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VIEWPOINT: POLITICALLY CORRECT
Growth Pangs
The Government's growth target has gone awry. So what
is the PMO doing?
By P. Chidambaram
 The
Approach Paper to the Ninth Five Year Plan (1997-2002) targeted a growth
rate of 7 per cent. The National Development Council (NDC), which comprises
chief ministers and Central ministers, was called to meet on January 16,
1997 to endorse the paper. A good year was drawing to a close. The agriculture
sector had revived and both industry and services were maintaining a steady
growth rate. It was a time for celebration and optimism. As it turned
out, 1996-97 witnessed the highest growth rate (7.8 per cent) since liberalisation.
 Yet,
as finance minister, I was cautious. I thought it was my duty to forewarn
the NDC about the implications of a growth target of 7 per cent. Needless
to say, the paper had made certain assumptions about the savings rate,
the investment rate and productivity. I was not sure whether these assumptions
were clear to the assembled chief ministers and ministers. Therefore,
I said, "Before the NDC endorses the growth rate target of 7 per
cent, the investment rate of 28.6 per cent, the savings rate of 26.2 per
cent and the expected incremental capital output ratio (ICOR) of 4.08,
I would urge you to understand the implications which these targets entail.
I also urge you to resolve to take the hard political and economic decisions
which are necessary to attain these targets."
When the BJP-led government took office in March
1998, the first year of the Ninth Plan (1997-98) period was coming to
an end. It was not a good year. There were both good and bad omens, and
the East Asian crisis loomed large over the Indian economy. Nevertheless,
one of the first announcements made by the new prime minister Atal Bihari
Vajpayee was that the targeted growth rate during the Ninth Plan would
be stepped up to 8 per cent. It was a dramatic announcement, but it left
me totally bewildered. I asked myself, was the prime minister properly
briefed? Sceptics notwithstanding, there was full praise for the bold
announcement.
Three years have passed. Since 1998, the savings
rate and the investment rate have actually declined by 1 per cent and
2 per cent respectively. Foreign direct investment (FDI) has also declined
as have the resources mobilised from the primary market. There is no evidence
that the ICOR has remained above 4. It is now absolutely clear that during
the Ninth Plan period the gdp will not register a growth rate of 7 per
cent, not to speak of the revised target of 8 per cent.
From time to time the Prime Minister's Office
(PMO) unleashes a barrage of activity. One day, the PMO will bless the
idea of pump-priming the economy through enhanced public investment. The
next day-actually the next day-it will pour cold water on that idea. The
PMO will suddenly take a fancy for tourism. So the new minister for tourism
gets a spanking new Tourism Advisory Council to get over the sulks. A
bright PMO official will detect the decline in FDI. So what? Call N.K.
Singh, and he will recommend the abolition of the Foreign Investment Promotion
Board and the creation of another body with-and this is the delectable
part-overseas branch offices.
When nothing works, the PMO will leave the economy
in the care of the finance minister and turn to the Taliban and terrorism.
Meanwhile, Finance Minister Yashwant Sinha continues
in his state of denial. He denies responsibility for the UTI fiasco, for
the parlous condition of the stock market, for foreign investors pulling
out of virtually every sector-power, telecom, pharmaceuticals. He denies
that there is a worrying decline in revenue collections. He denies that
the fiscal deficit will worsen this year.
Sinha's problem seems to be an incapacity to
win and retain the trust of his senior officials. In four years he has
appointed and then replaced four finance secretaries (Montek Singh Ahluwalia,
Vijay Kelkar, P.G. Mankad and Ajit Kumar) and an equal number in each
of the other departments under his charge. His fifth budget in a row will,
presumably, be presented with the help of C.M. Vasudev, his fifth finance
secretary in a row.
The previous Economic Survey claimed that the
real GDP growth rate in 2000-1 was estimated at 6 per cent. The official
word now is that it was perhaps 5.2 per cent. My guess is that when the
actual figures come in it will be 5 per cent or less. The current year
presents a more depressing picture. If the recession which has hit the
world does not lift by the middle of 2002, even the following year (2002-3)
will witness a disappointing performance.
Three years of 5 per cent growth will mean that
Vajpayee's ambitious growth target of 8 per cent in the Ninth Plan has
gone up in smoke. Not only that, the Tenth Plan would have got off to
a false start in the very first year.
Is anyone in the Government listening?
(The author is a former Indian
finance minister.)
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