India’s Economic Growth Slows: Whys, Where-to and How-to questions

The policy paralysis is symptomatic of a deeper mental paralysis in Indian polity. How can the system start thinking small again.

It is no longer clear who is more out of touch with the Indian Voter. | Ajit Ninan on Aug 06, 2012, in The Times Of India Ahmedabad

Facts? Hard To Come By

If readers want biased reporting, are media-owners fools, to give them the ‘truth’?

Leftist readers want a leftist slant.

Now that the Left has been proved to be wrong the Right is always Right. So rightly, Right-Wing readers want ‘balanced’ coverage. Like many readers, media owners, producers and creators also have their own ‘agendas’.

Indian commentariat, within and outside India, like in global media, are afflicted by partisan logic and laziness.

Forget solutions.

Sensible analysis either by the Left or Right of the slowdown in the Indian economy has been hard to come by. Two timely analyses extracted here.

Growth in the developing world is currently running at just above 4%, about half the pace of the boom years from 2003 to 2007. But in all the ups and downs of the global economic cycle, India’s ranking among the world’s fastest growing economies has been remarkably stable since 1980. Of the 180 economies tracked by the IMF, India ranked 29th in terms of its average growth rate in the 1980s, 27th in the 1990s and 26th during the last decade.

Even during the strongest boom years from 2003 to 2007, India’s ranking was barely budged (at 24) because all emerging markets were surging, lifted by a tide of easy money. Now, as global growth slows, so does India’s, which is likely to grow at 6% this year. That would leave it right where it was in the global rankings, somewhere between 25 and 30. Just as the boom of the last decade did not deserve a Made in India label, at least so far neither does the present downturn.

India’s growth has followed a steady pattern for three decades. The economy tends to grow 1.5 to 2 percentage points faster than the global emerging market average, come what may.

via India’s breakout path: It needs to break global growth script, not slavishly follow it – Times Of India.

Here comes the nub.

With the Great Recession in full swing, across, US, EU, Japan, can the Indian economy be unaffected? Many have also rightly pointed out to a policy paralysis.

Will the Opposition collude, collaborate or confront? | Ajit Ninan cartoon on Aug 08 2012 from The Times Of India, Ahmedabad

So, where is the problem?

If not a solution, the Left seems to have, for a change, at least got the diagnosis right.

But more than two years after 2ndlook pointed out the danger – and the solution.

Dark clouds are enveloping our economy threatening the livelihood of millions. The growth rate has dipped to the lowest in a decade. Inflation and price rise continues relentlessly. The index of industrial production, manufacturing in particular, has dipped to its lowest level in recent times and the Sensex has now registered a 24% fall from its highest level.

This has inevitably impacted on the growth of unemployment in the country. It’s now reported that at least 123 cotton and fibre textile mills in the organised sector have closed down resulting in the layoff of 44,681 workers. The Apparel Export Promotion Council estimates that over 45 lakh people have lost their jobs in the textile sector, the largest employer after agriculture in our country. About 65% of our textile exports are to the US and the European Union (EU). With both of them on the brink of a severe recession, the situation in India can only worsen.

Reflecting a typical ostrich mentality, the commerce ministry has announced several sops, estimated at over Rs. 1,200 crore, to promote India’s tumbling exports. While India’s exports grew by 21% in 2011-12, to touch $303.7 billion, they crashed to a mere 3.2% this year, despite the severe depreciation of the rupee. Depreciation would make our goods cheaper in foreign lands, which should normally increase their sales. This, however, is not happening because of the deepening global economic crisis and recession. Yet, UPA 2 has adopted a seven-point strategy to increase India’s exports, despite the recent sharp decline to $360 billion.

The world has seen a sharp deceleration in global trade from a 13.8% growth in 2010 to 5% in 2011 and the World Trade Organisation (WTO) forecasts a mere 3.7% in 2012. This can well lead to a slew of restrictive trade practices in many countries, in pursuit of protecting their economies, which will have an adverse impact on our exports. In this context, the Rs. 1,200 crore package to promote exports will end up helping exporters and won’t increase the volume of exports. The latter requires a growing demand for our products in foreign lands. This cannot be created by granting fiscal concessions at home. Further, export growth requires Indian manufacturing to face severe competition from countries like China and even Bangladesh (in apparel exports, which is our largest net export earner). These concessions, therefore, will only protect the profit margins of Indian exporters at the expense of a mounting fiscal deficit.

Rather than working towards reversing our economic slowdown, UPA 2 seems to be concentrating on the revival of larger profits to India Inc and international finance capital. This has found expression with the calls for GenNext reforms from the recent Congress Working Committee (CWC) meeting. The privatisation, with sizeable foreign financial participation, of pension funds is in the offing. Likewise, reforms seeking to increase foreign financial participation in the insurance sector and granting foreign banks the right to take over private Indian banks appear to be in the pipeline.

These reforms were on the agenda of the neo-liberal trajectory since 2004. However, they were prevented by the Left parties during UPA 1. This  resulted in the relative insulation of the Indian economy from the devastating impact of the global financial meltdown of 2008.  This shield, so to speak, is now sought to be ripped apart.

via It doesn’t add up – Hindustan Times.

