The Reserve Bank of India's annual report released yesterday has chosen not to interpret the data that it has presented. While the text of the report has made polite noises _- expressing concern on the fiscal situation, sounding caution on growing debt, and alerting the government to the grave threat posed by inflation _ the data in the report suggests a bleak outlook ahead in addition to being a damaging indictment of economic performance under reforms. Three examples would suffice :
While the RBI is already seeing an upturn in industrial growth, its own data indicates that the industrial recession is going to deepen further in 1998-99.
The report maintains that the overall growth of GDP is going to be 6.5 per cent which is the same as that underlies the budgetary projections. However, the RBI goes further to point out that agriculture could grow at 3 per cent, Services at 8 to 9 per cent and that " industry would do better than last year".
If indeed services and the agricultural sector were to grow at the rate of 9 and 3 per cent respectively, the implied growth for industry, based on the weightages given in the report, will be just about 5 per cent. This rate of growth is almost one one per cent lower than last year's manufacturing growth. With manufacturing now accounting for almost 82 per cent of the industrial growth, the obvious implication of this rate and composition of the overall GDP growth is that the industrial recession is going to worsen in 1998-99.
lFiscal adjustment has been a failure and its quality detrimental to growth.
According to the numbers collated by the RBI in its report, the share of the combined developmental expenditure of Centre and States in total expenditure has declined from a high of 64.3 per cent during the period 1980-90 to 51.2 per cent in 1998-99. At the same time, non-developmental expenditure of the Centre and the states is up from 35.7 per cent to 48.8 per cent. The obvious implication is that under the program of stabilisation, the government has been unable to cut non-developmental expenditure and has instead chopped developmental expenditure (including capital expenditure and outlays on social sectors) to meet its deficit target.
Even after having done the most imprudent reduction in government expenditure, the combined revenue deficit of the Centre and the states in 1998-99, is expected to be higher than that in 1991 which was considered to be the year of fiscal doom. In 1991 ,the combined revenue deficit of the Centre and the states was 4.5 per cent of GDP while in 1998-99 it is budgeted to be 4.6 per cent. Given the fact the budgeted numbers have, without exception, been lower than actuals, the final figures of revenue defict in 1998-99 will be much higher than those in 1991. Yet the RBI has refrained from sounding the alarm bells on the extant fiscal situation.
In a very revealing estimate, the RBI data (Table 4.2) shows that even after seven year of stabilisation, the average revenue deficit of the economy ( centre and states combines) in the post reform period ( 1991 to 1997) for the Centre and the States is much higher than the pre-reform period ( 1985-90). Even though this table virtually questions the utility of entire fiscal adjustment that has been undertaken so far, the RBI doesn't deem it to be worthy of a comment.
The post-reform period has been worse than the pre-reform period for growth in the core sector.
The composite index of infrastructure industries shows a much lower growth of 5.8 per cent in the post reform period i.e 1991-92 to 1997-98 as compared to 6.6 per cent in the pre-reform period of 1986-87 to 1990-91. Four of the six component industries _ Electricity, Coal, Cement, and Crude petroleum _ have all shown substantially lower growth in the post reform period. In all cases the actual production has been lower than the targets set.
Even though the RBI doesn't point it out, the data in the report clearly drives home the point that the economy is dangerously close, if not worse than , where it had started at the time of initiating fiscal stabilisation and structural adjustment.
The basic problem with the report is that the macroeconomic data which it contains bears little or no relation to the what the Reserve Bank of India has to say on the assessment and more importantly on the prospects of the growth. The two _ data and analysis _ are by and large independent ; possibly because the data is generated by the cadres and the ananlysis is done by the intellectual nobility of the Bank.
