)
Had GDP data not been revised earlier this year, India's economy would not have grown at 9% in any year since the global financial crisis of 2008-09. The stimulus at the time of global financial crisis helped the economy to grow by 8.4% each in 2009-10 and 2010-11 (now stands revised to 8.6 and 9.3%, respectively, a revision that surprised many).
The next two years brought back the economic growth to 6.2% (revised) and now at a decade low of 5% estimated for 2012-13. Prime Minister Manmohan Singh wants to raise this rate to 8% in the medium term. This, in fact, should be the target since the 12th five year plan (2012-13 to 2016-17) aims at annual rate of growth of 8%. The first year of the plan has delivered 5%, the next year the growth is pegged at 6.1-6.7%, average of which would be 6.4%. So, the first two years of the plan will deliver economic growth that will be way below the target.
The plan paper itself says that 8% growth would be possible only through reforms.
When the voters elected back the UPA to power in 2009, there were great expectations that the economist Prime Minister would steer the economy to high growth rates, providing much needed jobs to the youth. However, after global financial crisis, sovereign debt crisis in the Euro zone hit the world economy and this time the government did not have fiscal and monetary space.
The government had already given stimulus of over Rs 1.85 lakh crore at the time of global financial crisis, and this time it could not be given, considering the resource crunch at the Centre. Monetary stimulus was also not forthcoming due to high inflation. After persistent persuasion and concrete fiscal roadmap by the Finance Ministry, it was only recently that the RBI had agreed to cut the policy rate, clearly stating that the headroom for future cuts may be limited.
It is obvious for the electorate to feel cheated. But, to blame everything on the government for not steering the economy to 8% growth rate in the last two years would be a little harsh on the government itself, given the uncertain economic conditions globally. None of the economies have been performing well. China, the faster growing economy than India, is itself struggling at 7.5% expansion of GDP.
But down to 5% growth is not what was expected by the voters of the UPA government and that too with high inflation, which has only recently shown a tendency to come down. Even then, food inflation has been consistently high, leading to a stark contrast between the wholesale price based inflation and the wholesale price-based inflation.
In the current political scenario when the Congress is giving confusing signals as to who will be its face at the next hustings, fingers will obviously be pointed at the two power centres of the UPA for bringing the economy to such a pass.
However, such a criticism would be a sweeping generalisation and would negate the basic trait of politics --that it is the art of the possible. Does it mean then that Manmohan Singh failed as a politician, while the economist in him is not allowed to function fully.
It may be partially true, but the entire blame cannot be laid on UPA chairperson Sonia Gandhi to create hurdles in the path of reforms. Who chased away foreign investment through his ideas of retrospective amendments to the Income Tax Act? Was it Sonia Gandhi?
The UPA government faced a crisis like situation when its ally Trinamool Congress withdrew support since the Cabinet cleared up to 51% FDI in multi-brand retail after initial years of policy inaction by the UPA II. Was this crisis also because of the two power centres? In fact, it was managers of the Congress, which means those showing allegiance to Gandhi, that saved the day for the Congress.
These are the compulsions of coalitions that did not allow reforms to happen in the UPA II and in fact even in the UPA I. Remember, the whole disinvestment process had to be put off in the previous stint of the UPA after DMK protested against sell-off in Neyveli Lignite Corporation.
In fact, the Prime Minister at CII annual general meeting yesterday had remarked that managing coalition is not easy.
Perhaps, he had to learn from his predecessor -- A B Vajpayee-- as to how to manage a coalition and even then carry out reforms. But then, reforms at the time of the NDA regime did not yield inclusive growth -- clearly shown by rejection of the India Shining campaign by the electorate in 2004. Singh had to take take a leaf out of the Vajpyee book to initiate and carry out reforms, while managing a coalition. But, to bring back the coalition to power, he needs a think tank headed by Sonia Gandhi, despite critics harping too much on the two power centres of the UPA.
Some reforms needed to put back economy on high growth path:
- Tabling and passage of DTC bill
- Convincing states to evolve a consensus on GST
- Settling tax issue with Vodafone and then going to Parliament with amendments to retrospective tax
- Hike in FDI cap in insurance sector
- Pension sector reforms
- Fixing fuel linkage problem of the power sector
- Agricultural reforms to increase supply of food items, particularly protein based.
-
Tabling and passage of land acquisition bill after addressing industry concerns
- Persuading states to go for 51% FDI in multi-brand retail
- To ensure that the recently constituted Cabinet Committee on Investment does not remain another just another body
Future Growth scenario:
The Planning Commission said growth will be 8% in the 12th five year plan (2012-13 to 2016-17) if reforms are undertaken, 6-6.5% if these are initiated half-way and 5-5.5% in case of inaction. The Commission seems to be spot on in case of the last two scenarios, but its first scenario sounds bit optimistic now.
| Economic Growth Rates Since UPA came to power | |
| 2004-05 | 7.5% |
| 2005-06 | 9.5% |
| 2006-07 | 9.6% |
| 2007-08 | 9.3% |
| 2008-09 | 6.7% |
| 2009-10 | 8.6% |
| 2010-11 | 9.3% |
| 2011-12 | 6.2% |
| 2012-13* | 5% |
Note: * : advance estimates
ii) Growth rate in 2004-05 are at constant prices of 1999-00
iii) The remaining years are at constant prices of 2004-05
Source: Central Statistical Office
