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Home » Why India can’t have a significant slowdown!

Why India can’t have a significant slowdown!

March 14, 2009 By videv Leave a Comment

 

 I am not a trained economist so I will make my arguments based on my knowledge and some healthy dose of common sense. I will assume the recent trend growth rate to be 8-9%, because 9% was around the number at which economy grew in last 3 years. For 2 years before that it was healthy above 8% rates. So a significant slowdown would be one where the growth rate becomes half of the recent trend growth rate. A 4-4.5% growth rate for FY10 would mean that we slowed down.

If I look around it seems a miracle that we grew at 8-9% and not higher! Because the growth was happening with the following constraints:

1. Bad roads. The roads in Bangalore where I live are to be seen to believe them. Even newspapers and media have stopped calling it the garden city. Maybe when everyone who wants to be in Bangalore is already in, there are not many new people who can be attracted anymore.

2. Lack of water, electricity infrastructure. Every power cut leads to some production or service cut, to assume it does not is wishful thinking.

3. Lack of coastal ports, waterways infrastructure etc. In 2006, there used to be continuous news of how the ports were clogged and that was leading to export issues.

Then there are other issues which are more economic and administrative reform related and which hold back the economy and cause productivity reduction and delays. These could be:

1. Land and urban reforms. Too much focus is on few large cities which have become magnets for rural migration. Creation of roads, infrastructure will lead to more balanced and percolation of growth to smaller cities and semi-urban areas.

2. Efficient state and central taxes. It is reported that after creation of highways, trucks save time on travel but they still spend same time holed up on states’ borders due to taxation and other administrative hassles. Go India !

3. Agri reforms. Large part of population depends on agriculture. Any infrastructure creation and reform must provide the benefits immediately to farmers and village people who want to move to alternative occupations.

So the argument is that if we could grow at 8-9% with so many constraints, we can definitely grow at 6-8% when infrastructure gets boosted and reforms are being put in place. That should be possible for 5-6 years at the least.

I do contend that bad policies can lead us to snatch defeat from the jaws of victory. The spanner in the works could be as follows:

1. No long term measures are taken to reduce fiscal deficit, subsidies. The first thing would be to take all off-balance sheet subsidies on to books and report them as part of govt balance sheet. Once we as govt and people start facing the reality, only then we can hope to change it.

2. A major part of current account deficit is due to oil imports. It is unwise to assume that a scarce natural resource will suddenly become abundant, so the govt policy has to allow freer pricing of oil products to reflect true demand and supply. It will curtail wasteful expenditure. Think for a moment petrol at Rs 80 or 100/litre and how it will change your life.

3. The savings of public are not utilized properly for public works and infrastructure.

4. Implementation problems. For many months NHAI has not been able to award highway projects. We want to get somewhere but it seems till elections are over, we will just sit tight and not walk forward!

 

Filed Under: Commentary



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