Overcoming Sub-5% Growth

The sharp deceleration of the rate of growth of real gross domestic product (GDP) at factor cost (at 2004-05 prices) from an average of 8.3% during 2004-05 to 2011-12 to 4.6% in 2012-13 and 2013-14, and particularly of the manufacturing sector to an annual average 0.2% in the latter two years, this with an average annual food inflation (wholesale prices) of 12.2%, has raised fears of the possibility of stagflation. Yet, the Economic Survey 2013-14 (ES), presented in Parliament on 8 July, is quite sanguine on the whole. It sees a way out in the “amelioration of [domestic] structural constraints” of the supply-side variety. The “corrections in (the) fiscal and current account deficits” have already been made by the previous government, and these rectifications “augur well for macroeconomic stabilisation”.

But what are these structural constraints, in the view of the government? After all, in the government’s reasoning, it is some of these constraints that have led to the sharp decline of gross fixed capital formation as a proportion of GDP from an average of 30.8% during 2004-05 to 2007-08, to 28.3% in 2013-14. The ES is, of course, more concerned about the growth in investment by the private corporate sector. This was 48.1% on an annual basis at current prices during 2004-05 – 2007-08 but plummeted to 3.4% during 2008-09 – 2012-13. As a proportion of GDP, private corporate investment declined quite sharply from an average of 13.9% during 2004-05 – 2007-08 to 9.2% in 2012-13. Difficulties in land acquisition, delays in environmental clearances, infrastructural bottlenecks, bans on mining in certain areas, problems with the supply of coal, etc, are mentioned. Moreover, the profit margins of non-governmental, non-financial companies have deteriorated.