Challenges of a Different Hue

If one were to take the Economic Survey 2007-08 at its word, then, by and large, all is hunky-dory with the Indian economy. The economy, it is claimed, “has moved decisively to a higher growth phase”, which is “also translating into more inclusive growth”. And, “to maintain growth at these levels, not to speak of raising it further to double digit levels”, all one has to do is to dutifully follow the sound “options” that emerge from the analytical foundation of supply-side economics, among which is “lower FRBM [reference is to the Fiscal Reform and Budget Management Act, 2003] targets over the next five years and beyond”. It is of course another matter that the FRBM Act effectively prevents the government from spending more on social welfare – education, health, rural employment guarantee, social security, and so on.

The present growth phase, post-2003-04, has been driven by private investment and elite consumption, though there are signs that the latter is now decelerating, at least as far as consumer durables are concerned. The increase in private savings is due to the doubling of the rate of gross domestic savings of the private corporate sector, from 3.9 per cent of gross domestic product (GDP) in 2002-03 to 7.8 per cent in 2006-07, which in turn has been spurred by private corporate investment that rose steadily from 5.4 per cent of GDP in 2001-02 to 14.5 per cent in 2006-07. Indeed, the latter signifies “an upsurge in private corporate investment”, as the Survey puts it. In contrast, public sector investment as a proportion of GDP has virtually languished – 6.9 per cent in 2001-02 and 7.8 per cent in 2006-07.