Lies, Damned Lies and Statistics -- III

Sitaram Yechury

 THE Election Commission has announced the schedule for the general elections to constitute the 14th Lok Sabha.  Mercifully, the BJP should put an end to the nauseating full-page advertisements and the blaring on the electronic media by the Vajpayee government about its `so-called' achievements.

Nevertheless, it is necessary to set the records straight regarding the false claims that the government has been making on the state of the economy.  We had, through these columns, stated that if the universal "feel good" factor orchestrated by the Vajpayee government is a lie and that "India shining" comprehensively on everybody is a damned lie, putting these to shame come the statistics that the government is continuously churning out.

Last week, we saw the hollowness of the claim concerning India's agricultural sector. Let us now examine the claims concerning the industrial sector.  The statistics put out by the Central Statistical Organisation (CSO) inform us that the incremental growth rate of the industrial sector, as a whole, increased by a mere 0.04 per cent over the growth rate of 2002-03. (In 2002-03, the growth rate was 6.44 per cent while in 2003-04 it was 6.48 per cent) Remember, even this meagre growth would not have been possible to show but for the exercise indulged in the downward revision of last year's growth rate by the CSO. 

As far as growth in services sector is concerned this was achieved by a big spurt in the sectors of tourism, hotels etc.  This clearly shows that the reversal of the drastic fall in international travel and tourism connected with September 11, 2001 has been the main factor bolstering the country's services sector growth. The growth in the production of basic industrial goods has, at best, kept pace with what was achieved last year. It is, therefore, totally absurd to project a sustainable 8 per cent rate of growth on the basis of this performance. 

As pointed out earlier, the growth rate of 8 per cent this year is based solely on the high agricultural growth rate which was directly connected with the good monsoons in the backdrop of a series of droughts. To consider this as a long term turn around in the Indian economy would be naïve. Any student of economics will tell us that to sustain an 8 per cent growth rate in the long term, it is necessary to have an investment rate of over 30 per cent of the GDP every year.  However, over the past five years, the investment rate has been stagnating at about 24-25 per cent of GDP.  What is more, fixed investment as a proportion of GDP has fallen appreciably from almost 27 per cent in 1995-96 to just over 23 per cent at present.

There is no evidence of investment revival taking place in the economy this year.  A recent study on corporate investment intentions by RBI in December 2003 shows that after a steep fall of 23.6 per cent in capital expenditure in 2001-02, there was a further fall of 9.1 per cent in corporate investment in 2002-03.  And in the current fiscal, as against capital expenditure of Rs 37,154 crore in 2002-03 on already sanctioned and new projects, the investment intentions with respect to new projects in 2003-04 amount to a mere Rs 19,518 crore.  It is impossible that the remaining part of 2003-04 would be able to garner an additional investment exceeding Rs 17,636 crore that is needed to register positive growth.

With the government steadily withdrawing itself from being a major economic player, any hopes for increasing the rates of investment are further dashed.  For, in the past, public investment has been the major component bolstering the overall investment rate in the economy. This has steadily been on the decline since the government's capital expenditures have, at best, stagnated, if not drastically fallen in certain areas like agriculture, during the course of these reform years.

The investment rate in any economy is directly dependent, apart from the degree of public investment, on the domestic savings in the economy. Currently, the gross domestic savings rate has been stagnating at 23-24 per cent of GDP.  While private sector savings have increased from 18 per cent of GDP in the late 1980s to about 26.5 per cent in 2002-03, public sector savings have fallen from about 2.4 per cent of GDP in the late 1980s to (-) 2.5 per cent in 2002-03. The poor public savings is eroding the investment capacity of the country for generating higher economic growth.

This is not surprising. In its urge to make available capital at a cheaper rate for the corporate sector, the government has been steadily reducing the interest rates in the economy. This has severely affected the quantum of savings that an average family makes. Consider the following: The whole sale price index currently is growing at 6.9 per cent. The consumer price index, naturally, would be much higher. As compared to this, the bank interest on savings is currently 5.5 per cent.  By saving a part of their earnings, people are actually loosing because inflation is higher than the interest rates. There cannot be greater disincentive for savings.

Therefore, any sustainable high levels of growth rates for India has to be based on dramatically increasing the levels of capital expenditures and public investment. The policies pursued by this Vajpayee government, on the contrary, are compressing public investment to levels that will dangerously deflate the Indian economy.

As far as the corporate world is concerned, it appears that they are not beyond the general Indian experience where the "feel good" factor is confined only to the top 10 per cent of our population. A recent survey (see People's Democracy, February 23-29, 2004) has shown that except for the top 100 corporates, the rest of the 900 corporates have shown not only a fall but as one goes down lower, a negative growth both in terms of sales and net profits. The top 100 companies by sales have collectively improved their share of the net profits of the top 1000 companies, from 62.48 per cent in 1993-94 to 87.03 per cent in the first nine months of 2003-04. 

In sharp contrast, the share of the next 100 companies (ranked 101 to 200 in the top 1000 sample) fell from 13.2 per cent in 1993-94 to 5.61 per cent in the first nine months of 2003-04.  Further, while the bottom 200 companies, ranked 801 to 1000 accounted for 3.06 per cent of the net profits of the top 1000 companies in 1993-94, they cumulatively made losses in the first nine months of 2003-04.

Even in the corporate world, India, after all, is not shining for everybody!

Even on the trade front, the situation is far from the rosy picture that the government paints. The growth of exports dropped from 42 per cent in December 2003 to a mere 8.7 per cent in January 2004.  As a result, the trade deficit almost doubled from $7.6 billion to $14.5 billion between April-January 2002-03 to April-January 2003-04.

So much so for the veracity of the government’s propaganda claims.  It is not without reason that even the champions of globalisation and the trumpeters of international finance capital like the London's The Economist has cautioned that the claims of "India shining" need to be tempered with existing reality. "First, India is still far too dependent on the vagaries of the weather. Agriculture counts for almost a quarter of its GDP, and last year's good monsoon was responsible for as much as 3.5 per cent of that thumping growth figure. Tradeable services, the cause of so much excitement, cannot provide the only motor for growth and employment. This kind of work is highly specialised, certainly far more so than low-end manufacturing. On the most optimistic projections, outsourcing will employ 4 million Indians, directly and indirectly, by 2008. Yet 9 million enter the labour market every year."

The Indian people will surely see through this Vajpayee government's orchestrated hype of disinformation. The millions of Indians languishing under the impact of these economic policies which have only enriched the rich and impoverished the poor are surely going to rise to defeat this government seeking the reversal of such anti-people economic policies.