But would you believe it? In the days and weeks that followed, a stream of arguments rubbishing Subramanian’s paper gushed out, led by a sarkari manifesto written by Bibek Debroy and four other econocrats, followed by gaalis from folks who were innocent of the contents of the paper, on social media. On TV, people tore each other’s beards to shreds. Many were so upset that they could only mutter, “Why didn’t he say so when he was in India?”
But what awful secret had Subramanian, an economist associated with the libertarian Petersen Institute and Harvard’s Centre for International Development, outed to provoke such wrenching emotions? Well, his paper showed between 2011-12 and 2016-17, India’s growth had been hugely inflated — to the extent of 2.5 percentage points.
Which meant through all this time India was actually bellycrawling at 4.5%, instead of the average 7% per year canter we’d been told by the government. It also meant India had never overtaken China as the fastest growing large economy. “O Tempora! O Mores!”
Then, last week as the blue-chip Sensex crashed 2.2% in three days, Subramanian turned up again, like a bad penny. He had another paper, to answer in some detail, accusations hurled at him.
He swatted the, “why was he silent in office?” argument quickly. He wasn’t silent. The Survey for 2014-15 had an extensive argument framed in a box, with charts and so on, right there in the first chapter. The Survey for 2016-17, among the best in a long time, again discussed this problem in some detail.
No country in history has ever grown fast over a number of years, while carrying the twin drags of a persistent trade deficit with the rest of the world, and a long slump in domestic investment. Loans to industry and to the overall economy must grow, to lubricate the wheels of manufacturing and all other activity.
Indeed, before 2011, India played by these rules, familiar to everyone in Econ 101. Investment was growing 13% on average each year, loans to industry at 16%, exports at 15%, imports at 16.5%, overall lending at 13% and GDP galloped at a smart 8%. After 2011, what happened happens only in fairy tales, like, “The whole world became a lifeless Hell but the Prince and Princess lived happily ever after.”
After 2011, investment collapsed to 3% average growth, loans to industry actually shrank 1%, exports crawled at 3%, imports fell 1%, overall loan growth crashed to 3% — and presto, India still chugged along at 7% average GDP growth.
What about consumption? Surely that can drive growth. Let’s see, pre-2011, growth of consumption industry was 9% annually. Afterwards, it’s a little more than 4%. Productivity? That should show up in the growth of private sector profits. Well, through 2002 and 2011, aftertax profits (PAT) of Indian companies grew more than 27% per year on average. Between 2012 and 2016, there was no growth: average PAT contracted 3%.
Through the 1990s and 2000s, when China was on a tear, you could feel the growth. Huge projects and infrastructure built overnight, a perpetual haze of dust from relentless activity — and the West didn’t believe Beijing’s official numbers. In Delhi, we get the haze, but all around are immobile cranes and stalled projects — and numbers that profess electrifying growth.
Meanwhile, a regime desperate to patch holes in its budgetary arithmetic hounds the RBI and market regulator Sebi to hand over their surpluses at Raisina Hill. Neither will agree readily. Indeed, the world has seldom looked as risky as now. The USChina tariff war may escalate into a currency war, needing every resource with the RBI to hold the rupee.
Renewed sanctions on Iran have made oil markets volatile. This is a major risk for India, which imports near-80% of its crude. A $10 per barrel hike in oil price chops 0.5% off our GDP. From the happy $40-50 days when this government took over, oil now moves in a $60-70 range. That imperils one full percentage point of our GDP.
The Bourbons ruled France, Spain, Italy and Luxembourg between the 1200s and late 1800s. About them, Voltaire said, “They learn nothing — and they forget nothing.” The present regime learns nothing, and forgets nothing of the Vedic spacecraft our ancestors flew.