Believing the Economic Survey 1995-96

The SAARCONOMY section contains a short commentary on regional economic issues or trends, as well as basic financial statistics from five countries of the South Asian Association for Regional Cooperation (SAARC). Given the impact any upheaval in the Indian political economy has on the rest of South Asia, we also include in this Saarconomy edition reviews of the Economic Survey of 1995-96 brought out by the P.V. Narasimha Rao government, and of the state of liberalisation in India.

THE ECONOMIC Survey brought out annually by the Government of India is normally seen as a state-of-the-nation report that provides the background to the fiscal strategy being pursued over the next financial year. But the Economic Survey 1995-96 is not a report of projected economic performance over the coming year, but an aggressive self-assessment.

In summarising the four-and-a-half-year track record of P.V. Narasimha Rao and his finance minister, Manmohan Singh, the survey argues that the "economic reform" has been successful not merely in speedily turning around an economy in deep crisis, but also in putting it on a high and sustainable growth path.

It should come as no surprise that a corruption-tainted Government, beleaguered by a volatile rupee, sharply declining reserves and a sluggish stock market, and facing an election to boot, is likely to resort to a subjective and rose-tinted assessment of its performance.

In the introduction to its Macroeco-nomic Overview, the Survey states: "Growth of GDP at factor cost, which had fallen to a mere 0.8 percent in the crisis year 1992-93 recovered within a year to reach 5.1 percent in 1993-94. This represents one of the fastest economic recoveries from a macroeconomic crisis." The Survey goes on to argue that economic reform is now delivering both sustainable growth and poverty alleviation.

Despite a relatively high rate of growth,it says, inflation is down to 5 percent. Total foreign investment flows, direct and portfolio, have risen sharply to USD 4.11 billion in 1993-94 and further to USD 4.89 billion in 1994-95. Thus, there is a rise in foreign currency reserves. The fallout of this sustainable growth has been a sharp rise in employment generation and, of course, a decline in the poverty ratio from 25.5 percent in 1987-88 to 19 percent in 1993-94.

Several economists and commentators have already pointed out the series of misstatements and wild claims that the Survey resorts to. First, imports are rising rapidly, so that despite a significant devaluation-induced rise in exports, the trade deficit which had crossed the USD 4 billion mark by January is likely to hover around USD 5 billion at the end of 1996. Second, to finance this deficit and its consequences for the value of the rupee, the Government, in just over 10 months, has had to use up USD 4.5 billion of the foreign exchange reserves, which went down from USD 20.9 billion at the end of March 1995 to USD 16.3 billion by end of January 1996. Third, though the doctored inflation figures point to a collapse of the point-to-point inflation rate, retail prices maintain their relatively high rates of post-reform increase. Not surprisingly, the consumer price indices for industrial workers and agricultural labourers do not reflect at all the so-called success on the inflation front, which is running in double digits.

The segment of the Economic Survey which speaks of the agenda for the coining year is also significant. There are three elements here: it accepts that the current level of the fiscal deficit is "unsustainable", so that a sharp reduction in the same in the coming years is inevitable; it says that the principal way in which the deficit should be reduced is through the sale of public sector equity and assets; third, it calls for accelerating the process of liberalising and opening the Indian economy in a variety of areas. These are, of course, statements to satisfy the demands of IMF and other international finance institutions, which are both worried by the "inadequate" pace of reforms and the uncertainties being generated by the changing political scenario.

The Economic Survey 1995-96 ends up as an attempt to please the voter by Mr Rao´s government. However, the government´s weakness and vulnerability increases its dependence on- "investor confidence" and the international financial institutions´ ability to help sustain that confidence. Meanwhile, these finance institutions, partners in subterfuge as they are, do understand the rough-and-tumble of Indian electoral politics, and will turn a blind eye to the claims of the Economic Survey 1995-96, as long as New Delhi does not deviate from the path that they have decreed. But whether the people of India will be as indulgent, will be seen in the near future.