Arguing that India’s FY13 GDP is at a decadal low of 4.5% is not quite correct because, in FY03 when GDP collapsed to 4%, this was on the back of a massive drought and agriculture contracting 6.6%—in contrast, agriculture grew a low but positive 1.4% in FY13, a year for which the revised data has just been put out. The real contrast is with the crisis year of FY92 since we have never seen as low a manufacturing sector growth. And though private consumption has obviously slowed—from 9.3% in FY12 to 5% in FY13—the biggest problem, and one that has continued into FY14, is the collapse in private sector investments. From a high of 17.3% of GDP in FY08, investments by the private corporate sector were down to 9.9% in FY13. It is this collapse which is also responsible for the low-growth-high-inflation trap India is in right now. When growth slows, the excess capacity, or output gap, is what brings inflation down; but with the most productive investment slowing dramatically, the output gap is also very low, as a result of which inflation remains high despite growth slowing. On the savings side, the greatest fall has not been in the household sector, but in the private corporate sector as well as in the government sector.
Given this, the only way to bring back growth is to bring back savings, without which there cannot be any sustainable rise in investment levels—and within investments, it is critical to get private corporate sector savings back on track. Given how leveraged the private corporate sector is, this will take some doing, but what is amazing is how, like lemmings, vast swathes of the government, both at the state and the centre, seem determined to jump off the cliff. If the downright incompetence which resulted in India’s aviation safety being downgraded by the US authorities to the levels of Swaziland and Zimbabwe is not frightening enough, you have the UPA killing off the progress it has made in reducing subsidies—not only was the cap on subsidised LPG cylinders raised at a cost of at least Rs 5,000 crore, the Aadhaar scheme which has the potential of reducing Rs 1.5-3 lakh crore of annual subsidy leakages has been put on hold in the area where it was being tried—in LPG subsidies. Rajasthan has joined Delhi in going back on permission to FDI in retail, the Delhi