Bachhan's Fair Lady and the IMF Deputy Chief Geeta Gopinath Predictions of GDP Growth
Recently, the IMF has published a GDP forecast in which India appears to be on the top in growth. However, the IMF does not have its own data bank but relies on what it is being fed by the respective governments. The accuracies of the data are not uniform across the countries and given the structure of the IMF it’s forecast could not be construed as objective. For example, at the Indian Econometric Society Annual Conference held in 2010, Arvind Panagaria based on the IMF forecasted for India’s GDP growth at 11%, asserted that it was sustainable! He also proudly claimed that if the GDP was adjusted with PPP India’s growth had already superseded China. Although Arvind Panagaria received Padma Bhooshan for eulogizing Congress government’s glorious achievements in bearing China (a China obsession), dream was shattered as India’s GDP growth feel to 4% at the end of UPA II led by Dr Man Mohan Singh which met a disastrous outcome in 2014 Parliamentary elections as it faced unemployment, inflation and corruption on which BJP led by Modi was voted to power.
People of India were given a hope that their plight will change under the new regime. However, rhetoric of China obsession was not going anywhere. The base year was brought forward from 2004-2055- 2011-2012 which alone had inflated GDP growth by 2.2%. GDP was now calculated at market price instead of factor cost which may have also impacted increase in GDP growth. GDP growth was revised from 4.7% under UPA II to 8% under the new regime. Initially, GDP grew @ 7.3% and it is worth mentioning that Dr MM Singh’s Govt. did not have the benefit of low crude prices which Modi Govt. did. However, in spite of India’s Finance Minister, late Arun Jaitely’s claims of sound macroeconomic indicator, GDP growth started declining and just before the Covid 19 pandemics lockdown in March it dropped to 4.7%. During the Covid period April 2020-April 2022 it dropped by 24.4% although independent estimates worked out by Prof Arun Kumar puts the figure even higherup!
Following the IMF forecast, BJP government sources are thrilled and both the IMF and Indian government are feeling trigger happy and marketing the Indian model of development to rest of the world. In the IMF GDP growth table India’s real comparator appears to be China in terms of size of population, started independent development about the same time and somewhat similar circumstances and level of development. In fact, a study published by Subramaniam Sway published in Economic Development Cultural Change in 1960 puts India above China in terms of level of development. However, important question is whether GDP growth really matters? Answer is no! First, India’s GDP growth has mainly been in the sectors of services (financial & non-financial), and capital intensive luxury goods which created an uneven demand pattern resulting in two India: Rich & Poor with rich inelastic demand and poor with elastic demand, perhaps stochastic demand pattern).
In fact, even during the Covid lockdown, financial sector grew in leaps and bounds. Second, this lopsided growth has not generated employment to meet Modi's claim of 20 million jobs every year. Third, in working out the growth, the informal sector has been unaccounted as the data is unavailable. Fourth, if the growth rate is adjusted for shift in base year and with inflation, one wonders where India’s GDP stands! In fact, in spite of tall claims both by the Congress and BJP governments trickledown mechanism has not changed the plight of people of India. In contrast, there is no doubt, China's 5,3% growth is slightly less than India, but China had a Zero Covid policy in force and has been lifted only recently. Given China's economy's base about 5 times, even 5,3% is a great achievement as it would add about 954 billion in the economy compared to only 184 billion to Indian economy growing at 6.8%. Moreover, since the 2009 worldwide economic crisis, China's growth strategy has changed in view of growing unemployment, economic inequalities in special economic zones, and poverty, it consciously set a lower target of GDP growth to address the internal problems and impact of global crisis. I should admit that both China and India were not impacted a great deal by 2009 crisis. Former RBI Chairman, YV Reddy wisely decided not to increase the interest rate and announced 55 billion non-cash stimulus package combined with India’s the huge public sector it absorbed the economic shock and China being a centralized planned economy.
In contrast, initially China allocated US $450 billion, which increased to US $1.2 trillion and adopted a three stage development strategy. In first stage, it invested in infrastructure to generate employment and income. At second stage, it invested in urban and housing development, and at third stage, it invested in manufacturing and other sectors. Thus, China has followed a consumption led growth rather than investment led growth in India relying on supply side economics. In the absence of rise in income demand can’t be stimulated. A conservative estimate is that China has taken off nearly 650 million people out of poverty in the last 10 years, which is a great achievement. Hence, rather than glorifying IMF predictions numbers, focus must be on the plight of common man. As Prof AK Sen pointed out, India's GDP growth has been jobless. Unfortunately, right wing economists consciously and left unconsciously caught into the neoclassical Cobb-Web and India is heading toward the Hindu Rate of Growth.
Suresh Deman, BSC, MA (India), MA, DBA, M. Phil, Ph.D. (US, UK, Japan)
BSC
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