Nos. 36 & 37, March 2004

Nos. 36 & 37
(March 2004):

Introduction: Growth Suppressed, Parasitism to the Fore

Appendix I: The Real Scale of Unemployment

Appendix II: Starving and Stunting the People

The Real State of India's Economy
I. ‘GDP Growth’

Since the introduction of the 'liberalisation' programme in 1991, the government's statistics have carried even less credibility than in the past. Indeed the Planning Commission and the Central Statistical Organisation (CSO) have been working overtime to put out impressive figures for the ruling party's election campaign. We can be sure that within a year, well after the elections, these will be revised drastically. Nevertheless, let us look at these figures, for what they are worth.

The much-celebrated GDP performance of 2003-04 has nothing to do with any measures taken by the Government. It is largely the result of a good monsoon in 2003, which has resulted in a partial recovery in agriculture. That has in turn revived demand for industry somewhat. The 'services' sector — the unproductive sector of the economy — has also grown rapidly, but that largely indicates the increasing drain on the productive sectors.

Agriculture: statistical jugglery
Let us say a person produces 100 pairs of shoes in a particular year, and 10 per cent less in the following year, ie, 90 pairs. In the third year he produces 10 per cent more than in the second. While the figure of 10 per cent growth in the third year looks impressive, in fact he would be producing only 99 shoes that third year, or less than in the first year. That is because the 10 per cent growth is on the low base of the second year's production.

Similarly, while the CSO projects that agricultural GDP will grow by 9.1 per cent in 2003-04, we should keep in mind that it had fallen 5.2 per cent in 2002-03. What this means is that agricultural GDP is only 3.4 per cent higher in 2003-04 than two years earlier, that is, agricultural GDP grew at the average rate of only 1.7 per cent per year between 2001-02 and 2003-04.

Moreover, the calculation of agricultural GDP has become suspect in recent years with the introduction of a new official series starting in 1993-94. Now, the production of crops for which there are no reliable output data is taken to be much higher than in the old series. As a result, agricultural GDP growth is overstated (the new series immediately jacked up the 1993-94 overall GDP and agricultural GDP by about nine per cent, and agricultural GDP during the next four years grew six percentage points faster by the new series than by the old4).

Calamitous drop in agriculture in 2002-03
Let us look instead at the agricultural production index, based on the crops for which there are reliable data. By this measure the picture is much more alarming: agricultural production in 2002-03 fell an estimated 12.6 per cent. In only two years in post-1947 India was there a sharper drop: 1965-66 (-16.6 per cent) and 1979-80 (-15.5 per cent).

In 2001-02, foodgrain production was 212 million tonnes. It fell in 2002-03 to an estimated 174.2 million tonnes — down by 17.8 per cent, a drop again only surpassed by 1965-66 and 1979-80. Indeed, the per capita production of foodgrain in 2002-03 was as low as in 1979-80.

Now, it is estimated by the 'India Shining' managers that foodgrains production in 2003-04 has risen ("zoomed", according to the business papers) to 212 million tonnes. Even if this turns out to be true, this would be only as high as the figure for 2001-02, and therefore a drop in per capita terms. Moreover, it is very likely that the wheat crop has been deliberately overestimated, with private corporate sector estimates putting it at four to five million tonnes lower than the official estimate5; in which case the figure would be 207-208 million, four million tonnes lower than 2001-02, and lower than even the figure for 1999-2000.

As for non-foodgrains, the agriculture ministry's estimates put oilseeds production at just the earlier peak in production, of five years ago; cotton is put at 13 per cent lower than the 1996-97 figure; jute and mesta at the 2001-02 figure; and sugarcane at 15 per cent lower than the 2001-02 figure.

Production stagnating, falling sharply in per capita terms — such is the real picture of agricultural production. We will return to the question of the agricultural performance, and the reasons for it, later in this article.

Industrial growth unremarkable
Turning to industry, the pick-up in industrial production appears to have depended heavily on somewhat improved demand from the rural sector; the agricultural recovery in turn depended entirely on a favourable monsoon. This is the reality of the economic "take-off" of the supposed future "superpower" India.

Secondly, the industrial growth pick-up is very slight by historical standards. The CSO projects an overall industrial growth rate of about 6.6 per cent for industry in 2003-04. This is only slightly higher than the 5.8 per cent for 2002-03, the year of the drought. Moreover, it is poor compared to the peak growth rates of the 1980s or the 1990s. Certainly it does not constitute a boom.6 Indeed, the claim of rapid industrial growth is contradicted by an important indicator of manufacturing activity in this period: The sales of diesel, furnace oil and lubricants, which are consumed in manufacturing activity, have all fallen in the period April-December 2003 (by 0.8, 3.7, and 3.7 per cent respectively), and only slightly risen in January 2004. How has manufacturing grown without consuming fuel?

Taking a longer view, industrial growth during the period of so-called 'reform' has been markedly lower than during the 1980s.7 Except for a brief spell during 1993-96, when the release of pent-up demand for luxury consumer goods led to a spurt of growth, industry has been plagued by recessionary trends throughout this period.


4. The Market that Failed, C.P. Chandrashekhar and Jayati Ghosh, p. 43. (back)

5. Economic Times 19/2/04. (back)

6. During 1984-85 to 1990-91, industrial growth averaged 8.5 per cent per year; that includes the acute drought of 1987-88, when it dipped to 7.3 per cent. During the two years 1994-95 and 1995-96, growth rates were 9.1 and 13 per cent respectively. (back)

7. For the decade 1981-82 to 1990-91, the industrial growth rate was 7.6 per cent per year; this fell to 6.2 per cent during 1992-93 to 2001-02. (RBI, Report on Currency and Finance 2001-02) Taking slightly different periods, the rate for 1980-81 to 1989-90 was 7.4 per cent; this fell during 1993-94 to 2002-03 to 6.5 per cent. (RBI, Annual Report 2002-03) (back)



NEXT: Six Years of Depressed Industrial Investment


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