|A bit of this, a bit of that|
|Saturday, 26 February 2011 00:00|
If no one looks at the Economic Survey as a pointer to what the Union Budget will say a few days later, it’s for a good reason—the Survey is written by economists while the Budget is made by politicians. In the case of the UPA, the contradiction gets underscored by the fact that the Prime Minister is an economist while Sonia Gandhi is a politician. Even so, the Survey is an interesting combination of faith and economic analysis. So it is optimistic on growth for 2011-12, even while acknowledging the problems of investment levels not having recovered and industrial outlook being a bit iffy in the short run—the fact that interest rates are to be hiked to dampen inflation will worsen the outlook. The headers for the sub-sections say it all—industry’s sub-head is ‘volatility and waning momentum’ and that for services is ‘the potential growth engine’. Services are even more important as the Survey is clear the balance of payments can be managed only with more services exports—it doesn’t stress the role of government policy in slowing FDI for obvious reasons. The Survey admits inflation ‘continues to be a cause for concern’, doesn’t stress on the supply-side failure (agriculture supply is stagnant and prices are up while the opposite is true of manufactures) and limits itself to the need-to-reduce-middlemen argument. The Survey is at once hopeful inflation will get controlled while also arguing it will exacerbate with GDP growth picking up—the latter, a big debate between the chief economic advisor and FE columnists.
The Survey bats for lower government spending to lower inflationary pressures as well as for not removing the stimulus as investment levels haven’t returned to pre-crisis levels—the apparent contradiction is due the Survey’s inability to explicitly say wasteful expenditures should be eliminated and productive ones increased. So the Survey praises the effects of what it calls social spending to protect the poor (MGNREGA) while at the same time saying 40% of grain targetted at the poor doesn’t get to them—an FE analysis of the MGNREGA in 2007-08 found the government spent Rs 10,800 crore to give wages of Rs 3,833 crore! The Survey points to employment having risen by 13 lakh last year but is understandably not able to make the obvious policy prescriptions. If the finance minister chooses to raise MGNREGA budgets despite this, or even foots the bill for a food security legislation, it’s because of the wide gap between him and his chief economic advisor—the way the wise men designed the seating plan, there’s a whole floor between the chief economic advisor who sits on the ground floor and the finance minister who’s on the first floor.