Five years ago, the World Economic Forum gave India a competitiveness score of 4.3, one notch below China’s 4.4. Earlier this week, the latest scores were the same 4.3 for India, and 4.9 for China. The average score for 80 emerging and developing countries has moved up in these five years from 4.1 to 4.4. From being ahead of that average, India has fallen behind. Why? The Forum cites two reasons: deterioration in the macro-economic environment (higher deficits and inflation), and deterioration in the quality of public institutions (corruption and burdensome regulations). The old bugbear of poor infrastructure also weighs in with a poor score. Note that all of them point to government failures.
Turn now to the first chapter of the draft of “An Approach to the 12th Five-Year Plan”, released last month. This portrays steady improvement on every front: a 35 per cent increase in income per head over the last five years, improved growth by the weaker states, and a one-point annual drop in the percentage living below the poverty line. There has also been a 16 per cent increase in real wages over the three calendar years to 2010 (think the National Rural Employment Guarantee Act), a doubling (from 30 million to 60 million) of the number of people above the age of 15 who are in educational institutions, a drop in the unemployment rate from 8.28 per cent to 6.60 per cent in the five years to 2009-10, and much better farm sector growth of three per cent (up from two per cent in the 10th Plan). The rate of investment in agriculture in relation to agri-GDP has more than doubled (from 10 per cent to 21 per cent) while there is an uptick in the investment in infrastructure from 5.7 per cent of GDP to eight per cent.
These two pictures, one talking of stagnation or deterioration and the other of steady improvement, are focused on different issues that have little overlap. Dichotomy also exists in the current narratives of government spokesmen and private business. The former talk of major initiatives, like a new manufacturing policy that Anand Sharma promises will be the most significant step since de-licensing in 1991. The Goods and Services Tax may yet see the light of day in 2012, and the Unique Identification programme may save the government a ton of money. The private sector is looking elsewhere, because business confidence has nosedived. We get convergence only on growth expectations for this year, with government spokesmen conceding it may be only 7.5 per cent, not the nine per cent assumed in the Budget.
What of the future? The Planning Commission says the nine per cent growth target for the 12th Plan (up from a likely 8.1 per cent in the 11th) is “ambitious but not impossible”. The Centre’s net tax revenue is to more than double over the next four years, and the ratio of tax revenue to GDP is to end up higher than it has ever been. Both are possible, if you have a GST. But then defence expenditure is to fall from 1.83 per cent of GDP to 1.56 per cent (don’t tell the Chinese!); and subsidies are to fall from 1.6 per cent to 1.24 per cent of GDP (tell it to the Marines!). As for key issues – project execution and the management of cities, water, energy, etc – I am inclined to buy the line on steady improvement, but without game-changers. There isn’t enough here to warrant a nine per cent growth target, when we will have averaged 7.7 per cent in the post-Lehman world. Better to abandon statistical bravado and target 8.5 per cent, and count ourselves lucky if we manage that.
