ACCORDING TO DATA RELEASED BY THE Central Statistics Organisation on February 8, the country’s domestically generated national income aka GDP (gross domestic product) is expected to record a growth of 4.9 percent in the year ending March 31, 2014 compared with 4.5 percent growth in fiscal 2012-13. This is the first time since 1985 when annual GDP growth has slipped below 5 percent for two consecutive years.
Although this dismal economic performance has received wide publicity, its implications have not been sufficiently explained to the lay public by the nation’s political leaders, academics or media pundits. Since 1978 when China’s visionary leader, the late Deng Xiaopeng decreed transformation of the centrally planned Chinese economy into a national free market, the country’s rate of annual GDP growth has averaged almost 10 percent. As a result, communist China has been transformed into a middle income nation with a per capita income five times that of India ($6,091 cf. India’s $1,489) and visible poverty ubiquitous in India, has been banished.
The most significant outcome of sustained high rates of GDP growth is that millions of well-paid industry and factory jobs are created. This sets a virtuous cycle in motion as corporate and personal income as well as indirect tax revenues of the Central and state governments swell, enabling them to increase social sector — education, health — spending. This raises farm and factory productivity which in turn boosts agriculture and industrial output. Hence devising policies and processes for continuous high rates of GDP growth is not merely a subject of academic debate, but an issue which directly impacts the lives of hundreds of millions of citizens, particularly children and youth.
Independent India’s pathetically inadequate investment in public education (averaging 3.5 percent of GDP cf. 7-8 percent in the developed nations for the past several decades) and public health (1.4 percent cf. 9-10 percent), is a direct consequence of the annual rate of GDP growth stagnating at 3.5 percent per annum for over 30 years (1950-80). Therefore GDP growth dipping below 5 percent in the past two years is — or should be — profoundly disturbing given that India adds 1 million people to its working-age population every month, and that by the end of fiscal 2018-19, 51 million new jobs will have to be created.
This is the backdrop against which the now famous Bhagwati/Panagariya versus Sen/Dreze debate has been staged. What should be the national priority — investment in education and public health which would lead to higher worker productivity, or investment in industry and agriculture infrastructure which would boost output and enable greater investment in HRD?
Obviously, a balance needs to be struck to ensure both objectives are achieved in a mutually reinforcing manner. Voters exercising their franchise this summer should carefully weigh which political formation has the competence to strike this critical balance.
AAP’s irresponsible populism
Given his firm and determined stand on the issue of rooting out corruption within government and officialdom, there is much that is admirable about Arvind Kejriwal, the supremo of the newly launched Aam Aadmi Party (AAP) who recently resigned as chief minister of the Delhi state government, and is now set to make AAP a powerful force in national politics with a dramatic debut in the imminent general election. But to impact the electorate and the influential intelligentsia in particular, the AAP leadership should resist the temptation to rush into reckless populism, which is denting its own image and the national interest.
This advice is prompted by the irresponsible criminal charge that Kejriwal has filed against the Central government, Reliance Industries chief Mukesh Ambani, and Union minister for petroleum Veerappa Moily on the issue of incentives given to crude oil and natural gas companies exploring and extracting energy fuels from offshore fields within Indian territorial waters. In 2008, Reliance bid for and was awarded a contract to extract 80 million metric standard cubic meters (mmscmd) of natural gas per day at $4.2 per mmbtu (million British thermal units) from the undersea KGD-6 well in the Krishna Godavari delta
Since then, the company has experienced unanticipated geological and other problems, and is producing a mere 13 mmscmd of gas urgently required by the fertiliser, power and public transport industries which are currently paying $19 per unit for substitute LNG/naptha. Consequently RIL asked for a price revision to make its gas extraction operations in KGD-6 viable.
An expert committee under C. Rangarajan, a highly respected economist and former chairman of the Reserve Bank of India, was constituted to examine the merits of RIL’s price revision request. After due deliberation, based upon analyses of the price of natural gas in three international markets — the Henry Hub (America), the European and Asia-Pacific markets —the Rangarajan Committee awarded a price of $6.5-8 per mmbtu to RIL.
In the circumstances, the AAP leadership’s criminal charge filed in Delhi against Ambani, Veerappa Moily and others for conspiracy and cheating is highly irresponsible. Self-evidently, extraction of gas from deep beneath the sea is a high-risk, technology intensive undertaking which needs good incentives. Moreover AAP’s charge that the entire Rangarajan Committee — headed by a former RBI governor with impeccable credentials — has been bought, smacks of outrageous self-righteousness.
It’s high time leaders of all political parties jettison their socialist baggage which has ruined the nation and learn to appreciate that goods and services — education included — can’t be provided as charity. Costs have to be recovered and surpluses made to reward risk-taking shareholders. To believe otherwise is to invite economic disaster.