If savings keep up, the government will have actual space (not an ‘announcement-effect’ only) to divert some real resources to infrastructure investment: And the virtuous growth cycle will begin. (Representational image)
(Written by Yoginder K Alagh)
We have been going through a bad patch. But there was a ray of hope that the Budget would consolidate the forces of growth since the monsoon may be good and manufacturing output growth was no longer in the negative quadrant. We were not dreaming of 6 to 7 per cent plus growth: The bad news from the IMF, that we are growing between 4.5 and 5 per cent this year, was factored into our anticipations. But the consolidation of the 2.7 per cent growth in manufacturing was doable: The Budget didn’t do it. Instead, it yet again spoke of a slew of “Reform Mantras”.
The first thing, it said, was to increase public investment and not play statistical or token announcement games. The speech again “showed” a large increase of expenditure by comparing the budget estimates with the revised estimates of 2019/20. BEs get revised down by October and an increase is shown in the budget in percentage terms. In fact, this is not a stimulus. The upswing in manufacturing growth, from negative to slightly less than 3 per cent (not industrial growth, because that includes mining and electricity), needed consolidation. Real outlays on infrastructure needed to go up, but they did not. So the push to private demand and a virtuous cycle of growth was missed. The implicit numbers in the Budget math comprise growth of around 7 per cent, assuming a 5 per cent inflation rate.
For agriculture, in the medium-term, we are alright. Kharif grain production was 6.4 per cent higher than the previous five year average output and kharif oilseeds output around eleven lakh tonnes above the earlier year. This was, however, based on a delayed monsoon which caused problems and anxieties in the second quarter of this year. Food grains are doing well and we have huge food stocks: But, instead of a blessing, the government turned public operations in grain into a nightmare by announcing that FCI will unload grain at a reserve price less than MSP. Rabi acreage recovered and is now 8 per cent more than last year, but the policy of government operations to reduce the market price of grain by its intervention is a nightmare. This is bound to affect input growth in the expanded acreage in the winter crops.
Are there no economists in the decision-making circles of the government or are they just ignored? The terms of trade are going against agriculture, according to CACP (Commission for Agricultural Costs & Prices) estimates, and this will make it worse. While the fundamentals are alright, to wallop the farmer with a “cut in the reserve price”, honestly, is a dim-witted thing to do. The rabi report of CACP will say that the terms of trade have gone down more: Nobody reads them, and if the CSO says it, that report will be suppressed, for we have learnt the art of shooting the postman.
So, some unsolicited advice for North Block: Please don’t cool down the stimulus and start getting back only to “reform” to keep the economy going. If your gross savings and investment rates keep on falling, don’t expect the economy to revive. If savings keep up, the government will have actual space (not an ‘announcement-effect’ only) to divert some real resources to infrastructure investment: And the virtuous growth cycle will begin. Into that land of truthful Achhe Din, my master let my country awake.
This article first appeared in the print edition on January 31, 2020 under the title “Stay With Stimulus”. The writer, a former Union minister, is an economist.