The road to economic recovery appears to be long, and the big question, on the eve of national elections, is whether the sluggish growth will impact the fortunes of UPA II. More basically, do economic issues — whether GDP growth estimates or inflation or trade figures — matter at all in current politics?
Answers to the second question will provide clues to the first. It is a fact that the average man on the street is getting glued to economic issues in a way that did not seem possible until a few years ago. This is partly due to the spread of economic literacy and partly due to the fact that market forces rather than government have a say on things which affect him/her the most.
Take, for instance, the rupee-dollar rate. Whereas previously exchange equations mattered very little to the common man, today they do now not the least because he/she had developed a vested interest. A falling rupee, for instance, can make hike in petrol bill. Besides, the average citizen travels more frequently abroad, and, therefore, is interested in how many more rupees he/she has to shell out to buy a fixed quantity of dollar. While thousand other examples can be given for a citizen’s participation in the economic process, the key question is whether he/she will be judgemental at the time of casting the vote.
The important points here are: Issues such as food security, economic governance will influence voters. Here again, perceptions matter. Is there really good governance in Gujarat under Narendra Modi? Will the food security legislation be better targeted to avoid leakages? The hardship caused by rising prices is more certain. Inflation and inflation expectations are bound to play a significant part in the electoral battles ahead. What about economic growth? Here, the UPA II finds itself on a sticky wicket. Elections are being held at a time when the economy has decelerated substantially, and what is equally important is the near-term prospects are not very bright either.
Over the past decade, 2002-03 to 2012-13, the annual growth rate has varied from 4 per cent (2002-03) to 9.6 per cent (2005-06). Last year (2012-13), it was at a low 4.5 per cent. The average annual rate of growth over the past decade has been at a commendable 8.29 per cent. However, the UPA II cannot rest on its laurels as the recent growth figures are disappointing.
On Friday last, the Central Statistics Office released GDP data for the December quarter of the current year (2013-14). The economy grew by 4.7 per cent. The significance of this data release is that it will be the last before elections. The next CSO data release will be in May-end.
Earlier, in its advance estimate for the current year, the CSO had estimated GDP growth to be at 4.9 per cent. This was contested by the government, which is eyeing above 5 per cent growth. Finance Minister P. Chidambaram hoped that growth during the second-half would be at least 5.2 per cent to reach the full year’s growth of 4.9 per cent. The expectation from the yet-to-be released GDP data for the January-March quarter has, therefore, gone up substantially. A new government will decide on the strategies taking into account the growth data.
Meantime, the last pre-election data release points to a continuance of the economic slowdown, and offer very little comfort to a government hoping to proclaim recovery ahead of the elections. It ought to be quite disconcerting that having witnessed annual growth rates above 9 per cent in a few years during its two terms, the UPA will be facing elections with the economy stuck in a sub-5 per cent growth trajectory.
A new government will do well to interpret the latest data in proper perspective. There are well entrenched weaknesses in specific sectors. The investment scenario remains weak notwithstanding the recent efforts of the government to fast-track certain large projects. Both mining and manufacturing have been weak throughout this year. Policy logjam and environmental as well as judicial activism have impacted adversely on mining output, and this has had major negative consequences for the current account of the balance of payments. The outlook for the near future is not bright. Barring an unexpected turnaround, the government is on a weak wicket.
The message is clear. Over the past ten years of the UPA I and II, economic growth has flattered but only to disappoint. Near-term trends are not encouraging.