AN AVOID­ABLE SLOW­DOWN

India Today - - UP FRONT - by RA­JIV KU­MAR Ra­jiv Ku­mar is Sec­re­tary Gen­eral, FICCI

There is enough ev­i­dence to show that the In­dian econ­omy is now firmly in the midst of a slow­down. The growth in the In­dex of In­dus­trial Pro­duc­tion, an im­por­tant mea­sure of the per­for­mance of in­dus­try, is at a two-year low with suc­ces­sive de­clines in the last eight quar­ters. Ex­port growth seems to have peaked in June when it hit an amaz­ing 82 per cent and will in all like­li­hood see modest growth in com­ing months. Non­food credit off-take from April has been a mere 2.5 per cent, re­flect­ing a near ces­sa­tion of pri­vate in­vest­ment ac­tiv­ity. New project an­nounce­ments have vir­tu­ally stopped with firms hold­ing on to record cash re­serves, un­able and un­will­ing to com­mit in­vest­ment for ca­pac­ity ex­pan­sion. Power short­ages have be­come wide­spread. At the same time, nearly 20,000 MW of ther­mal power gen­er­at­ing ca­pac­ity is unutilised due to non-avail­abil­ity of coal. For the first time, in my life­time, I am hear­ing the term “hedg­ing against coun­try risk” be­ing used by In­dian in­vestors who are ac­tively look­ing for in­vest­ment op­por­tu­ni­ties abroad. This will en­sure that the slow­down is long and per­sis­tent.

There is no deny­ing the fact that the un­der­ly­ing struc­tural fea­tures of the In­dian econ­omy should keep it on a growth tra­jec­tory of 8-9 per cent. These struc­tural fea­tures in­clude a favourable de­mo­graphic struc­ture, high rates of sav­ings, en­tre­pre­neur­ial dy­namism, bur­geon­ing de­mand from an ex­pand­ing mid­dle class, huge in­vest­ment op­por­tu­ni­ties and a favourable per­cep­tion of In­dia’s eco­nomic prospects abroad. It is, there­fore, dou­bly dis­ap­point­ing for the peo­ple, with their as­pi­ra­tions raised to the high­est lev­els, that they now face the grim prospects of slow growth, lack of em­ploy­ment op­por­tu­ni­ties and ero­sion of pur­chas­ing power.

I firmly be­lieve that such a cycli­cal slow­down could have been avoided. We have the ex­am­ple of China which man­aged to achieve an av­er­age GDP growth of 9.5 per cent over three decades with min­i­mal in­fla­tion­ary pres­sure. To ar­gue that In­dia’s democ­racy does not per­mit us to repli­cate the Chi­nese ex­pe­ri­ence is merely to dodge the is­sue. There is noth­ing in our democ­racy which pre­vents us from im­ple­ment­ing growth-ori­ented poli­cies that will gen­er­ate em­ploy­ment that will surely be ap­plauded by the elec­torate. The prob­lem does not lie with our democ­racy but per­haps with the mis­un­der­stand­ing that greater in­clu­sion is best achieved through ex­pand­ing sub­si­dies and trans­fer­ring pay­ments to the loud­est set of po­ten­tial vot­ers. This is clearly un­sus­tain­able as a poor econ­omy like In­dia can’t af­ford to have a ma­jor­ity of its peo­ple liv­ing off sub­si­dies. To per­sist with schemes to boost pur­chas­ing power with­out si­mul­ta­ne­ous ef­forts to fa­cil­i­tate pro­duc­tion ca­pac­ity ex­pan­sion and in­vest­ment is a recipe for dis­as­ter.

Real in­clu­sion is achieved by pro­vid­ing pro­duc­tive and well-pay­ing em­ploy­ment to all en­trants to the work­force. This can be achieved only by sus­tain­ing rapid and labour­in­ten­sive growth which, in turn, re­quires the con­tin­u­a­tion of struc­tural re­forms that will make In­dia a more at­trac­tive in­vest­ment desti­na­tion. In­dia’s rank of 134 out of 183 coun­tries in terms of ease of do­ing busi­ness does not pro­vide the most con­ducive environment. It is, there­fore, time we make a stronger pub­lic case for push­ing for­ward with the re­form agenda.

There seems to be an as­sump­tion amongst a vast sec­tion of the po­lit­i­cal class that In­dia’s de­mo­graphic div­i­dend and a 7-8 per cent rate of GDP growth is a given. This re­sults in pol­icy com­pla­cency and a rise in com­pet­i­tive pop­ulism that we have wit­nessed in the past few years. This is dan­ger­ous be­cause as many his­tor­i­cal ex­am­ples have shown, de­mo­graphic div­i­dend has to be earned by skilling our peo­ple and growth needs to be sus­tained by con­tin­u­ous pol­icy in­ter­ven­tions. The trade-off be­tween growth and eq­uity can be avoided only if the Govern­ment plays a role in fos­ter­ing growth and en­sur­ing a more ef­fi­cient and tar­geted dis­tri­bu­tion of pub­lic goods and ser­vices. It is high time that all of us give up the idea that eco­nomic growth can be achieved de­spite the Govern­ment. In­stead, we have to fo­cus in­creas­ingly on im­prov­ing de­liv­ery of pub­lic goods and ser­vices to en­sure that both rapid growth and in­clu­sion are achieved. The cur­rent slow­down should be used to ini­ti­ate nec­es­sary re­forms rather than wait­ing for a full-blown cri­sis, the cost of which could be ex­tremely high in the cur­rent environment of ris­ing ex­pec­ta­tions and greater im­pa­tience.

The trade-off be­tween growth and eq­uity can be avoided only if the Govern­ment plays a role in fos­ter­ing growth and en­sur­ing a more ef­fi­cient and tar­geted dis­tri­bu­tion

of pub­lic goods and ser­vices.

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