|Survey mum on LIC head!|
|Friday, 16 March 2012 00:44|
Need prognosis on economic governance indicators
The fact that the Economic Survey has been able to project a 7.6% GDP growth for 2012-13 and 8.6% for 2013-14 suggests that its authors have a lot more insights into what is happening than most others in the country. The pressures of democratic politics, the Survey’s authors presciently tell us, are what slowed economic reforms in 2011-12; but how does that translate to a 7.6% growth for 2012-13 and 8.6% in 2013-14? Simple, the Survey assumes fiscal consolidation will now get back on track—naturally enough, savings will rise as will investments (interest rates will fall once deficits fall and there will be more for corporates to borrow) and growth will rise. How the Survey assumes democratic politics will matter less in 2012-13 and, more importantly, in the election year 2013-14 is anyone’s guess but it’s worth reiterating that savings cannot rise till oil subsidies are drastically slashed, apart from some serious cost cutting in the Budget itself.
Perhaps the soothsayers who wrote the Survey can use their insights to let us know when we will get heads for LIC and UTI, both very important financial institutions which have been headless for more than a year—ditto for Coal India and countless other PSUs. The Survey is bang-on when it talks of the micro-foundations of macroeconomic policy and why, for instance, it is important for India’s rank to rise in the Doing Business indices like the number of permissions required to start a business or begin construction. But while this is important, several billion dollars of investment depend on other micro government decisions like appointing a UTI chief, saddling oil PSUs with R1.4 lakh crore of subsidies, or deciding whether it will, for instance, file a presidential reference on the 2G matter—Planning Commission deputy chairman Montek Singh Ahluwalia says this will serve no useful purpose except to disrupt investments made over a decade ago!
More puzzling is why the Survey says the current crisis is a wake-up call. It’s true many others also believe this to be the case—RBI said this in its policy statement yesterday—but 17 pages after the wake-up call statement, the Survey says growth is getting back on track, so where’s the problem? In a few hours from now, the good news is, we’ll get to know whether the Chief Economic Advisor or the RBI Governor has a better sense of where the economy’s going.