The Board of India Today Economists: (Clockwise from left) Indira Rajaraman, RBI Professor, National Institute of Public Finance and Policy; Bibek Debroy, Director, Rajiv Gandhi Institute for Contemporary Research; Subir Gokarn, Chief Economist, Crisil; Jairam Ramesh, the forum moderator; Siddhartha Roy, Chief Economist, HLL; and Suresh Tendulkar, Professor, Delhi School of Economics

Is this the best Indian economy in decades?' the topic was provocative enough, as the grey eminences on the Board of India Today Economists (bite) would testify, and that too, without getting into Clintonesque oral gymnastics on what 'best' means. Held at the Imperial Hotel in New Delhi on July 26, 2003, this was bite's third forum, and it lived up to the purpose it was constituted for-to foster debate on economic issues vital to the country.

Some Unanimity

If any of the economists wanted to hem and haw, the forum moderator Jairam Ramesh was in no mood to grant them the time or space. The board got straight to the big issue: Estimating growth in India's gross domestic product (GDP) for the year underway. And if there was unanimity among the panelists, it was on the certainty that things were better than they were last year, when India registered a dismal 4.3 per cent GDP growth. Take a look at the GDP growth projections made-individually-by the board for the year 2003-04, and it's clear that nobody has dared stake his or her reputation below the 6.4 per cent-mark.

The rains, anyhow, have been bountiful-and this information is already in, also the reason that Kirit Parikh of the Indira Gandhi Institute of Development Research would not be surprised if the country were to achieve 8 per cent growth this year, the Prime Minister's oft-stated soft target (which would also, incidentally, be a record). Otherwise, the average expectation of GDP growth was somewhere between 6.5 per cent and 7 per cent-which would be good, if not the best India has achieved in the past decade.

"Today we need to rid the banks of the 3 Cs-CAG, CVC and CBI" Indira Rajaraman, Reserve Bank of India Professor, National Institute of Public Finance and Policy

Agriculture, clearly, was expected to lead the recovery-with particularly high expectations pinned on the sector by Hindustan Lever Limited's (HLL) Chief Economist Siddhartha Roy and the Reserve Bank of India (RBI) Professor at the National Institute of Public Finance and Policy, Indira Rajaraman, both of whom expected it to grow nicely beyond 7 per cent. The Chief Economist of rating agency Crisil, Subir Gokarn, and the Director of the Rajiv Gandhi Institute for Contemporary Research, Bibek Debroy, were also counting on agriculture touching some 7 per cent. Even the lowest projection-of Delhi School of Economics' Professor, Suresh Tendulkar-for the sector was a neat 6.5 per cent.

Some Divergence

If Debroy didn't see how India could possibly achieve a record growth this year (a possibility to Parikh), it was because he detected no "return of the feel-good factor'' that played such a powerful role in keeping the economy's animal spirits up during the last boom, which lasted three years-from 1994-95 to 1996-97. The corporate appetite for greenfield projects and big-buck funding had not shown any significant revival, added Debroy. In other words, business behaviour was not consistent with confidence in an impending economic boom.

In fact, according to Tendulkar, the very signs that were being touted as hallmarks of growth-the huge foreign exchange reserves, banks being flush with funds, a positive current account balance-could well be signs of obesity rather than healthy dynamism.

"The environment is more risky for an individual investor than ever before" Siddhartha Roy, Chief Economist, Hindustan Lever Limited

That was enough to draw renewed attention to India's domestic economic affairs. Rajaraman put up danger flags on India's deteriorating tax/GDP ratio and precarious public finances. The country's tax/GDP ratio, which was a dismal 16 per cent in the pre-reform period, slid to 15 per cent in 2002-03, even lower than that of Pakistan, and far below the Organisation of Economic Cooperation and Developing (OECD) countries. Only Bangladesh, she pointed out, had a worse tax/GDP ratio. "The fragility of the financial sector is the single biggest fear of India's economy today," Rajaraman argued, "even more dangerous than the loss of job opportunities in the organised sector.''

Tendulkar also admitted to suffering sleepless nights on account of India's bloated fiscal deficit-and, less obviously, the pyrrhic observation that it didn't seem to be hurting anyone. "And if this growing fiscal deficit has not made any impact on the inflation rate, interest rate or even on the current account balance, which is currently surplus," contended the professor, "it is a clear reflection of the poor investment climate in the country." This is the piece of reasoning that says that inflation and interest will rise only when there are too many buyers chasing too few products and too many borrowers chasing too few loans-and if neither is happening despite the burgeoning public outlay, aggregate demand in the economy must be in poor shape.

