Our ministers overestimate growth story

The nation awaits in a few weeks the report card of the Modi Government on completion of its first two years and its labours thus far to transform what it regards a by and large undeveloped India into a leading global power of the 21st century. So charged are its leading lights for that red letter day that they had begun to look askance at anything said or written by anyone meanwhile that tends to detract from the impending glory.

Even a person of the eminence of Governor Dr. Raghuram Rajan of the Reserve Bank is no exception and has to measure his utterance in tune with the celebratory times. What is worse, a sense of intolerance associated with this Government becomes explicit when Dr. Rajan is chided for not joining the “fastest-growing economy” chorus.

Defenders of the realm are peeved, not the least among them the most articulate Ms. Nirmala Sitharaman. Contextually, both Finance Minister Mr. Arun Jaitley and Dr. Rajan were in Washington last week for the spring meetings of the IMF-World Bank when they spoke at different fora and investment summits and aired views in interviews on the “bright spot” in the world economy.

First, let us not overlook reality and the distance to be bridged between ambition and performance, between policy pronouncements and physical outcomes, despite “maximum governance”, let alone the rush with half-baked financial proposals such as on provident fund and retirement benefits and subsequent backtracking.  To talk of faster growth without regard to key factors on what it makes for inclusive growth and jobs - a barren record so far - does not make us great.

No doubt, the prospect of a bountiful monsoon this year has uplifted sentiment all over and Mr. Jaitley expects good rains to push even the projected growth at 7-7.5 percent to rise to 8.5 percent and for interest rates to fall further on a continuing trend of low inflation. That India is the “fastest-growing economy” has been hammered home at every destination.

True, plentiful rains could have a spiralling effect on demand and productivity, and the Central bank is much more alert to inflation developments and the monsoon to determine how much and when RBI could take its accommodative monetary stance a stage further. As evidence builds up one way or the other on inflation and monsoon, according to Dr. Rajan, it will give more information on “how the trajectory of the monetary policy will be”.

Governor Rajan has always taken a more pragmatic look at the state of the economy and said while India was doing better than many nations – he has praised fiscal prudence - it has still to reach the point when it feels it could achieve its medium-run growth potential. Without giving himself up to the hype about “fastest growth”, Dr. Rajan notes things are falling into place.

Investment is starting to pick up strongly. “We have a fair degree of macro-stability. Of course, we are not immune to every shock, but immune to a fair number of shocks”, he has said. But what has caused the hullabaloo in North Block was Dr. Rajan’s story of “a one-eyed man being king in the land of the blind” even while he was putting in perspective India’s “fastest” growth story. 

Apparently unhappy, Jaitley had to assert, “we are growing much faster, compared to the world”. And Nirmala Sitharaman chimed in to say Dr. Rajan’s choice of words could have been better.

Indeed, this led Governor Rajan, without loss of time, to revisit his remark in a clarificatory exercise and spell out the semantics.

“Every word or phrase that a public figure speaks is intensely wrung out of meaning. When words are hung out to dry out of context as in the newspaper headline, it only becomes a fair game for anyone who wants to fill in, meaning to create mischief,” he pointed out

Secondly, It is pertinent to consider how India, all of a sudden, became the fastest-growing economy in the world, overtaking China. It was a consequence  of evolving major developments over the last two years  in China, the world’s second-largest economy, as it began moving away from excessive investments and exports hitherto to a more balanced and sustainable model for the future.

As China’s growth slowed down, India automatically moved a notch higher in the growth league. Internationally, India is now regarded as a country with great promise but, which has under-delivered in the past. This explains its status of being the poorest country on a per capita basis within BRICS, though its performance outshines the rest, given the deep recession in Brazil and contraction in Russia, apart from the corruption scandals now tormenting Brazil.

Pertinently, Dr. Rajan points out that our “outperformance was accentuated because world growth (mainly China’s) was weak”.   A central banker, who has to be pragmatic, cannot get euphoric if India is the fastest growing large economy. But growth has to give every Indian a decent livelihood. Payoffs would only follow strong and sustainable growth over the long term.

His sobering reminder for our policy-makers meanwhile is in regard to comparing ourselves with China. A smaller economy than India’s in the 1960s, China is now five times our size (14-trillion dollar economy). In per capita terms, a Chinese citizen is over four times richer than the average Indian. While potential growth is estimated currently at 8 percent, a NITI Aayog’s exercise talks of the need for India to grow 10 percent for ten years to reach or exceed the current China GDP.

Going into semantics, which is of greater relevance for the touchy politicians in power,  Dr. Rajan raises the question of weighing how much of our language is tinged with meaning that is liable to misinterpretation and how forgiving should “we be of a bad choice of words when the intent is clearly different?”  Speakers have to be more careful while listeners should not be looking for insults everywhere.

Dr. Rajan’s advice is more timely, in a socially distraught India at present, no matter the economic initiatives, as, he points out, if we do not communicate or debate, there is a danger of divisiveness increasing and that would be “disastrous” for a country conceived and flourishing in diversity. The Report Card can do no better than to acknowledge and endorse such pluralism and diversity. IPA