Sharpen the focus on growth

Now that the dust and din around the State Assembly elections have settled down, it is time for policymakers to turn their attention to the major task of accelerating economic growth. As of now the prospects are not encouraging. The Central Statistics Office’s second advanced estimates indicate that the growth rate of GDP for 2016-17 will be 7.1% as against 7.9% in 2015-16. The growth rate of gross value added at basic prices in 2016-17 will be 6.7% as against 7.8% in 2015-16. The growth rates projected for 2016-17 do not capture the impact of demonetisation, which when taken into account may bring down the projected growth rate by around 0.5%. The decline in the growth rate is not a recent phenomenon. It started in 2011-12. The persistence of relatively low growth over a Five year period calls for a critical examination. Even though the new numbers on national income give us some comfort, they do not tell the whole story. Determinants of growth Ultimately, the growth rate is determined by two factors — the investment rate and the efficiency in the use of capital. As the Harrod Domar equation puts it, the growth rate is equal to the investment rate divided by the incremental capital output ratio. The incremental capital-output ratio (ICOR) is the amount of capital required to produce one unit of output. The higher the ICOR, the less efficient we are in the use of capital. There are many caveats to this bald proposition. As we look at the Indian performance in the last five years, two facts stand out. One is a decline in the investment rate and the second is a rise in ICOR; both of which can only lead to a lower growth rate. As growth was coming down sharply initially, the investment rate was falling only slowly, implying a rising ICOR. ICOR is a catch-all expression which is determined by a variety of factors including technology, skill of manpower, managerial competence and also macroeconomic policies. Thus delays in the completion of projects, lack of complementary investments in related sectors and the non-availability of critical inputs can all lead to a rise in ICOR. The Economic Survey of 2014-15 reported that there were in all 746 stalled projects, with 161 in the public sector and 585 in the private sector of a total value of ₹8.8 lakh crore. As of 2015-16, there were still 404 stalled projects, 162 in the public sector and 242 in the private sector with a total value of ₹5.5 lakh crore. In the short run, the biggest gain in terms of growth will be by getting “stalled projects” moving. Of course some of them may be unviable because of changed conditions. A periodic reporting by the government on the progress of stalled projects will be of great help. Declining investment rate India’s investment rate reached a peak in 2007-08 at 38.0% of GDP. With an ICOR of 4, it was not surprising that a high growth rate of close to 9.4% was achieved. One sees a steady decline in the investment rate since then. The decline in the rate was small initially but has been more pronounced in the last two years. According to the latest estimates, the gross fixed capital formation rate fell to as low as 26.9% in 2016-17. With this investment rate, it is simply impossible to achieve a growth rate in the range of 8 to 9%. The major issue confronting us is: why did the investment rate fall? Why are not new investments forthcoming? In 2011 and 2012, in discussions on the Indian economy, the one phrase that used to be bandied about was “policy paralysis”, pointing to the inability of the government to take policy decisions because of “coalition compulsions”. It is true that around this period, the government was preoccupied with answering many issues connected with graft. But that does not explain the steady fall in the investment rate except for a sense of uncertainty created in the minds of investors. The external environment was also not encouraging. The growth rate of the advanced economies remained low and the recovery from the crisis of 2008 was tepid which had an adverse impact on exports. However, India benefited by large capital inflows except in 2013. For almost three years beginning 2010, India had to cope with a high level of inflation which also had an adverse impact on investment sentiment. Once the growth rate starts to decline, it sets in motion a vicious cycle of decline in investment and lower growth. The acceleration principle begins to operate. We need to break this chain in order to move on to a higher growth path. Solutions What are the solutions, given the current situation? The standard prescription, whenever private investment is weak, is to raise public investment which can take a longer term view. This standard suggestion is very much appropriate in the present context as well. In the best of times, public investment has been 8% of GDP. The Central government’s capital expenditures even after some increase in the last two years, is only 1.8% of GDP. About 3 to 4% of GDP comes from public sector undertakings and the balance from State governments. What is needed now is for public sector undertakings to come out with an explicit statement indicating the extent of investment they intend to make during the current fiscal. And this intention must be monitored every quarter. This will inspire confidence among prospective private investors. However, it is also necessary to enhance private investment, and that too private corporate investment. During the high growth phase, corporate investment reached the level of 14% of GDP. Since then it has fallen. In fact, a recent study shows that the total cost of projects initiated by the corporate sector has come down from ₹5,560 billion in 2009-10 to ₹954 billion in 2015-16. This continuing trend must be reversed. Three things need attention. First, reforms to simplify procedures, speed up the delivery system and enlarge competition must be pursued vigorously. Some significant steps have been taken in this regard in recent years such as moving forward on the GST Bill, passing of the Bankruptcy Act, and enlarging the scope of foreign direct investment. Second, all viable “stalled” projects must be brought to completion. Third, financial bottlenecks need to be cleared. The banking system is under stress. The nonperforming loans of the system have risen and are rising. This has squeezed the profitability of banks with some showing loss. More distressing is the minimal low of new credit. The problem is often referred to as the twin balance sheet problem. If corporate balance sheets are weak, automatically the banks’ balance sheets also become weak. Really speaking, it is two sides of the same coin. The solution to clean up the balance sheet of banks lies in taking some “haircuts”. At least some part of the accumulation of bad debts has been due to the slowdown of the economy. The old saying is “bad loans are sown in good times”. Even though a haircut cannot be avoided, wilful defaulters must not go unpunished. Asset restructuring companies are part of the solution and we have some experience of them. Long-term lending This is also the appropriate time to revive an idea which had withered away during the reform process and that is to have institutions focussed on long-term lending such as IDBI and ICICI as they were before 1998. The details can be worked out. But the idea needs a rethink. Investment, as they say, is an act of faith in the future. If there has to be investment resurgence, it is necessary to create the climate which promotes this faith. We have already outlined the actions that can be taken in the purely economic arena. But “animal spirits” are also influenced by what happens in the polity and society. Avoidance of divisive issues is paramount in this context. Undiluted attention to development is the need of the hour.

