Saturday, May 13, 2017

Is India already growing at 10% plus in real terms? Who knows?

Don’t laugh as yet. The economy might really be growing at a rate higher than the economists calculate!

As a [bad but stupidly curious] student of economics, I know that you have a sophisticated way of measuring national income and all that goes with it. Over years so much research and development in this field has taken place that statistician-economists are supposed to know everything that is happening in the economy, even non-economic activities, and how to measure them.

And they have come to a figure of about 7.2%, the rate at which the economy would grow in 2017-18. Government economists claim, if things go well, it would grow at 8% in the years to come. Opposition economists find many fundamental things going wrong and feel that the economy is somehow maintaining a growth rate that would have been higher, had right decisions been taken.

NEGATIVE NEWS FIRST

Take, for example, demonetisation. Many economists tell us, domonetisation would take 1-2 notches out of growth figure for the year. Some say, its negative impact in the long-run would be much more than what is written about.

'Make in India' is supposed to be not taking off and Swachhata and Namami Gange not producing much results, and if you believe the recent article in Caravan and before that reports on some news channels, almost nothing is happening on the ground.

Some like to sober down the low inflation with no perceptible gain in employment generation.

OPTIMISTIC NEWS FROM ECONOMISTS' POINT OF VIEW

Not that bad, a politically neutral rational economist tells us; a government-leaning economist writes that great things are 'happening' in the economy. You pick up the paper, mag or TV channel of your choice and you have articles of all hues.

Having sampled the bad ones above, let's see some highly optimist ones:

GST, for example. This is one of the biggest tax reforms undertaken ever in India, we are told. Whether part of the credit goes to the previous regime is a matter of political debate, but nobody is doubting the likely positive impact of this reform on the economy. An ex-Finance Minister, of course, feels in the present form it cannot be properly implemented - but not many seem to be subscribing to that view.

'Make in India' and indigenization of defence production, acceleration in road construction, port modernisation and similar other major initiatives are supposed to lead to acceleration in economic growth and employment generation in a big way. Some find monetisation too a long-term positive.

THE INVISIBLE, UNMEASURED DEVELOPMENT

What provoked me to write this piece is that I find a lot of activity that is happening in India, which perhaps would not be measured by statisticians and thus will not be counted towards economic growth till it produces 'economic' outcomes. However, these are so substantial that they must already be resulting in a very high level of 'real' development.

Take the Swachhata campaign. Prima facie, this does not give any votes to the government and it might take away some. (Who knows, many thought demonetization was a political hara-kiri, isn't it?) Nobody is also betting that it will be fully successful, seeing the ground realities (no water, habits, exploitative intermediaries, highly deficient implementing agencies, asset maintenance issues and so on). But even if it is successful to, say, 25 percent, it would have reduced much more than that percentage of diseases and some percentage of premature deaths. If only 25% more households build toilets and use them, women's dignity would go up by 100% in those households. There are many not-so-obvious and some long-terms gains to be made through this singular programme. In direct economic terms, it would be hardly much. In fact, if there are fewer diseases, medical activity is lessened to that extent, people spend less on medicine and transporting the patient to big hospitals. That makes it a growth-negative activity. Perhaps adequate checks are applied against such calculations when computing national income, but definitely, being clean and disease-free does not add to economic activity.

Replacing ordinary lights with LED lights is of paramount importance. It has already resulted in millions of units of electricity saved. Its equivalence in terms of electricity created is much more, because energy creation is partly a polluting industry and also the electricity produced is only 90% efficient after considering transmission losses and last-mile costs.  I don't know, since less energy is to be created for the same amount of electric work/ lighting, economists-statisticians might be considering it as an activity that reduces economic growth!

Solar energy has taken wings after this sector was given some investment protection. Though the energy produced, job creation and investments would count towards national income, its huge positive impact from environmental and energy-sufficiency angles will go unmeasured. My understanding (I wish it were fully wrong) is that instead of using solar panel to produce x units of energy, if we used coal to produce the same number of electricity units day after day, and spent lots on transportation, ash disposal and also environmental restoration work, that would be considered much higher level of generation of national income.

Aadhar's [near] universalisation for providing subsidy to the needy is another non-economic activity whose developmental contribution is enormous. Same goes for Jan Dhan Yojana, even if you say a large number of accounts have been opened by banks to meet targets. This and demonetisation have leap-frogged the economy into digital economy, a transition that would have taken ten years at the normal rate and the world would by then have gone five generations ahead in terms of technological modernisation. Other actions towards cash-less economy together are likely to reduce corruption in general, and make traditionally black-money ridden sectors (e.g. real estate) part of clean economy.   In terms of immediate income generation, the contribution of such measures is not much, I reckon.

Five lakh (or is it much more now?) people are supposed to have given up subsidized LPG in favour of the poor. It is not an economic activity at all, but its impact on transfer of money where it is required is appreciable if not enormous.

Now take the renewed focus on defence production, road expansion and port infrastructure. In economic terms, these are like any other factory or infra project. But their indirect benefits in terms of national and individual savings, public convenience, distribution of wealth across regions, rise in efficiency, self-sufficiency and so on are seldom captured.

These are just some examples that come to my mind as I type this article. Maybe, some of the activities mentioned by me above might be getting captured in growth estimates.

The 10% figure in the title is just a number; it could be 8, 9 or 11. What I am trying to say is that many recent big-ticket actions taken by the government and some arising out of the momentum of new tech are quietly adding to development of the country beyond what is being measured. Is that the reason for high PMI and confidence indices for India? Is that one of the reasons for high foreign mutual fund inflows into India?

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