Published: The Economic Times, New Delhi, 08 October, 2004
By Pradeep S Mehta
The government headed by Dr Manmohan Singh speaks about 8% growth as something to aim for and achieve over the next few years, and reforming with Mungeri Lal’s face in mind.
The earlier government was aiming for a double digit growth, though they too swore by Mungeri Lal. However, the rate forecast by rating agencies like Moody’s is not too far from the more sceptical estimates of about 6.5%.
In the context of the mid-term review of the Tenth Plan, deputy chairman Montek Singh Ahluwalia too has been drawn into the debate, sounding the refrain that it will not be possible to achieve 8% growth in the balance period of the Tenth Plan.
Number-crunching will continue to dog the debate. There are various ways to skin a cat. Tragically very little attention is paid to measures which can expand the national income, such as by efficiency, conservation and savings.
On the basis of the estimated 10.4% rate in the third quarter of 2003-04, a jubilant former finance minister Jaswant Singh stated that 10% growth is sustainable; thus India was shining!
But the million dollar question which needs to be addressed is: has the economy done really well when actual figures are considered?
More importantly, could this rate of growth be sustained? The new government has taken a more sanguine approach to throwing about numbers, but it has to face the challenge of growth with equity.
It is a fact that our economy is still stuck at the 6-7% bar, and it is premature to claim that it has broken through this barrier.
Looking at the erratic behaviour of this year’s monsoon, can we expect to achieve a reasonable growth rate? Going by the experience of past years, the answer is a resounding No. This in itself makes an 8% growth rate difficult to achieve. To sustain it is all the more difficult a proposition.
According to more sanguine estimates, the Indian economy is expected to grow at an average rate of 6.5% in the coming years. Moody’s estimate is not far from the truth. But this too depends on how Dr Manmohan Singh manages the left parties.
Experts prescribe fiscal reforms, financial sector reforms, agricultural reforms, labour market reforms, foreign direct investment, investment in human and physical infrastructure, and reforms at the level of state governments to sustain high growth.
However, while productivity-enhancing measures are suggested to achieve a high growth rate, hardly any one talks about taking measures to curb wastages in the economy, which would contribute significantly to GDP.
If the government makes an effort to reduce wastage and usher in an era of good governance, a significant amount of GDP can be saved. A few issues:
Effective competition law: If the new competition law is effectively implemented, it could by itself contribute substantially to growth. A study in Australia has shown a gain of 5.5% of the GDP by effective implementation of competition measures, which included strengthening of the competition rules.
Non-merit subsidies: The subsidies on non-merit goods and services (such as in agriculture, irrigation, power, industries and transport) amounted to 10.7% of GDP (2001-02) or Rs 20,600 crore.
Poor delivery, with the undeserving getting a share, are some of the issues which need to be tackled urgently. Consequent savings are expected to be quite significant.
A system based on performance: Given the job security provided to government servants through Article 311, productivity level in government departments is quite low.
On the other hand the Fifth Pay Commission has raised the expenditure hugely without the concomitant pruning. It is imperative to set productivity norms and a performance-based management system, that rewards the good and punishes the bad.
Accountability: It is estimated that the government loses at least Rs 41,000 crore due to delays in more than 300 projects, which are all above Rs 20 crore.
Imagine the total cost of delays if all the central and state government projects are examined. Ensuring transparency and proper project management will help improve accountability and ensure timely implementation of works and will have a crucial multiplier effect on the whole economy.
Corruption: As per earlier estimates of Transparency International (India), Rs 26,728 crore is wasted every year due to corruption, and it is the poor who suffer the most.
It is argued that growth can be raised if institutions are made strong and decision-making is least arbitrary. It is imperative that systems are created to eliminate any discretionary power by outsourcing several government functions, and providing incentives to the anti-corruption squad, and so on.
Adulteration and counterfeiting: Action on adulteration and counterfeiting is ineffective. One estimate suggests that while the industry loses Rs 4,000 crore annually, the exchequer loses over Rs 2,000 crore. The loss to consumer will far exceed the sum total. The problem is widespread and prevalent in almost every industry.
Road safety: Economic cost to developing countries from road traffic mishaps has been estimated at 2-3% of GDP, and the effect in India will not be far from this mark. And there is no serious effort to reduce the same. Attention needs to be paid to improving road design and visibility of road signs, strictly enforcing laws on drunken driving, etc.
In conclusion, if these and other measures are implemented, the amount saved by the economy would be roughly around Rs 2,00,000 crore and lift the national income by 8.9% in one shot.
Even if the economy continues to grow at an average of 6-7%, one can imagine the additional income that would be generated because of a wider base as well as increase in efficiency that would follow from the above measures. And this will lead to a higher and sustainable growth rate.
True, this estimate is back-of-the-envelope, but it should not be way off the mark. Is anyone listening?