Change begins with words and ideas
Measuring growth is a problem. It is a bigger problem if you change the rules in the middle of the game.
GDP is the gross domestic product. Keeping aside the nuances, it is the gross value of the country’s output of goods and services in a financial year. The output is valued in current prices as well as in constant prices (the latter are prices adjusted for inflation). In order to value the output at constant prices, the statistician takes a ‘Base Year’.
Beginning 2004-05, the first year of the UPA government, the GDP was computed using 1999-2000 as the base year. After a few years, the base year was changed to 2004-05 but the methodology remained the same.
What the BJP government did in 2014-15 was to change the base year to 2011-12 as well as change the methodology. I shall not go into the details of the changes; suffice to say that when the Central Statistics Office (CSO) reports a growth rate of 7.5 per cent in constant prices, many economists and analysts believe that it is perhaps equal to 5.5 per cent under the UPA government. There is a simple way to put an end to the misgivings: the CSO should publish the growth rates from 2004-05 computed under the old and the new methodologies, so that people and users of the data can draw their own conclusions. For reasons that are inexplicable, the government and the CSO have stubbornly refused to do so. Hence, the doubts persist.
Be that as it may, one doesn’t get the feeling that the economy is growing at 7.5 per cent or thereabouts because other data point in the opposite direction. The average growth rate of the agriculture sector in the last four years has been an anaemic 2.7 per cent (compared to 4 per cent in the 10 years of the UPA), and farmers are in acute distress. The Economic Survey candidly admitted that “real agricultural GDP and real agricultural revenues have stagnated in the last four years”. Merchandise exports in each of the last four years did not cross the level of USD 314 billion achieved in 2013-14. Gross Fixed Capital Formation (GFCF) in current prices has steadily declined from 31.3 per cent in 2013-14 to 30.08, 28.47, 28.53 and 28.49 per cent in the last four years.
At the ground level, the sense is of an economy growing at a low rate because there is growing unemployment and no new jobs. Dr Raghuram Rajan said a few days ago that an economy growing at 7.5 per cent will not create the jobs that are needed and called for pushing the growth rate to 10 per cent. The unstated premise is that the economy is not growing at the ‘7.5 per cent’ rate of the earlier years when other indicators also pointed in the same direction and a significant number of jobs was created; the current ‘7.5 per cent’ rate does not create jobs, and hence the rate itself is seriously questionable.
I don’t expect anything more from this government in the next 12 months. The people have to look beyond the present government and to an alternative narrative. At the AICC Plenary Session last weekend, the Congress summed up the difference in economic philosophies: “The Congress Party believes in the goals of inclusive economic growth through private enterprise and a competitive and viable public sector and a robust social safety net through a strong welfare state. The BJP believes in a coercive economic regime that favours a few, trickle-down growth for the middle class, and leaving the very poor to fend for themselves.”
Some seeds that were sown earlier sprouted at the AICC Plenary Session last weekend. I wish to draw attention to a few statements of intent.
NEW IDEAS, NEW EMPHASIS
– The Congress reaffirms its conviction that the State has to play a critical role in ensuring that every Indian receives high quality primary education and healthcare.
-Good, productive jobs can be created in large numbers by India’s private sector driven by trade, manufacturing, construction and exports.
-The Congress resolves to win back economic freedom for India’s entrepreneurs, especially the micro, small and medium business persons, protect them from harassment and provide a stable business environment.
Among the challenges identified were:
-Generating productive jobs for millions of youth.
-Restoring robust credit growth, promoting new investments and reviving manufacturing to produce on the scale and quality demanded by the domestic and world markets.
And the Congress party’s economic policy doctrine will rest on tenets including:
-Large investments by the State in education, healthcare and social safety nets, and an efficient public service delivery system.
-A conducive social and policy climate to foster business confidence, reward risk-taking and promote employment with security.
Many of the words may be familiar, but the emphasis is different. There are also new words and phrases, that could flower into a new narrative. India’s private sector finds a prominent mention; creating good, productive jobs is the objective; trade, manufacturing, construction and exports are identified as the leading sectors; winning back economic freedom for India’s entrepreneurs is a promise; banishing fear of economic oppression, tax terrorism and overbearing regulation is a goal; and fostering business confidence and rewarding risk-taking will be the policy.
I believe that change begins with words and ideas.