February 28, 2013

government of india's economic survey for 2012-13

Even as the India's finance minister presents the country's annual budget today, the Economic Survey for 2012-13 was released by the finance ministry yesterday (Wednesday, February 27, 2013).

I contributed an editorial yesterday for the newspaper I presently work for dwelling on the Economic Survey for 2012-13. Here is what I wrote in it:
Exuberant in troubled times

The government is being daft in its excessively optimistic growth projections for next year
This is a time when seasoned economists and analysts are convinced the various economy-related figures of the past one year point towards a floundering economy. So, if the current government gets very optimistic, and overtly at that too, about the immediate prospects of the domestic economy, as its Economic Survey for 2012-13 clearly seems to suggest, then it would have most likely broken into a exuberant jig had the economic growth indicator of gross domestic product for the current financial year been growing at a rate just a little more than the previous year's 6.2 per cent. 

But the fact remains that the government's advance estimate points to only a 5.0 per cent growth in GDP at factor cost 2004-05 prices. The hearty optimism of the government is seen in its GDP growth estimate of 6.1-6.7 per cent for the next financial year of 2013-14. Such a bounce back is not impossible but given the recent past track record of wide gaps between advance estimates and future actuals it can not be taken be casually accepted. 

One just has to look to last year's Economic Survey of 2011-12, where the government's advance estimate for GDP growth in 2011-12 was 6.9 per cent and estimated growth for 2012-13 was given as being between 7.35 per cent and 7.85 per cent. The first revised estimate for 2011-12 growth rate has turned out to be lower at 6.2 per cent and the new advance estimate of 5.0 per cent growth for 2012-13 is 2.35-2.85 percentage points below the earlier estimate. 

What makes it worse is that the Economic Survey for 2012-13 presented no real evidence for making its 2013-14 projection of 6.1-6.7 per cent growth rate except for stating assumptions such as normal monsoon, futher moderation in inflation and mild recovery of global economic growth.

The consequences flowing out of the post-2008 crisis period have tended to vex even the most experienced in the economists fraternity and cause them to make circulatory arguments. It is, therefore, not surprising to read, in the government's Economic Survey for 2012-13, that the fiscal stimulus given in the immediate aftermath of the 2008 financial crisis is a key factor behind the current economic slowdown. It says this boosted consumption so much that it led to strong inflation even as it also pumped up the GDP growth rates to 8.6 per cent and 9.3 per cent in 2009-10 and 2010-11 respectively, up from 6.7 per cent in 2008-09. Consequent monetary tightening measures by RBI (Reserve Bank of India) led to reduced consumption and reduced corporate and infrastructure consumption. 

Well, no one in the government or economist fraternity thought it fit to anticipate this during the 2009-11 two year period, basking as they were in the high growth rates. The interesting aspect in all this is that much of the stimulus package, particularly sharply-lowered excise tax rates, continues till date, and there is no satisfactory answer as to why this did not sustain the production growth rates as indicated by the GDP measure. Higher interest rates can not be sole factor behind reduced production nor was there anything stopping the government from stimulating investment in infrastructure to reduce the much-touted supply bottlenecks if it really wanted to provide a stimulus to the economy. 

There can never be an ad-hoc economy-pumping policy-driven measure which will not have its adverse side-effects. Going forward, in the much-needed efforts to revive economic growth, this lesson must not be lost and ad-hocism should be avoided. The Survey does, however, seem to recognise this when it boldly recommends reduction of fiscal deficit through slashing of subsidies on diesel and other similar measures. Today's budget presentation by the finance minister will provide more details of the government's handling of the economy and the next one year will be a challenging one for everyone concerned.

No comments: