Chidambaram and growth numbers

Application of statistics to bolster weak arguments and support wrong conclusions has been aptly summarized in the phrase “lies, damned lies and statistics”. Numbers by themselves are never wrong. More often than not, problem lies with their interpretation. This is particularly true in economics where one may have terabytes of data which can be presented in any which way as per one’s convenience.

When there was a comparison between GDP growth rates achieved during the tenures of UPA and NDA, finance minister P Chidambaram touted that the India had achieved unprecedented growth rate in UPA1 (almost above 9%) while NDA never secured more than 8%. Going purely by growth rates, the argument looks correct. But such superficial analysis conceals the real truth. Economic growth in any particular year cannot be an overnight phenomenon. The groundwork has to be laid many years in advance in the form of sound economic policies, gross capital formation, high savings rate, consistent investment friendly policies and all this later translates into solid economic growth. The NDA government under Vajpayee did exactly that. Some of its significant contributions include the Golden Quadrilateral Highways project, power sector reforms, dismantling administrative price mechanism, and successful deregulation of telecom sector. These visionary steps laid a solid platform for years of high growth which were to follow.

Economy is all about momentum. Once it settles in a particular trajectory, it takes at least 2-3 years to shift the momentum either for better or worse. Vajpayee inherited an economy that grew at a dismal sub-5% level, turned it around and left a growth rate of more than 8% when he left office. With that, the UPA inherited an economy with sound fundamentals and growth momentum behind it. It also benefited by a more conducive and benign global environment. Hence, it is inaccurate to quote just two numbers and suggest that one government was better than the other. If growth numbers in a particular year were the only yardstick, then right since 1947, India grew at a snail-like socialist pace of 2-3% which was derided as the ‘Hindu rate’ of growth. So, will the current finance minister agree that 50 years of Congress rule was one of the worst phase in India’s history? Or in the year 1997-98, when Chidambaram became the finance minister for the first time, India grew merely at 4.3%. By that logic, NDA did phenomenally well than Chidambaram’s first tenure as finance minister. Even more, Dr Manmohan Singh is regarded as the man who liberalized India in early 90s. But does anybody know the growth rate during Manmohan’s first budget was a dismal 1.4%, one of the worst in India’s history.

When confronted with dismal economic record in recent years, the Congi spokies have been quick enough to blame the global environment. Nothing can be more far from truth. Unlike other export-oriented Asian economies, India is primarily driven by domestic market. Are global factors responsible for the slowdown in road construction and destruction of contracting? Should we blame global slowdown if we don’t create enough electricity or extract enough coal to keep our power plants running? Is America responsible for mega scams like 2G that almost killed the promising telecom sector? How can the responsibility of pathetic slowdown in agriculture be passed on to the recession in European Union? If the entire world is slowing down, why are the corporate not willing to invest in India and buying assets elsewhere? Our dismal failure in creating skilled workforce, promoting manufacturing, taming inflation, and ensuring financial stability is only due to lack of leadership and commitment. This cannot be glossed over by passing the buck to foreign countries.

For the sake of argument let us even assume that global slowdown is responsible for putting the brakes on our economy. By that argument, the state that should have been impacted the most is Gujarat. It alone accounts for 22% of India’s exports and has a huge share in gems/jewellery, pharmaceuticals, textiles, engineering and chemicals. Merchandise exports, trade and commerce contribute more to its GDP than any other state in India. But what we have seen in the past decade is that in spite of difficult global scenario, Gujarat consistently managed to achieve a double digit growth rate while India’s economy went on a downward trajectory.

National GDP is nothing but an aggregation of the GDP of states. So, the national output can grow only if there is an overall increase in the output of individual states. As per the recent Planning Commission report ranking states in terms of their GDP growth rates, all the top-5 states were under non-Congress rule. Therefore, if Chidambaram wants to pat his back for national growth figures, he should be grateful to the contribution of more efficient non-Congress governments who have shown the way.

As highlighted earlier, growth in a particular year should not be used as the only yardstick to judge any government’s performance. The final consequences of its policies and decisions become clear only over a period of time. A government might not be able to reap the political fruits and economic goodwill of sound and disciplined policy making. And when you fail to deliver, the easiest way out is through populist policies which might give you immediate political dividends, but it will be subsequent governments who will bear the brunt. No surprise that after hibernating for more than 3 years, the UPA suddenly realized that India needs direct cash transfers, food security bill, land acquisition bill and seventh pay commission. Unfortunately, unlike the UPA, our next government will inherit a very fragile economy, and will spend its first 2 years only in repairing the colossal damage that has already been done. That’s why in india we say – “Good economics is not good politics and vice versa.”

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