Rhetoric at odds with ground realities

Good politics demands that governments always hold out hope instead of fear. However, governments cannot live in a continuous state of denial, oblivious to ground realities wherein the harried voters find little to be optimistic about in their daily lives. Hope alone, however packaged, cannot become the sole driver for long-term economic growth that is inclusive and sustainable. Reported research findings cited below drive home this truth.

When India was delivering 8-9 per cent GDP growth, Indian exports were rising at over 25 per cent per annum compared to the 5 per cent decline last year. Similarly, in years that India delivered peak GDP growth, corporate toplines were also growing at well over 20 per cent annually, with similar growth in corporate profitability. The combined revenue of the top 500 Indian corporations grew by zero per cent in 2015 and growth in their profitability was likely negative. Even credit growth in India is down to 9 per cent from peak of 20-30 per cent in the boom years.

The agriculture sector is reeling under successive droughts and has only delivered about 40 per cent of its targeted growth under the 12th five-year plan. The negative impact of sluggish growth in rural incomes on rural demand is flagged as a key concern in all economic forums.

While the collapse in commodity prices has given some relief on the inflation front, I am sure the Centre’s globally hailed economic satraps are aware that inflation levels in 109 nations, among a list of 150, are well below current inflation in India. The price rise of daily staples in a common Indian household has outstripped their income growth in recent years.

The Reserve Bank of India (RBI) should bring out a white paper to unravel the jarring dichotomy between the facts above and the claims that India is the fastest growing economy in the world delivering well over 7 per cent GDP growth per annum. Such a paper will at least renew faith in Indian statistics being definitely superior to the economic data put out by China.

We are now being told that conditions are in place for targeting a return to the 8-9 per cent GDP growth in 2016-17. India’s renowned economic satraps must be privy to information not yet in the public domain to reach such a conclusion.

Public information reveals that the World Bank has lowered its estimate of global growth in 2016 by over 12 per cent following a 2015 global growth performance that was about 15 per cent below its forecast. Even the 2016 growth forecast for the resurgent US economy has been lowered by about 5 per cent.

China, which accounted for around a third of the global growth in the recovery post 2008, and commodity-driven countries such as Australia and Canada, are facing serious head winds and slowing down significantly; the Brazilian, Russian and Venezuelan economies are severely contracting. These facts, the end of monetary easing in the US, the strong dollar, and the looming energy sector bankruptcies are spooking investors worldwide. There is almost complete consensus that the global economy is weakening. Global growth in 2015 was below that in 2014, and global trade growth was zero per cent in 2015. Most economic parameters point to a maturing global expansion cycle that was fuelled by massive monetary easing in the US and elsewhere post 2008. The consensus forecasts place even odds on a global recession in 2016 despite the promise of European and Japanese green shoots.

The geopolitical tensions in West Asia and the threat on our own borders are palpable. India cannot be immune to the foregoing global and domestic scenario. I eagerly await the wisdom of the government’s 2016 Economic Survey defining the contours of India’s return to the promised 8-9 per cent growth trajectory, despite the foregoing reality.

Outside of China, wherein the distinction is difficult, India is the only significant country in the world where public sector banks account for over 70 per cent of all banking assets. The average for emerging economies is only 30 per cent. Importantly, these public sector banks have lost 40 per cent of their market capitalisation in the last five years. This, in significant part, reflects the burden of non-performing assets on their books.

I am sure the RBI governor will be the first to agree that India’s banking system needs to be fixed if India is to deliver high GDP growth consistently over a reasonable number of years. With total debt already at 120 per cent of GDP, India needs a robust and competitive banking system that is well regulated to avoid the kind of debt-driven growth that is plaguing China today.

Per capita consumption of modern primary energy remains the best barometer for a country’s relative level of economic development. India’s per capita consumption of modern primary energy was only 28 per cent of the global average in 2014. China, India’s closest comparator, consumed 4.2 times the energy and delivered 4.6 times the nominal GDP on a per capita basis in the same year.

China, with 19.3 per cent of world population, consumed 23 per cent of the global supply of modern primary energy while India, home to 17.5 per cent of the world population, had only a 5 per cent share. More importantly, despite the energy glut of the last 18 months, India has failed to take any significant initiative that would ensure the required level of energy access to fuel her inclusive and sustainable growth ambitions.

The ambitious goals set by India’s leaders require that India raises its share of global supply of modern primary energy to around 15 per cent by 2025!

In conclusion, let me emphasise that delivering Prime Minister Modi’s India requires a team comprising: (a) leaders who nurture cooperation across political parties both at the Centre and the States; (b) deeply committed experts who not only believe in Brand India but also seek reasoned open debate to craft solutions for addressing the multiple challenges facing India; and (c) efficient executives who effectively translate policies and programmes into visible actions and changes on the ground.

Delivering such a team is indeed a tall order but it is certainly not beyond the capacity of Prime Minister Modi and the BJP.

The writer is former Principal Adviser-Power & Energy, Government of India