OCTOBER 16, 2023

By TIOL Edit Team

THE Government feels recharged with new energy and pride whenever any global institution lauds India's achievements. It happened the other day too when International Monetary Fund (IMF) improved its projected growth of gross domestic product (GDP) for India.

In its updated World Economic Outlook (WEO), IMF has enhanced by 0.2% India's projected GDP growth to 6.3% in 2023 from its earlier estimate released in July 2023.

An official release quoted Prime Minister Narendra Modi's response to IMF's forecast as: "Powered by the strength and skills of our people, India is a global bright spot, a powerhouse of growth and innovation. We will continue to strengthen our journey towards a prosperous India, further boosting our reforms trajectory."

PM's statement serves as an invaluable icing on IMF-served reassuring cake for investors and other stakeholders of economy. Growth in GDP is, however, one of the many horses that pulls ahead our economy of continental dimensions. Good Governance demands care and concern for low-performing horses of the Vikas Chariot.

There is thus compelling need for the Government to take a holistic view of IMF's diverse data on India to take stock of the health of other horses.

We hope the Government does give equal importance to two other flagship reports released along with WEO. These are: Financial Monitor (FM) and Global Financial Stability (GFS). We also expect the Government to club socio-economic data from IMF-World Bank-ADB-OECD with one available from within India, especially from Comptroller and Auditor General (CAG).

IMF has retained 6.3% estimate for GDP growth in 2024, as compared to 7.2% rise in 2022.WEO says: "Growth in India is projected to remain strong, at 6.3 percent in both 2023 and 2024, with an upward revision of 0.2 percentage point for 2023, reflecting stronger-than-expected consumption during April-June ."

This implies slow-down in the growth. Hence more delay in the elimination of poverty. GDP growth at constant prices has been declining under the present Government after reaching 8.2% in 2017-18. This is a cause for concern if we reckon NITI Aayog's forecasts contained in a presentation prepared in 2016.

The presentation pitched for 10% annual growth in GDP to eliminate poverty by 2032. At this pace, the country would have created 175 million new jobs and emerged as trillion economy. The trillion target also figured in BJP's 2019 Lok Sabha manifesto.

This is a core objective of the forgotten document titled ‘Transforming India -Reports of Group of Secretaries & Action Plans for Implementation' prepared in 2016. We would thus urge the Government to redouble its resolve to achieve this and associated targets, even though they appear daunting.

It would be enlightening if NITI Aayog gives its projections on the optimal nexus between GDP rate, Tax-GDP ratio& prudent fiscal parameters. Such an initiative is needed to prepare a new road-map to eliminate poverty at the earliest and to put India in the orbit of developed nations.

This exercise should estimate GDP per capita and GDP growth rate per capita over the medium to long term to curb irrational exuberance that results from stand-alone narrative on India's robust GDP growth amidst global doom &gloom.

The authorities should not overlook the fact that many developing countries have higher GDP per capita than India. Evidence available from our two friendly neighbouring countries is humbling.

Bhutan's GDP per capita, for instance, is substantially higher than India's. Bangladesh's GDP per capita is either closer to India's or at the same level, depending on the parameters used to generate comparative - data from interactive WEO database 2023 or IMF datamapper or from data.imf.org.

Turn now to IMF's Fiscal Monitor whose update was released on 10th July. It shows that India's general government gross debt increased from 67.1% of GDP in 2014 to 88.5% in 2020. It is projected to be above 80% mark in subsequent years upto 2024.

This is an unsustainable level of debt, an issue that has been dealt at length by the 15th Finance Commission. Unfortunately, its recommendations on new framework for debt and fiscal deficit management remains un-implemented. (See editorial 'Time for Centre & States to Pull Up Socks on Fiscal Front' June 27, 2022.)

Transforming India document also pitched for "a limit on overall debtto GDP ratio." This is listed as one of the initiatives under “Innovative Budgeting". We urge the Government to revisit this visionary document to lay a solid foundation for Amrit Kaal .

It is here apt to quote CAG report on Union Government Accounts for FY 2021-22 released during August 2023. The Report says: "Total liabilities consistently increased by more than 10 per cent from FY 2017-18 onwards. In FY 2021-22, there was a growth of 12.04 per cent over FY 2020-21 on account of increase in Public Debt."

How should one interpret the annual growth of Centre's liabilities outpacing the rise in GDP year after year? Does it enhance risk of debt repayment crisis and associated inflation and currency depreciation? Does it enhance credit repayment of future generation and limit budgetary funds for productive investments?

Fiscal Monitor also contains enlightening data on India's structural fiscal indicators. Absence of data on certain Indian parameters in IMF flagship reports is also an eye-opener.

We thus hope that the elation over robust GDP growth is balanced by such sobering concerns to ensure that we don't deviate from path of inclusive and safe growth. We have to keep in mind the fact that robust growth in GDP alone can't ensure happiness, peace and prosperity for all.

As once put by an IMF official, Tim Callen, "GDP is not a measure of the overall standard of living or well-being of a country."