So, is there a solution?

The  ‘Capitalist’ and the Leftist solutions outlined by the authors of the above two extracts (read complete post at source) miss out vital elements of Indian economic story.

For instance the corporate sector. Between Bombay High in 1975, when India’s liberalization made a cautious start, to now, in the middle of the Y2K generation.

Well represented by the Sensex. The 30-most actively traded stocks, with big market-capitalization, in leadership positions. Of these 30 companies, 13 companies were too small to count in 1975, or some did not even exist. Or from the Nifty-50, 25 companies did not exist or were too small to count. Some of the big groups then, like Alembic-Sarabhai, DCM, Khataus, Mafatlals, Modis, Ruias, Singhanias, Walchand are tottering with token presence – or do not even exist.

Do these behemoth give any returns?

While alive and growing, these behemoths take the most credit and capital. When down and dead they take down large amounts of capital again – from banks, share investors, tax-payer, etc.

If you look at Indian exports – SME sector is 35%-50% of exports, agriculture is 12%-20%, gem and jewellery sector is 12%-20% of exports, software is 15%-20% of exports; mining and minerals is bout 5%-10% of exports. There are cyclical variations in each segment, so these percentages cannot be simply added up. But the broad trend is that these segments, which are new or small in size, account for close to 90% of India’s exports. In turn they get less than 40% of credit from the banking industry.

In terms of employment, these sectors (including agriculture) employs (including self-employment) close to 98% of India’s working people.

So, in exports, employment, these sectors contribute the most – more than 90%. But in terms of capital allocation, these segments get less than 40%.

This is where the story gets more complex.

Powder keg India

India is sitting on boiler – waiting to blow up.

Naxalites are running amok with Big Industry wanting more and more land. Factory workers are getting mutinous – wanting the much promised employment. Agriculturalists are making lesser money – and all the post-Independence vitality of Indian agriculture is slipping. Rivers, lakes are drying up – or getting polluted, thanks to Big Industry.

(From left) RIL chairman Mukesh Ambani, former CEO of HUL M.S. Banga, Godrej & Boyce chairman Jamshyd Godrej, food processing secretary Ashok Sinha and agriculture secretary P. K. Basu in New Delhi on Friday. | Image courtesy – .telegraphindia.com; source – PTI

And the Government keeps going back to ‘captains’ of industry. In 2010, soon after 2ndlook warned of this impending crisis, there was this very representative photograph. Mukesh Ambani, MS Banga, Jamshyd Godrej in a meeting with Central Government on how to improve agricultural productivity.

What would Ambani, Banga and Godrej tell the Government? Something that will benefit a small farmer with marginal holding of 5 acres?

Assuming no mal-intentions, there is the simple point of ignorance. Can Big Industry speak for small farmer? Why assume the opposite is true?

If the Government wants to help Big Business, will they call the small farmer?

Big is always Bad

Now our West-loving media, its West-loving readers, can only think of Big Projects, Big Ideas, Big Infrastructure.

Can they think of making 1 million night shelters in the next 24 months?

Can they think of setting up 1000 pedestrian mandis for hawkers? Can the National Highway System be put on hold – and instead can we redesign our roads to create 1 crore hawker spaces on roads?

Will the State set up 1 million waste collection units – separate for glass, metals, paper, plastics, and bio-waste.

In all these cases the State is needed because the State has become the owner of the land – and controller of land use.

Now these are very boring and unglamorous ideas. All these are also unlike to boost growth in the next 1-3 years. In fact they may damp consumption, reducing demand, and hence ‘growth’. For instance, if India were to recycle 500 gm of plastic per family each month, plastic consumption will reduce by 80% – my estimate.

But these measures will create a base for labour mobility on a scale not witnessed in India for the last 800 years at least. It will mean creation of more entrepreneurs than the rest of the world put together will create. From these crucibles of enterprise, we will see a new generation of entrepreneurs, who will rival the entrepreneurs of the Bombay High generation.

Govt. cant go for any big ticket liberalization that favours Big Industry. It has no stomach for non-conventional ‘infrastructure’ that will supercharge labour opportunity and productivity. | Ninan’s World 19 Aug 2012, 1100 hrs IST; source & courtest – timesofindia.com

Paralysed Polity

The polity is understandably nervous – and cannot take many more Big Industry reforms. At the same time, these small ideas have no technology zing, no spectacle. Maybe even dull. So, no one wants to even talk of these ideas. So, instead they are toying with confetti schemes. Throw 20-30 million mobile phones in public hands. Distribute cycles to the poor.

Even the dear reader and media consumers are understandably more fired up by Big Ideas – like satellites, rockets, Mars Mission, rather than night shelters.

Not irrelevant, but Indian Ayurveda expected a man to heal himself. All knowledge of herbs and medicines was pushed down to the lowest rung in the society. No nephrologists or medulla oblongata specialists. Or Messiahs and saviours and doctors.

Similarly if Indian society wants to change, we probably should be the change that we want to see!

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• Investment climate in India deteriorating, time to make difficult reforms: Barack Obama (ndtv.com)
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