Column: What you sow is not what you reap

Oct 19 2013, 05:29 IST
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SummaryWith much better rains than the NDA, UPA had only marginally higher farm growth but double the food inflation

That India has an inflation problem, especially a food inflation problem, is by now universally recognised. That this inflation problem has begun to impact non-food inflation may be a creeping reality. Not as recognised, yet, is that we are also in deep crisis with regards to GDP growth. In recent weeks, various organisations have downgraded Indian growth prospects. It is a sorry picture when the most optimistic forecast for FY14 remains that of the government of India—around 5.5% growth, projected by both RBI and the Prime Minister’s Economic Advisory Council (PMEAC).

If India ends the year with around 4.5% growth (an expected reality) then the last three year GDP growth average of 5.2% will be among the worst since 1980. The three crisis years ending in 1992 averaged GDP growth of 4.1%, within depression distance of this year’s expected growth.

Obviously, there is a lot riding on GDP growth and forecasts. More than ever before, growth matters because this is an election year, and an unusual election year in that many experts think the elections could be a turning point in Indian economics and Indian politics. Of course, no one believes that the turning point will arrive if somehow the Congress was to retain power. That is what many of us thought would happen in 2004 and even more of us were certain that a turning point for Indian growth and economic reforms was reached in May 2009 when the Congress obtained 209 seats and headed what seemed to be a comfortable coalition. Alas, alas—we all know what has happened under UPA II—a paucity of reforms, a precipitous growth decline and staggering levels of inflation.

Why is inflation at double digits and growth at stagnation levels of around 4.5% for the second year running? It may have something to do with UPA’s growth and distribution model. This socialist distribution model has been discussed extensively, and with no apparent effect on the policymakers. What about UPA’s growth model? Without any risk of exaggeration, the UPA political economy model can best be described as follows. India is a dominantly agricultural country, and most of the poor reside in rural agricultural areas. Further, farmers are an important political constituency. Hence, a win-win proposition, for India and the Congress party, is to increase agricultural output and to do so at highly remunerative farm prices. There will be growth, there will be lower inflation due to higher

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