feel good at the same time or for the one billion Indians to see a shining future all at once.

But is there a case for most Indians to feel good? Going by the economic data, there is. The year 2003-04 started on a dismal note. With low economic growth in the preceding year (it was just four per cent), initial projections for the current year were 4.5 to five per cent at best. The first quarter growth gave the first signs of hope — the economy grew 5.7 per cent during April-July 2003. Hurriedly, economists revised their projections and said overall annual growth could be between 5.5 and six per cent. The good monsoon formed the basis for an even better second quarter performance and then came the second quarter results — the economy grew by an unexpected 8.4 per cent in the July-September period. This sparked off the feel good mood because not only had agriculture bounced back but industry too reported an impressive growth of 7.3 per cent and services 8.9 per cent. The verdict was out — the Indian economy was growing all round and it was not an isolated agriculture sector which was on the upswing.

End-December 2003, the Reserve Bank of India came out with the foreign exchange figures. Till then, the creeping accretion to the foreign reserves was being acknowledged routinely. But the sudden arrival of the $100-billion benchmark came as a big surprise.

This never-ever-reached high but naturally called for a comparison with the situation just a decade ago when reserves were as low as $1.2 billion and India was knocking at the doors of the International Monetary Fund for an urgent loan. A few months earlier, confiscated gold with the State Bank of India had been sold to raise money and then the official reserves were pledged to avoid a default in international repayment. From that low to the high of $100 billion was a definitely satisfying move.

The high second quarter growth and the foreign exchange bounty sparked off the feel-good syndrome. India had finally shed its image of a nation going around with a begging bowl and people were now rushing in with their money to invest in India. There was smugness that the foreign exchange pocket was bursting; though most of it was "other people's money." After all, banks too hold other people's money but no one puts his or her money in a weak and insolvent bank. If foreigners were investing in India, they obviously had confidence in the Indian economy.

The revival in industry was a high point too. Domestic industry, having being exposed to competition for nearly a decade, had finally shed flab, improved quality and productivity and was capable of holding its own against global competition. No more the rushing to the Government to keep import duties high to ward off foreign competition; no more demand for a level-playing field. The Bombay Club, which coined this phrase, gave itself a quiet burial. India was gradually growing as a manufacturing hub with international carmakers and consumer durable producers setting up bases here. Indian companies were no longer targeted for extinction; instead, they were acquiring companies abroad and planning more mergers and acquisitions on the strength of the foreign exchange reserves.

Indian infrastructure was still primitive by global standards, but the process of upgrading it was on. With the improvement in the telecommunication network and with the inherent skills of the Indian workers, more and more multinationals were moving labour-intensive business activities to the country. Information technology had become an Indian forte and this global leadership provided a new dimension to the Indian image abroad.

The wage levels of the Indians were going up and with new and innovating methods of financing, consumerism was on the rise in the country. The notion of `consumerism is bad' was given the go-by and higher consumption levels were keeping industrial wheels moving. In all this, the traditional Indian fiscal prudence was not sacrificed and household savings rates continued to be among the highest in the world. For most Indians, therefore, there were enough reasons to feel good.

A growing economy, low inflation, increasing consumer choice, a rising stock market, no major scams, no major drought or floods, no external tension, an enhanced international profile — all this came in 2003-04. So it was okay to feel good as long as the going was good. No one said the situation was permanent, except that the Government tried to make it appear so.

Just because there were reasons to feel good did not mean that India had overcome the problems that come with liberalisation and globalisation. The end of the command and control economy has constrained the Government from handing out jobs in the public sector as it used to do in the past and hence, unemployment continues to be a major problem. The bulk of Government jobs are now probably available only in the Railways and the armed forces and the desperation for the jobs has translated into rioting at recruitment venues.

The growing Indian industry is also no longer a guarantor of jobs. New technology and new production methods have led to job freeze or even retrenchments. The jobs, if any, are only in the services sector and that too mostly in urban areas. Smaller towns and rural areas are out of this employment loop.

This concentration of employment opportunities has accentuated the rural-to-urban migration, leading to drastic falls in living standards of the migrants. Metros and bigger towns are witnessing the mushrooming of slums, and the increasing gulf between the haves and the have-nots has led to rising social tensions.

That the Indian economy has done well this year is not in doubt; neither does it mean that one year of good economic growth will solve all of India's problems. But what the Government has done is to hijack this performance and turn it into an election slogan, thereby giving rise to scepticism and doubt.

The good show of the economy is not just to the credit of the Vajpayee Government; it is a culmination of the efforts of the various governments which have been in office in the last decade. At most, the Vajpayee Government could claim credit for the fact that it did not make a mess of things.

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