"The worry is the complete stagnation in power sector reforms" Kirit Parikh, Professor, Indira Gandhi Institute of Development Research

Industrial Inadequacies

Was India's industrial sector showing signs of revival? Again, there was an assortment of views. Yes, corporate results for the first quarter of 2003-04 had been encouraging, even good in percentage growth terms, but many of these were on depressed bases (2002-03 had been bad). HLL's Roy maintained that the good results had been largely because of good cost containment and declining interest burdens, rather than topline growth-which continued to be a tough task for corporates.

If demand was proving hard to generate, was discretionary income a problem? There were a few words devoted to this possibility, given that the costs of housing, education, health and other indispensables had been outstripping the growth in household incomes, for a large proportion of the country.

Yet, there was good news from the corporate perspective on the supply side of the equation. "The bunching of capacity that happened in 1995-96, resulting in the creation of excess capacity, is now being neutralised to some extent,'' said Roy.

"On aggregate the macro numbers do not show great buoyancy" Subir Gokarn, Chief Economist, CRISIL

So, did that mean that the economy had shorn itself of the excesses of the last boom? Not entirely. Gokarn was clear that project investment continued to be low, despite the impressive corporate results. "It is only the incumbent players who are making investments," he observed, "and that too in some specific sectors.'' While construction, steel, cement, food and beverages and transport equipment had seen some investment (through internal accruals, mainly), other sectors stagnated. This was inadequate, said Gokarn, asking, "Where are the new producers?''

Export Energy

Exports was upheld by nearly all the panelists as a great white hope. And for good reason too. Exports grew by a healthy 12 per cent in April-May this year, and that too on the back of a 20-per cent growth in the same period last year (2002-03). This incline would be sustained, felt most. One reason for this super growth, as Debroy pointed out, was that Indian exports had become steadily less price-sensitive over the years, and were based more than ever on intrinsic brand strengths (that is, they would continue to be in demand if the rupee were to suddenly strengthen).

"Pump-priming the economy, to my mind, is totally irrelevant" Suresh Tendulkar, Professor, Delhi School of Economics

All very good, everybody seemed to agree. But yet, there was no need to be overly sanguine about exports. "An appreciating rupee could well adversely impact India's export prospects,'' warned Rajaraman, adding though that even the current boom may be illusory to some extent.

How come? Historical circumstances, she explained, had been such that the current export boom had something to do with the recent reversal in capital flight, especially in the gems and jewellery sector where overinvoicing and underinvoicing had always been rampant (as a means to disguise capital transfers). Now that the rupee had turned around versus the dollar, rich globally-connected Indians who had parked their wealth abroad were looking for ways (and export books are always convenient) to get some of it back in.

Tale of Six Ideas

But what about the domestic economy? What was the way out? The board's suggestions, though diverse, had a common theme: reforms.

"Jobless growth is infinitely preferable to growthless jobs" Bibek Debroy, Director, Rajiv Gandhi Institute for Contemporary Research

For Debroy, a couple of disinvestments of the magnitude of Hindustan Petroleum Corporation Limited (as opposed to, say, Modern Foods), could well bring back the "feel-good factor in the economy and hence greater investments''. For Gokarn, labour reforms and pump-priming the economy were critical to getting the Indian economy back in good shape. Supply side constraints in the economy, he added, also needed to be dealt with.

There were unconventional suggestions, too. Rajaraman, for example, felt that putting a cap on banks' holding of government securities could go a long way towards correcting the economy's imbalances. Banks were sitting on piles of cash, and would be forced to lend to ambitious new entrepreneurs and fresh-faced startups if they couldn't buy gilts-which, in turn, could send a ripple of economic enthusiasm through the economy.

For Tendulkar, the best way out was to bring down India's still-high tariffs (at least to the level of competing nations) to spur the import of machinery at competitive costs, which, in turn, would encourage the setting up of new projects-especially to take emerging export opportunities. The global apparel market, for example, was soon to emerge as a huge opportunity for Indian businesses.

Thus concluded the bite session. With a variety of analyses, some interesting points to ponder, and an unambiguous mandate in favour of holding off the champagne till the coming of times that draw less controversy over being the 'best' or any other superlative.