Falling GDP a Cause of Worry and Economicl Injustice
The GDP growth rate in fiscal 2012-13 was 5% as against 9% achieved only two years ago In fact it has been the slowest growth rate in the past ten years of which the present government has been in power for nine years. A fall of nearly 56% in less than two years period. Judged by any yard stick this is a matter of serious concern. It shows that our economy is not growing but is in fact registering negative growth. It is going down. For a country of India's size and population it is not good news at all.
Sharp declines have been registered in the manufacturing sector and the service sector. Both are mass and volume oriented. The conclusion that can be drawn is that the participation of a large number of persons in the economy has started declining. This is because of contraction in job opportunities, need to stretch the earnings over a longer period of time and reduction in pomp and show and outings amongst many other reasons. However one should not be surprised to hear at a later date that record number of tourists have visited hill stations and many restaurants and hotels are making more profits. This is because this section of India's population is too small to make a significant impact on the economy, which in itself is a study of contrasts.
India's nearly 60 to 70% population is dependent on agriculture and allied services, but their share of GDP is just around 14-16%. The rest of the population ie 30-40 % has access to 84-86% of the GDP. In fact the manufacturing sector has grown by 2.6% and the agricultural sector has grown by 1.4% last fiscal. Can it be worser than this. Inherently India's poverty is because of this highly imbalanced distribution of population vs income.
It is well known that due to low purchasing power the rural India is not able to buy goods and services commensurate with its size. Also in the urban population there is a saturation in demand occurring most of the time. This phenomena is further compounded by the considerable rise in prices of almost all commodities especially items of daily necessity like vegetables,milk.meat,fruits, cooking oils and petrol and diesel to name a few. Overall people are relatively spending more to buy less. Thus savings are taking a beating.
There is poor capital formation which leads to less investments and thus productive assets which can increase supply side do not get created adequately. This results in demand being more than supply leading to inflation which future erodes value of both fresh incomes and old savings. No doubt people care placing more faith in gold to beat the inflation a fact resulting in India being most of the time the largest consumer of gold on a annual basis , to the tune of 900 tons or more every year.It is estimated that nearly $50 to 60 billion worth of gold is imported annually by India. This is a classical case of such huge sum of money blocked in a non productive asset. It is interesting to note that China which claims to have a vibrant economy compared to ours also imports and its people buy nearly same tonnage of gold as India. Together India and China account for nearly 50% of global gold consumption. Deep cultural habits can not change overnight.
It is therefore clear that healthy growth in India's GDP is not likely to come from only domestic sector. It has its severe limitations as seen above in the skewed population to GDP share ratio. Removing it will need trillions of dollars in massive investments in all sectors of the economy. It is going to be a painfully slow process. We simply do not have such massive funds with us. However one need is clearly emerging. That their is pressing need to invest far more than at present in the agriculture sector so that its contribution in GDP can go up.This will give more income to the rural population and they can also become active participants in Indian economy rather than being fringe or marginal players ad at present. FDI in retail with proposed back end investments reaching agri sector was cleared but has so far not attracted any foreign player.
It is required to boost India's exports considearbly.That is from where the wealth will come. Internal trade is basically redistribution of static wealth in proportion to one's spending / earning capabilities. What really makes the country rich is exports for they bring money from an outside source. All economically affluent countries have strong earning from exports. India's exports are overall not growing at a healthy rate. It is almsot static at around $300-325 billion per annum levels. However our annual imports keep galloping and are around $475 and higher levels mainly due to petroleum, gold, defence equipment and raw mateirals and machinery etc items. Thus we are running a current account deficit since independence every year which also impacts GDP growth. Due to populist schemes the economy also carries a heavy burden of socially profitable subsidies. Further to fund these the goverment resorts to fiscal deficit which is reached a high of nearly 6%. Government ends up by borrowing from the markets and this pushes up the interest rates higher. Cost of money goes up. All this affects the Rupee-dollar exchange value adversely. The rupee looses value against the dollar making exports competitive but imports costly. However experience has shown that the export competivity does not last long.
All these taken together result in the slow or stagnation or negative growth of the economy. The growing population also dilutes the gains made by economy from time to time. Overall, while we do see progress but by and large the 'poverty' levels of most Indians remains relatively unchanged even with rising incomes. However the number of relatively rich and young persons with sizeable disposable incomes has also grown. but unless the population below poverty levelis does not rget educed to below 5% and the middle class expands to,say, 60-70% India can not become an affluent nation. How many decades it will take perhaps even God cannot compute. So complex is Indian economy and its constraints.
There are many sectors like education, health, infrastructure, insurance , tourism, It etc which need massivec investments to attain thei full potential commensurate with India's population size. It calls for highly imaginative leadership at the helm of country's affairs. It should also be capable of getting the much needed and much delayed economic reforms passed in the Parliament through consensus with opposition parties also. The Opposition parties should not come in the way such reforms so necessary to vitalize the economy.
It is now becoming clear that with static exports at present levels the GDP growth rate can be around 5%. To increase it, will require boost in exports and increasing investments in agri sector and reformso attract, both internal and external investors. India needs large doses of investments to boost its economy which will result in higher GDP and bring economic justice to larger sections of Indian society. Otherwise it is social and economic injustice with the vast number of poor people in the country.
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