GDP: Growth lost to shortsightedness

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Bikky Khosla | 11 Feb, 2014
The Central Statistics Office has cut the nation's GDP growth forecast for the current financial year to 4.9 percent, despite last year's low base of 4.5 percent. In the first half of 2013-14, growth was 4.6 percent and this means growth for the second part the current fiscal year should improve a little to achieve the annual target of 4.9 percent. The latest estimate, after the Finance Ministry's forecast of 5 percent to 5.5 percent in September 2013, shows lack of any significant improvement in the economy during the recent months.

GDP figures represents health of an economy in terms of consumer spending, investment by businesses, government spending and net exports. According to the latest estimates, our private consumption expenditure is expected to rise 4.14 percent against 5 percent in 2012-13 and investment, indicated through gross fixed capital formation, 0.17 percent, against 0.77 percent in 2012-13. Government spending is pegged at 7.4 percent against 5.3 percent a year ago, but this is based on data available till the third quarter while the Centre carried out most of the spending cuts in the last quarter.

Such a situation demands the government to act to boost consumption and investment demand. Another worrisome factor the data shows is the poor performance estimated in the manufacturing sector. According to the CSO, the sector will contract -- for the first time since 1991-92 -- by 0.2 percent this fiscal compared with 1.1 percent growth in 2012 - 13. I think what is responsible most for this downfall is the policy maker's over-dependence on band-aid measures and unwillingness to address some serious structural problems.

Manufacturing requires a reliable infrastructure, but we don't have it. We need to develop our roads, ports and distribution channels, ensure adequate power supply to our factories, ease the land acquisition process, and so on -- all these are long-standing demands to which the government is paying little heed. In addition, administrative hurdles are no less responsible for polluting the business environment and affecting India's investment attractiveness. Reform in these areas is a must for growth. This will take time, and the earlier one starts the better it is, but unfortunately the government has done little yet in this direction.

Recently, finance minister P Chidambaram confidently said that he would be able to contain the fiscal deficit, which already crossed 95 percent of the budget target, to 5.3 percent of GDP. This sounds good but the question is how he wants to achieve this -- by cutting spending on developmental activities (capital expenditure) or by slashing unproductive revenue expenditure, a significant part of which is constituted by expenditure in subsidies, such as the recently announced one on LPG cylinders. Will he be able to containing revenue deficit to the targeted 3.3 percent of GDP? I hope election year politics would not mire this target.

I invite your valuable opinions.