In the last few months, there has been considerable media attention on the economy, specifically on the growth rate of the GDP. The dip in the growth rate for the April-June quarter has caused alarm in business newspapers and media channels, as well as among academics and opposition politicians. The return of the “Hindu rate of growth” has been bandied about as if to link it to the current political dominance of the BJP. In all such matters it is always advisable to apply a historical perspective.
Angus Maddison, a world-renowned economist, had assembled a GDP data set for countries from the year 1000 AD to 2000 AD.
The rates of growth tend to be below 5 per cent in almost all cases except the period 1950-2000 for China and 1980-2000 for India. One has to bear in mind that the figures for China are controversial as being politically determined, while Indian figures may be weak but not motivated by political considerations.
The United Kingdom, the world leader in industrialisation, has not ever reached 3 per cent during the last 1,000 years, while the United States attained substantial growth rates except in recent decades.
When we look at Table 1 (Indian annual growth rate figures from 1950 -2013), we get drastic fluctuation year by year, both in terms of the rupee at the time and when standardised to 2004-05 rupees.
The annual rate of growth in current rupee prices fluctuates far more than the annual rate of growth in standardised 2004-5 prices. But while the rate of growth in current prices is well above 5 per cent in most of the years, the growth rates in 2004-5 prices fluctuate below 5 per cent till the 1990s, after which they are almost consistently at or above 5 per cent. It is better to look at the total GDP (in crores) between 1950 and 2013 (Table 2). Figures, in current and 2004-5 prices, indicate its surprising growth over time.If the same figures — which vary between `10,000 crore and `1 crore crore — are reduced to logarithmic numbers and plotted, we get Table 3.
The steepness of the line indicates the average annual growth rate over 1950-2013 — 11.4 per cent in current prices and 4.84 per cent in terms of 2004-5 prices. Indians looking at these graphs should be quite proud of the country’s economic performance in aggregate terms. However, it must be borne in mind that while GDP growth is substantial and laudable in aggregate, in terms of the population — which has also been growing — there is much to be desired. With population growth rates also declining, we can expect higher per capita GDP in future.
The idea that the government can substantially affect GDP growth is a hangover from socialist planning and massive government intervention. That this did not happen to any substantial extent is not a failure of “Hindu culture” but the failure of socialist planning and inefficient and wasteful government expenditure. Market forces now dominate the economy. But we should not be carried away by quarterly estimates, which are early and tentative approximations subject to correction later.
Reports state that: (1) GDP growth at 5 per cent was much below the expected 5.7 per cent; (2) the GST collection is higher by 4.51 per cent on a year-on-year basis, but lower than the government’s expectations; (3) the Purchasing Managers’ Index fell from 52.5 in July to 51.4 in August (but was still above the critical 50 per cent mark); (4) in August, Maruti Suzuki sales fell to 106,413 units and Tata Motors’ domestic passenger vehicle sales were lower at 7,316 units.
On the other hand: (a) of the two new entrants into the automobile market, MG Hector received 28,000 bookings, and Kia received more than 30,000 bookings; (b) according to Fitch Solutions, India’s economic growth will pick up over the coming quarters and it trimmed its GDP growth forecast for the current fiscal to 6.4 per cent from 6.8 per cent previously; and (c) the retail inflation rate in June was 3.18 per cent, and in July it was 3.15 per cent, both remaining comfortably within RBI’s target level of 4 per cent.
Readers will notice that the “bad” news is not so bad in terms of difference in numbers and the good news is that inflation — which affects all citizens — is low. This situation exists despite re-monetisation, GST introduction, the terrible decades-old bank scams and resultant banking crisis and collapse of many corporates due to fraudulent operations or mismanagement. Or is it because of these factors? Either way, the end result in terms of GDP growth is not as bad as it is made out.