On the economic front, there is much to cheer about with the GDP growing at 8.9 per cent in the second quarter of 2010-2011. There is now hope that the annual growth rate this fiscal year will be 9 per cent which means that India will be catching up with China soon and emerging as the second fastest growing country in the world. Agricultural, export, manufacturing (the Index of Industrial Production for October has shown a record growth of 10.7 per cent) as well as import growth figures are rising rapidly. Food inflation has come down to 8.69 per cent and general inflation is around 8 per cent which, though high, is not unmanageable. With a strong monetary policy of the past one year, inflation has been tamed and with another interest rate hike, it may come down further.
Today India, however, is not isolated from the trends in the global economy. The problems in the European Union and the US regarding economic recovery are affecting our economy in many ways. For example, there has been a sharp drop in Foreign Direct investment flows which recorded a fall of 25 per cent to $14.9 billion during April October in 2010. Despite the continuing problems in the West, there has been a surge in FII investments and India received $28.7 billion in 2010. There has been some foreign institutional investment (FII) outflow also and $158 million has been withdrawn since November12, 2010, or ever since the 2G telecom licence auction scam and the housing scam (and several other scams like the food scam) have surfaced.
Before the scams were unearthed the equity market had gone up to a record high in October, gaining 8 per cent. The heavy FII inflows resulted in a high ratio of financially mobile capital to forex reserves at 67.6 per cent. On the export front, however, external demand has improved for merchandise exports which has helped industrial growth. But imports are growing rapidly as compared to exports and this means there is widening of the current account deficit of around 4 per cent. Since India has substantial forex reserves, the danger of the country going bankrupt is unlikely to be there, but this will mean keeping a watchful eye on the FII inflows which are helping to finance the deficit. If the outflow continues, it will be bad for the stock market and if too much short-term capital comes in as a result of the US policy of quantitative easing (QE2), it may also lead to problems of high value of the rupee against the dollar, hurting exports.
Another piece of good news is that software exports are showing recovery and Indian domestic demand is reviving with a rebound in consumer confidence. There is a sharp rise in auto sales. Remittances have remained strong, making India the number one recipient of such fund flows — $55 billion in 2010. Tourism has also picked up and the banking sector has shown a robust growth.
Agriculture has surprisingly shown a higher growth rate in the second quarter — 4.4 per cent — thanks to the good monsoon, and foodgrain production is expected at 82 million tonnes. If this 4.4 per cent growth rate can be sustained, then the GDP growth rate of 9 to 10 per cent is achievable. But much depends on agricultural investment. Already Rs 90,000 crore of credit has been disbursed to farmers in the first quarter of this year. If it has led to deeper structural changes with investments in storage, roads and minor canals, it can result in higher productivity growth in the future.
But amidst all the good news there are problems that cannot be ignored. Why is it that the ranking by the IMF of India’s per capita GDP income, according to the purchasing power parity, is low at the 127th position? Some time ago, the multi-dimensional poverty index developed by Oxford University showed pervasive poverty within a country with 410 million Indians living in poverty. (China’s ranking is higher in both cases). This means that the trickle-down effect of a high GDP growth rate is being hampered by certain obstacles to growth, which is a cause for concern. The obvious obstacles are lack of governance and corruption. For example, the latest food scam of UP revealed how millions of tonnes of foodgrains meant for the poor were diverted to the open market. Why is it that there are 100,000 billionaires in India and 8.7 crore families are still living below the poverty line?
According to Transparency International (Germany), which compiles the global corruption perception index, India is ranked 87th out of 178 countries. India’s rank was 84th in 2009 and in one year the slip to the 87th place is due to a rise in corruption. The bulk of the bribes, according to Transparency International’s view, is below $20 and corruption is a uniquely disenfranchising exercise as it is the poor who suffer the most. Due to the widespread practice of tax evasion and bribe taking.
India’s black economy is huge at 50 per cent of the GDP and amounts to Rs 30 lakh crore. It is in the hands of 3 per cent of the elite. But, fortunately, around 300 million people also belong to the middle class. The polarisation problem can only be solved with the rise of the middle class and the participation of civil society in controlling corruption. In each budget, there is more allocation for poverty alleviation schemes, but there is still so much deprivation and malnutrition in the country due to the fact that only a fraction of the money actually benefits the targeted people.
The first priority in the New Year ought to be education and health for the poor in the villages and skill training. Only then will the 240 million youth joining the labour force in the next five years be able to get jobs. Unless the youth is properly educated and trained, there will be a big problem instead of the “demographic advantage or dividend” that India is supposed to have over China.
For the implementation of the right to education law for children between 6 to 14 years of age, 1.2 million teachers are needed to meet the requirement. Today only 700,000 teachers are available and absenteeism is high at 25 per cent. The dropout rate is 39 per cent for 10-year-olds, and among the 15 to 19 year-olds, according to the World Bank, only 2 per cent receive job training.
If only we could reduce corruption and have leakage-proof poverty alleviation programmes, the high GDP growth would benefit all and not just some sections of the population. It is a New Year wish, indeed!
Courtesy: The Tribune
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