When the economic growth numbers are as good as they have been, one should pause in the midst of ever-present concerns and raise a cheer. To be sure, there are plenty of experts questioning the specific numbers, but it is hard to quarrel with the direction of change. The reported GDP growth surge of 2.5 percentage points since the 5.1 per cent of 2012-13 may be exaggerated on account of statistical quirks; there is also the continuing contradiction posed by many sector-wise numbers not supporting the assessment of 7.6 per cent GDP growth. Still, few will quarrel with the assertion that the economic situation has improved steadily, if somewhat slowly, from one year to the next. What is more, there is spreading optimism that the rate of improvement will accelerate in the coming months, partly on the expectation of a good monsoon.
The government can take credit for some of the change. It has brought a sense of purpose and urgency to its functioning, especially when compared with what went immediately before. While political payments are certainly not absent (there is no sign that the BJP is short of cash), most businessmen report that they get decisions from the government without any ministerial quid pro quo being demanded. Many of the steps taken on the infrastructure front will bear fruit in the medium-term future, such as the sharp increase in railway investments and the acceleration of highway construction activity. The prospect of tax reform is encouraging.
While celebrating the promise of better days, however, one should be concerned about the quiet meso-economic crises playing out across the country. First, the banking problem is still far from reaching its end-point. With State Bank of India, ICICI Bank, Axis Bank and others making announcements of massive “watch lists” running in each case into tens of thousands of crores of rupees, the expectation is that about 70 per cent of these will end up as bad debt that will have to be provided for in the next year or two. So banks will continue to struggle, and quite a few may continue to report losses; some will run short of capital. One consequence is that most banks have more or less stopped lending to industry — growth in such lending is down to five per cent or less, and only the highest-rated companies are getting new loans sanctioned. Business needs credit, and it is hard to see rapid economic growth being sustained if the present situation does not change.
Second, the share of investment in GDP has continued to fall. This is definitely counter-intuitive when economic growth has been accelerating. The government celebrates the increased flow of foreign direct investment, and the increased flow of funds for infrastructure investment, but these get subsumed into the larger macroeconomic story of insufficient investment. The optimists expect that investment will pick up once spare manufacturing capacity gets used up; perhaps, but meanwhile growth that is not supported by increased investment will have its limits.
Third, India’s trade has been shrinking when world trade has been growing, if slowly. Everyone knows that sustaining rapid economic growth of 7.5 per cent and more is feasible only if there is good growth in trade. Without that, as surely as night follows day, economic growth will slow down. Yet, the government shows little active concern on this issue, and there is no evident banging of heads to put together a plan of action.
The last two concerns have to do with widespread distress in the countryside (a spreading shortage of water combining with unremunerative farming), and a worsening employment situation. Both problems carry within them the seeds of potential social unrest, some of it already evident. In short, while raising a cheer on account of faster growth, the government should be conscious that much more needs to be done on a broader front than it has attempted so far.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
