|
The
deliberate adoption of a myopic vision is writ large
in the India Shining campaign, with its principal focus
on a successful, urban, middle India. This effort to
manipulate perspective is revealed in the use of figures
of economic performance in a single year or a couple
of selectively chosen ones to cloud events of even the
immediate past. It is reflected in the tendency to emphasise
and elevate the double effect of speculative FII inflows
in sharply increasing India's foreign exchange reserves
position on the one hand, and triggering a boom (however
volatile) in India's stock market on the other, while
ignoring the poor performance of the commodity producing
sectors. It is seen in the effort to celebrate new,
and yet marginal, trends in employment while downplaying
the devastation that poor agricultural labourers and
small farmers must have faced because of the drought
in 2002-03, whose effects on production was far more
severe than any prediction – official or otherwise.
A typical example of such new trends is the rapid rise,
albeit from a small base, in employment and revenues
from IT-enabled services like call centres, that have
reportedly generated jobs for around 1,70,000-2,00,000
young Indians.
The effects of this myopic vision are seen in the approach
to all sectors of the economy. Consider, for example,
industry. Conventionally urban prosperity was linked
to the advance of a dynamic industrial sector. Unfortunately,
going by the figures on the Index of Industrial Production,
industrial growth was at an unremarkable 6.3 per cent
during the first nine months of so-called boom year
2003-04, when agricultural production shot back from
its 2002-03 trough.
Chart
1>> Click to Enlarge
During the peak of the liberalization and reform euphoria
in 1994-95 and 1995-96, respectively, industrial growth
was at 9.1 and 13 per cent respectively, well before
the NDA's magic ostensibly began to transform this country.
The lack of dynamism that this decline in industrial
growth since the early mid-1990s reflects is all the
more disturbing because it combines with an overall
stagnation in the investment rate in a country that
is supposedly on the move and is the darling of foreign
investors.
Chart
2>> Click to Enlarge
As Chart 2 indicates, after rising in the first half
of the 1990s to touch a peak of 27.3 per cent in 1995-96,
the rate of capital formation in the economy has remained
well below that level in all but one of the subsequent
years. This decline and subsequent stagnation in investment
occurs despite the visible signs of movement, in sectors
like telecom and more recently in highway construction
– sectors that the Prime Minister has identified as
epitomising the direction the rest of India should take.
What he missed out was the fact that investment in these
sectors, at whatever rates they are actually occurring,
failed to pull along investment in the rest of the economy.
Conventionally, through its effects on profits and utilisation
in the rest of the economy, future investment is triggered
elsewhere. This, Shining India has not been able to
ensure. Clearly, if investment is not buoyant, an economy
could not be. Seen from the angle of vision of the principal
commodity producing sector, what is happening is that
the early gloss is fading under the NDA.
The lack of investment has been accompanied by dismal
trends in employment over the 1990s, despite the Planning
Commission's propagandist claims of the government having
"created" 84 lakh jobs every year over the
last years. This intriguing claim, it now appears, is
based on a comparison of the "usual status"
workforce figures yielded by two NSS surveys relating
to July-June 2000 and July-December 2002, which have
as their mid-points the two dates (1 January 2000 and
1 October 2002) that provide the 33-month period for
which the claim is being made. As Prof. K. Sundaram
from the Delhi School of Economics has pointed out (Economic
Times, 14 February 2004), there are a number of problems
with using these surveys for such short term comparisons.
Thus, the NSS surveys seem to suggest that employment
increased by 76 lakh (not 84 lakh as claimed) in the
33-month period between 1 January 2000 and 1 October
2002, 68 lakh in the 21-month between 1 January 2001
and 1 October 2002, and 300 lakh in the 24-month period
between 1 January 2000 and 1 January 2002, while it
declined by 90 lakh in the 9-month between 1 January
2002 and 1 October 2002. If the last of these is used
as the basis for judgement, Indian is clearly not shining
more recently. Given the specific focus of each round
of the NSS, using the figures yielded for such short
term comparisons may not be the best way to assess increases
(or decreases) in absolute employment.
But that this is not all. Even if we stick by the two
surveys and the two time points used by the Planning
Commission in its advertisement, which claims that in
the last three years "we" are getting close
to achieving the Prime Minister's target of providing
one crore new employment opportunities every year, the
evidence on "whose India is shining" is quite
damaging. First, urban areas which account for 23 per
cent of the workforce account for 40 per cent of the
increase in "employment opportunities" during
the 33-month period. Second, the number of women workers
in the country declined by 15 lakh or around 5 lakh
per annum. Third, this decline in the case of women
in rural areas amounted to close to 10 lakh per annum.
Fourth, the number of women workers in the 15-34 age
group declined by 17 lakh per annum. Finally, the share
of all those in the 15-34 age group (who feature prominently
in the India Shining campaign) in the new employment
opportunities claimed to have been created amounted
to just 25 per cent, whereas those aged '60 and above'
accounted for around 17 per cent. Once we take note
of these figures, little needs to be said about the
dismal "quality" of the "employment opportunities"
that the government claims to have created.
