Stop looking through the GDP prism
What can be the outlook of a nation whose premier city, the place of legendary rags-to-riches tales, is in such a poor state of management? What can national growth look like when the nation’s cities are collapsing?
It’s been a difficult start to the monsoons in Mumbai, the city of contradictions. Tax collections are the highest here but more than 50 per cent of the people live in slums; it’s known as the “city of gold” but what you often see is crumbling infrastructure and oversized potholes that can be lethal. This monsoon, an unusually high number of trees have come crashing down, killing a former television anchor, an advocate, a teenager and injuring others in separate incidents. Just two rainy days in July saw 57 tree falls in weather that was not particularly squally. The noise and the anger hasn’t got the civic authorities anywhere except to turn against radio jockeys who protested at the inaction of the administration by recording a rap video. What can be the outlook of a nation whose premier city, the place of legendary rags-to-riches tales, is in such a poor state of management? What can national growth look like when the nation’s cities are collapsing?
The answer, it turns out, is surprisingly good. In fact, it’s the best that the world has got today, if we look at the numbers put out by the International Monetary Fund in its July update of the World Economic Outlook. Consider that global output is projected to grow by 3.5 percent in 2017 and 3.6 percent in 2018. US growth is projected at 2.1 per cent for 2017 and 2018; China at 6.7 per cent in 2017 and 6.4 per cent in 2018. But India is the star performer, looking at the growth number alone, projected by the IMF at 7.2 per cent in 2017 and 7.7 per cent in 2018.
How do the two reconcile?
The plain answer is that they do not, and one of the two must yield if growth has to mean anything for the nation and its people. Either governance must improve or growth must take a hit.
But the IMF outlook is unlikely to be received in this frame. This is the kind of projection that usually leads to celebratory talk of a nation on the high road to faster growth, and all the political rhetoric that comes with it. If one of the benefits of liberalisation was to separate government from business, then that is a journey that has stopped somewhere mid-way. The license-permit-quota Raj has gone, but business continues to look to government for that extra sop or support, and the government continues to look for ways and means to push the growth number as proof of its performance.
We hardly talk about jobs lost, created or the number of unemployed youth, which is actually a political and social tinderbox that can explode at any time and take the entire growth story down with it. In this context it is important to recognise that in terms of per capita income, India stands far below China.
At the heart of this is that growth is seen as a badge to wear, the license to announce that all is well and thriving, and the (rather than a) metric by which we measure 0where we are headed and how fast we are going. This makes it a political weapon, wielded by the opposition when the number falls and displayed by the government when the number grows. It has become so much a part of the national conversation that its perceived corollary, the policy repo rate announced every now and then by the Reserve Bank of India, has equally crept into the national lexicon. Governor after RBI governor is on record that finance ministers push for lower rates to boost growth. This is not a separation of government from business but is rather a none-too-comfortable intertwining at the highest policy making level. The problem is party and ideology-agnostic. It began with liberalisation, and over the years, the Congress perfected it and it continues unchecked under the current regime.
The obsession with GDP growth is despite the fact that the number is not easily relatable to anything the citizen feels or does. So while in the US, it is the jobless rate that can be political dynamite, in India it is the GDP growth that remains a metric that everybody quotes but very few understand. We hardly talk about jobs lost, created or the number of unemployed youth, which is actually a political and social tinderbox that can explode at any time and take the entire growth story down with it. In this context it is important to recognise that in terms of per capita income, India stands far below China.
This language makes a difference in the way we respond – as policy makers and as citizens. When we look at the grand total of everything, we miss the dynamic at play within the system that has so many moving parts. Take the current growth number itself: should we celebrate when we learn that “while activity slowed following the currency exchange initiative, growth for 2016 – at 7.1 percent – was higher than anticipated due to strong government spending and data revisions that show stronger momentum in the first part of the year.”
The 7.7 per cent growth is primarily demand driven and mostly government consumption demand. Most likely the short term risks could be broadly balanced, but medium-term risks with government consumption demand-led growth could have downside risks. In essence, we are growing today but this is government consumption pushing growth, not citizens. The corporate sector remains weak, and the so-called twin balance sheet problem (corporate leverage and bank NPAs) looms large.
Fiscal prudence, a sharp focus on education and public health and infrastructure and above all prudent norms for governance will kick-start economic activity at multiple levels across various pockets, and this is the engine that is also required to fire-up for growth to deliver.
It will not be out of place to mention that growth is required not for growth itself but for the wellbeing of the common people. This is also the only way to sustainable growth. It means that more than look to the Central government, praising or damning it solely for outcomes, what matters equally if not more is the way our States and civic bodies and panchayats are run. Fiscal prudence, a sharp focus on education and public health and infrastructure and above all prudent norms for governance will kick-start economic activity at multiple levels across various pockets, and this is the engine that is also required to fire-up for growth to deliver. Yes, we do need the big ticket projects, the government to kick-in with special efforts but those are big pushes to take the car a little along the road. For the drive to be smooth and to go a long way at a good pace, the national engines of growth must work and they often lie in sectors, areas and indices we have not learnt to give importance to. Gender diversity in the workforce, labour productivity, the quality of education and health and our roads matter if we have to move fast without looking up to see if a tree is about to fall on our heads.
(Jagdish Rattanani is Editor, SPJIMR. R K Pattnaik is Professor, SPJIMR)