The Budget speech came and went, the market dropped, and we all shrugged our shoulders. Not much ado about nothing, did you say? Right you are, but there are hidden messages.
Perhaps the most hidden is that nominal GDP growth for next year is targeted by the government at 12.7 per cent -- given an expected inflation rate of close to 4.5 per cent, this is mega news.
That the government is officially forecasting 8.2 per cent GDP growth in the year just following a super monsoon is about as India Shining as it gets.
But we must remember that this is an election year and that Budget forecasts are not necessarily the real thing.
But there are some pointers here for the justified cynicism -- after a long time, the actual fiscal deficit (for 2003-04) will turn out to be not only lower, but significantly lower than budgeted -- 4.8 per cent versus 5.6 per cent.
And this despite the reform goodies handed out a few weeks ago in the form of lower customs duties.
We all knew that growth had been good, but the rational fear was that the government would go out and spend it.
Instead, the government did not increase its revenue expenditure and the extra taxes gained went into lowering the deficit.
This augurs well for the hope that the deficit will be reduced by growth over the next few years.
How realistic is the 8 per cent growth forecast for next year? Acceleration of India's growth above the 5.5 to 6 per cent range has occupied a lot of intellectual space over the last few years, and especially over the past six months.
An event forecast by the finance minister -- two successive years of growth above 7.5 to 8 per cent -- has just not happened, ever, in this country.
The closest India came to this stellar performance was immediately after the Manmohan Singh reforms of the early 1990s.
For the three years 1994-95 to 1996-97, GDP growth in India was 7.3, 7.4 and 7 per cent, respectively. No such major reforms have taken place now as in the early 1990s. So how realistic is the forecast?
In my view, very realistic. And the assessment is quite independent of whatever happens with the monsoon next year.
The numbers are straightforward. Assume for the moment that agriculture, with a 20 per cent share in output, grows at 0 per cent.
Industry is already kissing a 7-plus per cent growth rate and it is not unrealistic for it to touch 9 per cent next year.
Services, because of the labour market connection, will have to closely follow industry and should, therefore, average close to 10 per cent. Aggregate growth -- 7.8 per cent.
Which brings us to the next question -- how likely is it that industrial growth will average 9 per cent next year?
One of the interesting statistics about Indian GDP growth of 5.5 per cent over the last 22 years is that this has occurred in the context of a rather tame industrial growth of less than 7 per cent; and since 1993, of only 5 per cent a year.
This is an almost unheard-of statistic in the record of economic development of over 100 countries over the last 50 years. It is virtually impossible to grow at 5.5 per cent and for industry to average a growth rate of about the same magnitude.
There are precious few examples of such a low industrial growth rate (and high growth rate) among developing economies; even amongst developed economies, and those going through a 'hollowing-out' process, a 6 to 8 per cent industrial growth is expected.
India has been exceptionally bad in industrial performance, primarily because of the high capital costs that the industry has faced. (It did not help that, for a long time, our industrialists wanted to hide their inefficiencies under the umbrella of high tariffs.)
Real interest rates have declined by about 6 per cent over the last couple of years and they are destined to go down further.
It is not animal spirits that is driving India Shining in manufacturing and it is not good stewardship on the part of the BJP (but see the caveat below).
It is good old-fashioned reduced capital costs and increased profits. Some economists argue that reduced interest costs, even of the magnitude witnessed, should not, cannot, and will not increase investment in the next fiscal year.
Hence, industrial production in India will fall back to its average of the last 20 years. These forecasters have history on their side, but not the future.
If Indian industry does not respond to decreased interest rates and lower customs duties, then India would have defied all the laws of economics.
And if so, then the nattering negativists might as well argue that we go back to the socialistic pre-reform days.
And why not -- costs do not determine profitability, so let us move everything to the public sector and let babus rule again. Yes, especially since pigs are flying in India these days.
The Vajpayee government did not bring about India Shining (it was globalisation that did it). But equally, the Vajpayee government has done a superb job of facilitating the catapulting of India to the rarefied 7-plus growth club.
Recall that in 1999, at the time of the last election, the debate in the pink papers was about swadeshi (non)economics.
It has been more than a while since the word swadeshi appeared in print. (Last I heard, the Congress party was thinking about taking up this slogan for the forthcoming election. If it is true that the Manmohan-reform Congress is going swadeshi, then it is also true that pigs do fly in India.)
In 1999, the word privatisation did not exist in the Indian political vocabulary.
The fear of doing good was so large among Indian politicians that they had invented the word, disinvestments; literally invented, since such a word does not exist in the English language.
Lastly and most importantly, Vajpayee's government started dismantling the scam-infested administered interest-rate regime -- and made India shining a possible reality.
In 1999, there was also talk of housing for the gods. The BJP dared to be reformist. It now talks of housing for the people, and rightly expects to be voted back into power in the polls.
The real post-election Budget awaits us. It will be the most important Budget since 1991.
The writer is Director, Oxus Investments Pvt Ltd.
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