TOI2017 ⁽⁶⁾

Read full article Abstract: In the immediate post-Second World War era, following the then consensus view, nearly all emerging independent countries chose the path of import substitution to achieve industrialisation. But by early to mid-1960s Singapore, Taiwan and South Korea had broken away from this consensus and switched to export-oriented strategies. They soon achieved growth rates of 8-10% for the following two to three decades. India chose to stay course, deepening import substitution yet further. Our imports as a proportion of the gross domestic product (GDP) dropped to just 4% in 1969-70 from the peak of 10% in 1957-58. By mid-1960s we had banned consumer goods imports, which took away the pressure on domestic producers to supply high quality products. The “domestic availability” condition additionally denied our producers access to world class raw materials and machinery whenever equivalent domestic products, no matter how poor in quality, were available. Quality of our products plummeted and they failed to compete in the global marketplace. Poor performance of exports in turn created foreign exchange shortages, which led to yet greater tightening of import…

Read full article Abstract: There is general agreement that tepid growth in bank credit has been a major obstacle to launching the economy into a 8% plus growth trajectory. Bringing credit growth back on track in turn requires restoration of the health of Public Sector Banks (PSBs). Before I turn to the issue of how we might restore the health of PSBs, let us get the facts on the slowdown in credit growth right. Today, it is universally believed that the annual growth of credit advanced by the Scheduled Commercial Banks (SCBs) in 2016-17 fell to 5.1%, the lowest in six decades. This is the figure in a widely quoted April 2017 PTI story. The latest data in the Reserve Bank of India (RBI) Handbook on Statistics show, however, that SCB credit has actually grown 9% in 2016-17. This is far from the lowest in the past six decades. For example, at 5.7%, credit growth in 1993-94 was more than 3 percentage points lower. It deserves noting that the 9% figure represents continuity rather than a sharp break from the…

Read full article Abstract: Reviewing the fascinating book Progress by Swedish economic historian Johan Norberg, the Economist recently wrote, “People are predisposed to think that things are worse than they are, and they overestimate the likelihood of calamity. This is because they rely not on data, but on how easy it is to recall an example. And bad things are more memorable.” These words aptly summarise the nature of the recent debate on growth in India. During 2014-15 to 2016-17, the real gross domestic product (GDP) at market prices grew 7.5% on average. This growth came on the heels of below-6% average growth during the last two years under the United Progressive Alliance (UPA) government. However, when the Central Statistics Office (CSO) first released its estimate of robust 7.4% growth in 2014-15, most commentators including many of our leading economists rejected it arguing that it did not match their own assessment of reality on the ground. The common refrain was that the economy did not “feel” like it was growing at such a high rate. Citing collapsing corporate profits and…

Read full article Abstract: Few disagree that when the present government took office three years back, the economy had been in great difficulty. Going by the new GDP series, growth had fallen to 5.6% in 2012-13 and 6.6% in 2013-14 compared to 8.3% during the preceding nine years. Inflation and the current account deficit were high. There was deep paralysis in decision-making, infrastructure projects were stuck in all areas, corruption scandals had been breaking out all around and investors were terrified of retrospective taxation. Today the decision making process has been unblocked, infrastructure building has gained momentum, corruption has been reined in and fears associated with retrospective taxation have been assuaged. As a consequence, growth has been restored. The economy grew 7.2% during 2014-15, 7.9% during 2015-16 and 7.1% during 2016-17. Alongside, inflation has dropped from 8% during the first four months of 2014 to below 4% currently. Foreign direct investment during the three financial years of the government has summed to $156 billion with the flow during 2016-17 alone being a record $56 billion. These indicators do not reflect…

Read full article Niti Aayog turned two years old yesterday. The anniversary offers an opportunity to reflect on how the new institution differs from its predecessor, the Planning Commission, and what functions it performs. Two key activities of the Planning Commission had been to prepare and implement the Five Year Plans and to allocate financial resources to states. Neither of these activities forms a part of the mandate of Niti Aayog. The Twelfth Five Year Plan, which will conclude on March 31 this year, will be India’s last Five Year Plan. Likewise, Niti Aayog does not allocate any financial resources to states. The 14th Finance Commission raised the share of states in the divisible pool from 32% to 42%, leaving no additional funds for allocation to states through Niti Aayog. The annual resource allocation exercise that brought state chief ministers to the doorstep of the Planning Commission is now a thing of the past. Among many functions that Niti Aayog performs, three stand out: promotion of cooperative, competitive federalism; assisting the central government in policy making; and serving as the…