The Economic Survey acknowledges that the current slowdown is entirely due to slippage in industrial growth. As a consequence, despite highest-ever foodgrain production, the annual GDP growth for the current financial year will be one of the lowest in the last eight years. The industry will barely clock four per cent. And there’s no external Lehman episode to blame.
Manufacturing has been slowing down successively for 10 quarters, all the way down to zero last quarter. It comprises about 15 per cent of GDP, whereas the national goal is to increase its share to 25 per cent.
The 12th Plan is counting on this sector to grow at 11 per cent to achieve overall high and inclusive growth. Chapter 9 of the Survey deals with the industry sector. In describing challenges to industrial growth in the short term, it merely advocates the need to “shore up business sentiment, and spur investment”.
This, is too generic and reads like lip service.
What specifically should the government do? This is in sharp contrast to some very lucid ideas that populate other chapters of the Survey.
It could have mentioned several investment promotion ideas, which have been tried and tested in India as well as abroad. These include accelerated depreciation, doubling the tax concession on research & development, allowance for on-the-job worker training, elimination of taxation of self-consumption of captive electricity, and so on.
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One third of all industrial power is captively produced, since it cannot be supplied from the grid. This adds to the several handicaps that already hobble domestic industry. To its credit, this chapter of the Survey does identify long-term challenges like land acquisition and shortage of capital (and hence need to bring more foreign funding through FDI). But, it is silent on labour law reform, even in the long term.
The Survey is not a mere scorecard for the economy. Under the lead authorship of Prof Kaushik Basu it is has become an excellent sourcebook not just of data, but of research as well – nicely summarised in capsule form, strewn in boxes throughout the book. Last year, we had the debut of a chapter called ‘Microfoundations’. This year there is one more on the international economy, in tune with India’s newfound global standing. India’s share in global GDP measured in PPP terms, has gone up from 2.5 per cent in 1980 to 5.5 per cent, now on par with Japan and ahead of Germany.
Together, India and China contribute half as much as US and EU put together, to the global pie. This is impressive, as is the fact that India’s growth of sub-7 is still among the highest in the world. The Survey does well in providing this international outside-in perspective. There is new chapter on Sustainable Development (SD) and the green agenda. Interestingly, the metric of SD includes life expectancy, forest cover and female literacy. No money income. This chapter also asks the question whether diesel prices are too low in India.
That should rather be posed as a rhetorical question!
And the Survey says that India needs a large diesel adjustment now. This comes in fine print, so unclear whether the finance minister will act on it. But it could imply a hefty tax on luxury vehicles which run on diesel.
The chapter most dense in ideas and a must-read is the second chapter on microfoundations. This has in-depth analysis of inflation, central bank strategies, the role of Aadhaar, approach to food security and also management of the exchange rate. A rather broad canvas, but amply footnoted with research references, and lucidly explained in several boxes.
There is introduction of a new measure of relative sovereign credit rating, which shows India in a better light otherwise. There is also a proposal on how to deal with corruption and poor governance (without using an ombudsman!).
Whether the Survey can point to future economic policy cannot be said, but it certainly meets Prof Basu’s aspiration of being counted as a finely researched and rich handbook of data and ideas.
Ajit ranade Chief Economist, Aditya Birla Group