False complacency

By Prem Shankar Jha

Isn't it time the government stopped deceiving the public and itself about the performance of the Indian economy. The third quarter GDP figures have seemingly confirmed that the GDP is growing at 5.9 per cent per annum. This is not a spectacular rate of growth, but it is high enough to deflect any serious concern about the state of the economy. But this figure is false, and it is false in not one but two senses. First, it is based on highly questionable assumptions about growth in agriculture. Second, even if the Central Statistical Organisation's estimates are technically correct, they tell us nothing of importance about the real state of the economy. On the contrary, by presenting a false picture of moderate but healthy growth, they prevent us from asking urgent questions that need an immediate answer.

Let us take a closer look at agriculture first. The CSO has estimated that agricultural output will grow by 0.8 per cent this year. This prediction may not be far off the mark in foodgrains. Despite an unevenly distributed monsoon, the rice crop is expected to be about 1.8 per cent more than last year. But the area under wheat has shrunk by six lakh hectares, or 2.3 per cent, and according to the Economic Survey this will lead to a 3 per cent decline in wheat output.

The latter estimate is almost certainly too cautious. The entire shrinkage, in fact seven lakh hectares, has taken place in Gujarat and Rajasthan where the yields are lower than in Punjab and Haryana. This has been partially offset by an increase on one lakh hectares in the north. It is therefore safe to estimate that the output of wheat will not decline by 3 per cent but more probably by one to 1.5 per cent. Thus if the government's crop estimates prove accurate, the overall foodgrains output may turn out equal to or marginally higher than last year.

But the picture is markedly different in the case of cash crops, which account for half or more of the value of agricultural output. The output of groundnuts, the main edible oil crop has fallen by 36 per cent. This is the main reason for an expected 23 per cent fall in the overall output of oilseeds. Cotton is expected to post a marginal decline. Only sugarcane is expected to register a 7 per cent increase. Taking all these into account it is difficult to see how the value of cash crops will not post a decline over 1998-99. On the whole therefore agriculture is almost certain to show a negative rate of growth this year. The Centre for Monitoring the Indian Economy (CMIE) has, in fact, estimated a 4.9 per cent decline in non-foodgrain crops and an overall 2.9 per cent decline in agricultural output.

The CSO may also have overstated the growth in industry. The overall rate of growth during April to January has slipped to 6.5 per cent from the 6.9 per cent recorded till October. It is not likely to recover sufficiently to post a seven per cent growth rate for the entire year. But even if it does, the overall rate of growth of GDP according to the CSO's method of calculation, will not be 5.9 per cent but 5.6 per cent.

This brings us to the second reason for questioning the official estimates of GDP - their usefulness. The 5.9 ( or 5.6) per cent growth rate assumes that the real output in the services sector will grow by 8.2 per cent. But in this sector the most spectacular growth is in community, social and personal services. These have shown an increase of no less than 13.1 per cent in the third quarter, against 9.3 per cent in the third quarter of 1998- 99. But this sector is completely dominated by government services, and the reason why it has shown such a hectic rate of growth is the release of large arrears of pensions hikes decreed by the Fifth Pay Commission. What is more, this is not the first year in which the contribution of social and community services has been boosted in this way. According to the Economic Survey, the Fifth Pay Commission has boosted the rate of growth of GDP by no less than 0.7 per cent a year in both 1997-98 and 1998-99.

But how, one might ask, can that happen? Isn't the growth of GDP calculated in constant prices? If that is so, then shouldn't a mere salary increase unaccompanied by an increase in productivity, be automatically discounted? In theory this is what should happen, but by a quirk of the UN system of National Accounting that India follows, all increases in the income of civil servants are taken to reflect increases in productivity.

Since this is obviously not true in the case of India, the growth rate that we should be using, as a barometer of economic health should be reduced by 0.7 per cent in each of the three years, 1997-98 to 1999-2000. Thus the real rate of growth in these years has been 4.3 per cent, 6.1 per cent and 4.9 per cent, that is, an average of 5.1 per cent. This is a full 2.2 per cent below the average rate of growth achieved in 1994-95 to 1996-97.

My reason for insisting on making these corrections is not to nit-pick with the CSO. It is to highlight the fact that the economy has been in the grip of stagnation for three years and that this grip shows no sign of loosening. It is to show that the two per cent inflation which we are revelling in is not a sign of health but of sickness. Above all it is to warn the readers of the huge storm cloud that is gathering over not just the economy but the country. This is the absence of jobs for the young men and women who are entering the job market every year. Job creation was barely keeping up with demand even when the economy was booming between 1993 and 1996. Since then it has fallen far behind.

Since the Indian government does not believe in collecting and publishing data on new jobs created and unemployment regularly, the only half-way reliable indicator of trends in employment is the number of people registered on the live register of the employment exchanges. Between 1985 and 1992 the number of job seekers rose by a million a year. This trend was reversed dramatically in 1992-93 and 1993-94, when the registered job seekers fell by three lakhs a year. It rose again by five lakhs in 1995-96, possibly because word had spread that there were jobs available, and by seven lakhs in 1996-97, when industrial growth slackened sharply. However, it is in the next two years that the number has skyrocketed by 1.6 million and one million. This almost certainly reflects the retrenchment of temporary workers by firms bent upon trimming their costs in the face of recession.

Overall therefore, while the number of people entering the job market has continued to increase by 2.3 per cent a year during the Nineties, the rate of growth of new jobs has declined to 1.6 per cent. The gap between jobs and job seekers is therefore three times what it was in the Eighties.

No country can survive for long if it denies employment to its people but also offers them no safety net to keep them alive. That is what we have been doing for the last three years. But far from acknowledging the gravity of the crisis, the entire government is preening before the domestic and international public wearing a garment of false, doctored and misleading statistics. One might say in its defence that India is not the only country that inflates its GDP estimates. That is, of course, true. China, for instance, prefers to live with weaknesses in its data collection system that regularly inflate its GDP growth by about 3 per cent per annum. But the Chinese leaders do not pretend that they believe these figures. At the 10th Peoples' Congress in March last year, when China had claimed a growth of 7.8 per cent in the previous year, the President, Mr. Jiang Zemin, felt no qualms in telling the delegates that the economic condition of the country was 'very serious'. No one in the Vajpayee Government has Mr. Jiang Zemin's courage.

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