There is an interesting phrase in Sanskrit that fits the Economic Survey like a glove, Vachnam Kim Daridrata. Translated into an American slang, it would mean Talk is Cheap, why be poor. Expect more of this as the government has nothing to show. The Economic Survey and the government need a reality check.
There are two parts to the Economic Survey: volume 1 talks about the agenda for the future, volume 2 is focused on the state of the economy and talks about the way things stand today. The two volumes seem to be talking about two different countries and contradict each other. Sidestepping the issue of consumption slowdown is not going to benefit India.
The Economic Adviser tells us to change tracks and move from a consumption driven economy to an investment and export driven economy, like China. Great ideas colourfully presented but it is designed to take away our attention from the mess that we find ourselves in. We have heard all of this before and 5 years is a long time.
In volume 1, Chief Economic Adviser Krishnamurthy Subramanian talks about how investments and exports could drive our future. Good intentions yes, but a look at volume 2 tells us that an uptick in exports is not happening anytime soon. “Nominal growth of both merchandise exports and imports declined in US dollar terms in 2018-19, as compared to 2017-18. However, the decline was much sharper in merchandise imports, which reduced from 21.1 per cent to 10.4 per cent,” volume 2 says.
It is important to put the numbers in the right perspective: Indian exports stood at $318.6 billion in 2013-14 to $280 billion in 2016-17 and have grown 4% over the last five years to end at $331 billion last year. It is ironic that we talk about expanding exports when the current Finance Minister had presided over a phase where Indian exports went through a period of meltdown.
The story about investments is broadly similar. In volume 1, the Economic Survey says- “growth can only be sustained by a “virtuous cycle” of savings, investment and exports catalysed and supported by a favourable demographic phase.” The government says “Outlook of Indian economy appears bright with prospects of pickup in growth in 2019-20 on back of pick up in private investment and robust consumption growth.” Another great idea but if you look at the second volume, it shows you the kind of mess we find ourselves in.
People will be able to invest if they have savings and this is a luxury that few Indians have today. “There has been a decline in savings rate as well, with the household sector entirely contributing to the decline. Household savings declined from 23.6 per cent in 2011-12 to 17.2 per cent in 2017-18,” the Economic Survey says.
The government claims that the prospects appear bright because of “robust consumption growth.” While the government may want to believe that growth in private consumption is high, there is nothing on the ground that suggests that we are looking at a revival in growth. Car sales are declining by almost 20% and FMCG sales are stressed. The government itself acknowledges that “Growth in private final consumption expenditure (PFCE) increased to 8.1 per cent in 2018-19, although within the year, the growth momentum slowed in the last two quarters.”
The Economic Survey and all the talk about a 5 trillion-dollar economy is a distraction to hide the mess that we find ourselves in. We can keep talking about exports and manufacturing for the world but the fact is, nothing of this sort is visible on the ground and the government knows it. “Production in manufacturing sector as measured by IIP slowed down to 3.5 per cent in 2018-19 from 4.6 per cent in 2017-18,” the survey notes and also says the contribution of unorganised sector to growth of manufacturing sector declined in 2018-19.
The biggest problem, however, lies in the rural sector where things are bad and are getting worse. “There was a significant decline in food prices in 2018-19 as indicated by nearly zero per cent consumer food price inflation in 2018-19 with prices contracting straight for five months in the year This is reflected in the decline of the nominal growth rate of GVA in agriculture from 7.0 per cent in 2017-18 to 4.0 per cent in 2018-19,” the report says.
The rural distress, however, is getting worse as rural wages have been on the decline. The government has finally acknowledged what Congress president Rahul Gandhi had been saying for the last three years. “Rural wages growth which was declining seems to have bottomed out and has started to increase since mid-2018,” the report says. What they are essentially saying is that rural wages have been on the decline over the last several years and have now reached rock bottom.
The media and the experts seem to be happy to discuss the 5-trillion economy red-herring. It is time for the government to be honest and not hide behind ideas like the virtuous cycle. There can be no greater virtue than truth.