These trends, in output, investment and employment are
indeed surprising given the fact that this has been
the period when huge concessions and tax benefits have
been handed out to India's corporate sector with the
aim of reviving the animal spirits of India's dormant
monopoly groups and kick-starting investment. The spur
to industry does not stop there. It also comes from
the consumption and housing finance boom that has been
spurred by the reckless lending at declining interest
rates that financial liberalisation has resulted in.
According to reports on a study undertaken by KSA Technopak,
personal credit outstanding in the country rose by 300
per cent from Rs. 40,000 crores in 2000 to Rs.1,60,000
crores in 2003 and is still growing. Though this still
accounts for only 12-14 per cent of aggregate consumption
spending in the country, its concentration among the
"middle class", especially in urban India,
would imply that there is a growing credit overhang
that is based on excessive exposure to a small section
of the population. These are also the sections which
are being provided large volumes of housing finance
at low nominal interest rates by financial firms desperate
to find vents for the liquidity that they can access.
The Reserve Bank of India has already warned housing
finance companies about the high risk portfolio that
many of them are carrying.
This credit boom may be increasing fragility in India's
increasingly liberalised financial sector. But it is
also helping along sales volumes in corporate India
and holding up profits. The problem however is that
having bought earlier versions of the India Shining
campaign, corporate India has created so much excess
capacity in many areas that the increases in demand
only go to increase utilisation of already created capacities,
and has not helped spur investment in recent times.
However, combined with the concessions that have been
handed out to the private sector that we referred to
earlier, these trends have indeed helped the corporate
sector declare reasonably high profits. This is one
more recent trend that provides the gloss for India's
shine. Those profits and the fact that India is the
flavour of the season for foreign institutional investors
have provided the basis for a spurt of speculation in
the stock markets taking the Sensex to new temporal
highs, even if this is accompanied by substantial volatility.
Therefore, the Sensex has become one more barometer
for a government in search of the shine that is constantly
rendered murky by visible signs of poverty.
That search has been successful also because of another
consequence of the stock market rush: the surge of FII
investments in the country that have contributed substantially
to the sharp and sudden increase in the size of India's
foreign exchange reserves. Having crossed the $100 billion
mark, those reserves have become a source of embarrassment
and a problem for the government. Embarrassment because
those reserves, which arise because of RBI purchases
of foreign exchange to prevent the rupee from appreciating
and affecting India's export competitiveness adversely,
are now being cited as evidence of the fact that the
rupee is "undervalued". Revalue the rupee,
the US argues, so that imports are not discriminated
against in the Indian market.
The reserves are also a problem because, while the inflows
that deliver them earn high returns that can be repatriated
in foreign exchange, their investment abroad yields
the country a less than 3 per cent average return. This
implies that the country is paying a high price in foreign
exchange in order to accumulate and maintain such reserves.
To boot, the inflows that contribute these reserves
are in the nature of "hot money" flows. If
and when foreign investors begin to suspect that the
shine was never there, there could be a rush of investment
out of the country. Since the government, egged on by
the reserves, has decided to encourage profligate foreign
exchange spending and investments abroad by ordinary
citizens who have the wherewithal, any such exit would
soon turn into an exodus, precipitating a financial
crisis of a kind that the world is all too familiar
with.
Unwarranted claims in all these areas is sought to be
strengthened by figures of recent performance. But even
here the lie is hard to sell. It is indeed true that
growth this year in agriculture has been remarkable.
But that clearly is because of the bad monsoon-induced
collapse of agricultural output that makes a return
to output levels achieved in 2001-02 deliver a remarkable
growth rate. It is true that the recovery in agriculture
combined with a credit-driven spending boom has helped
industrial growth along. But that growth is far short
of what the advocates of liberalisation promised to
deliver and did manage to do so for a brief period in
the mid-1990s when the NDA was yet to take power. It
is true that the software and IT-enabled services sector
is witnessing high rates of growth of revenues, exports
and employment. But that occurs on a low base in a sector
which remains an enclave and cannot compensate for the
slow growth in the commodity producing sectors. It is
also true that India's foreign exchange reserve position,
its stock markets and its financial sector are buoyant.
But all that also reflects the fragility that underlies
the kind of jobless growth process that the NDA government
has unleashed during its tenure.
Why is the government choosing to manipulate the nation's
vision by behaving as if what it says is true? It should
be obvious that the real intent of the India Shining
slogan is to conceal the poor performance of the commodity
producing sectors and the fragility of much else of
the economy. If India's economy is shining, that shine
is similar to the light reflected off an overblown bubble.
The coming election, therefore, is also one that would
decide who would pick up the pieces when that bubble
does burst. |
