One-eyed king among the blind

Reserve Bank Governor Raghuram Rajan’s comparison of India’s high growth to the one-eyed king in the land of the blind is apt as it comes at a time of mixed signals on the health of the country’s economy. On the one hand, there is an uptrend in the industrial production index, and on the other, the stock market has shown a declining trend over the past year. Similarly, the monsoon outlook for the current year has been described as normal by the Met Department, but we continue to have grave and distressing reports of effects of an acute drought for the last two agricultural seasons in large tracts of the country. Television visuals of children surviving on roti and salt in the drought-affected states come side by side with reports of IPL matches using huge quantities of water for their pitches.

Mr Rajan seems to be acutely aware of the vast gap between perception and reality on the economic front. The economy may be growing at 7.6 per cent, the highest in the world, but the benefits of such growth have yet to percolate down to the poorest of the poor. It has been, in fact, the much reviled food security legislation launched by the previous UPA government that has ensured that those suffering in drought affected areas have sufficient stocks of wheat and rice. But in the absence of purchasing power to buy other food items like vegetables, only salt or milk are available to supplement these cereals.

In this backdrop, it is a cruel irony to be speaking in euphoric terms of India being the fastest growing economy in the world. Finance Minister Arun Jaitley has rightly said in the U.S. that India's growth rate is not enough by its own requirement standards and the country has the potential to do better to achieve its goals. Besides, recent data is giving diverse hints about the outlook for the coming year. The recent industrial production data, for instance, shows output finally rising by 2 per cent in February after three months of contraction. This does not indicate a trend as yet and the manufacturing sector still remains at a low 0.7 per cent. The Index of Industrial Production (IIP) has shown buoyancy largely due to a steep rise in electricity production and mining output. But it comes along with other data showing a sharp rise in the consumption of petroleum products which is normally linked to higher industrial activity. The other positive indices include a rise in the composite manufacturing and services Purchasing Managers Index (PMI) to a 37-month high. 

 At the same time, reports say the latest Labour Bureau data on jobs growth shows that the job creation fell to a six-year low of 1.35 lakh in 2015.  This is against 4.21 lakh jobs in the previous year. The October to December 2015 quarter has also recorded a decline of 20,000 jobs, as compared to a rise of 1.17 lakh jobs in the same period in 2014. This is the worst performance for the period over the last six years.

Simultaneously, the real estate sector remains in the doldrums. Housing developers have not reacted positively to the latest legislation providing relief to home buyers from prolonged delays in housing projects. A revival of this sector can provide a big impetus to the economy as construction projects provide employment and also stimulate demand for cement and other raw materials. Export contraction has also been a worrying factor. 

In addition, the stock markets have been volatile over the past year and the trend has consistently been downwards despite perceptions that the country's investment climate has become more favourable. The Sensex has fallen from 27,886 a year ago to 25,626 or so. One of the reasons for the bearish trend is the impact of turmoil in global markets due to various factors like sliding oil prices, slowing down of China's economy and the withdrawal of quantitative easing by the U.S. Federal Reserve. At the same time, there is little to enthuse the markets in terms of major domestic policy reforms. The budget has, however, tilted the scales with the expectation that it will lead to a larger spending on infrastructure. Markets have perked up subsequently but volatility continues to be the order of the day.

In this scenario, the prediction of a normal monsoon this year has raised hopes that an economic recovery is on the way. After two years of drought, the prospect of adequate rainfall with an equitable distribution is a welcome development, especially since it comes at a time when policymakers have to face the challenge of an acute drought in many states. It is at a time like this that the MGNREGA has assumed critical importance. No wonder then that even the Supreme Court has pulled up the Centre for not disbursing these funds on time to states when there is an emergency need for providing employment and wages to people in these regions. 

The outlook for an economy that is apparently sprinting along on a high growth path should have been a sunny one. The fact, however, is that this is an economy moving slowly in many areas, especially jobs and manufacturing growth. Agriculture that continues to employ over 40 per cent of the workforce is also an area of slow growth, with prolonged drought having worsened the situation.

Mr. Rajan was, therefore, not wrong in hinting that India’s apparent high growth conceals a morass of problems. The extreme levels of deprivation that have been reached in the drought-affected areas are a complete contrast to the image of India as an emerging economy with a burgeoning middle class and a huge skilled workforce of IT professionals. The water train has become the new symbol of development in a country which prides itself on having sent a mission to Mars. Countries which have much lower growth rates currently would certainly prefer to avoid having the huge income disparities prevalent in our country. India is thus indeed the one-eyed king in the land of the blind.