1) Slander

Meaning: A false spoken statement about someone that damages their reputation, or the making of such a statement.

Example: The doctor is suing his partner for slander.

Synonyms: Defamation, Disparagement

Antonyms: Approval, Compliment

2) Punitive

Meaning: Used to describe costs that are so high they are difficult to pay; Intended as a punishment.

Example: The president has threatened to impose punitive import duties/tariffs on a variety of foreign goods.

Synonyms: Vindictive, Punishing

Antonyms: Beneficial, Rewarding

3) Epiphany

Meaning: A moment when you suddenly feel that you understand, or suddenly become conscious of, something that is very important to you; A powerful religious experience; A Christian holy day in January (traditionally 6 January in Western Christianity) that celebrates the revelation of the baby Jesus to the world.

Example: Christians will be praying around the world during both Advent and Epiphany.

Synonyms: Flash, Surprise

Antonyms: Confusion, Secret

4) Imbibe

Meaning: To receive and accept information, etc; To drink, especially alcohol.

Example: Have you been imbibing again?

Synonyms: Assimilate, Absorb

Antonyms: Abstain, Fast

5) Adage

Meaning: A wise saying.

Example: He remembered the old adage “Look before you leap”.

Synonyms: Precept, Dictum

6) Tacit

Meaning: Understood without being expressed directly.

Example: There was a tacit agreement that he would pay off the loan.

Synonyms: Implied, Assumed

Antonyms: Explicit, Express

7) Nondescript

Meaning: Very ordinary, or having no interesting or exciting features or qualities.

Example: Their offices are in a nondescript building on the edge of town.

Synonyms: uninspiring, characterless

Antonyms: Abnormal, uncommon

8) Specter

Meaning:  Something widely feared as a possible unpleasant or dangerous occurrence.

Example: It also raises the specter of a dangerous shift toward protectionism.

Synonyms: Ghost, Phantom

Antonyms: Reality, Absence

9) Solipsism

Meaning: The belief that only your own experiences and existence can be known.

Example: This conclusion, however, is valid only if Searle is right in claiming that collective intentionality conforms to methodological solipsism.

Synonyms: Egoism, uniqueness

Antonyms: Omniscience, empathy

10) Filial

Meaning: Of or due from a son or daughter.

Example: Once they even forced him to fall back on filial emotion.

Synonyms: Daughterly, Familial

Antonyms: Parental, Maternal

11) Circumspect

Meaning: Careful not to take risks.

Example: Officials were circumspect about saying what the talks had achieved.

Synonyms: Cautious, Prudent

Antonyms: Brash, Impetuous

12) Shirk

Meaning: To avoid work, duties, or responsibilities, especially if they are difficult or unpleasant.

Example: If you shirk your responsibilities/duties now, the situation will be much harder to deal with next month.

Synonyms: Dodge, Evade

Antonyms: Confront, Accede

13) Cohesive

Meaning: The situation when the members of a group or society are united.

Example: The lack of cohesion within the party lost them votes in the election.

Synonyms: Tenacious, Unified

Antonyms: Detached, Disunited

14) Effrontery

Meaning: Extreme rudeness without any ability to understand that your behavior is not acceptable to other people.

Example: He was silent all through the meal and then had the effrontery to complain that I looked bored!

Synonyms: Audacity, Gall

Antonyms: Modesty, Shyness

15) Laggard

Meaning: Slower than desired or expected.

Example: A bell to summon laggard children to school.

Synonyms: Dilatory, Leisurely

Antonyms: Prompt, Expeditious

16) Travesty

Meaning: Something that fails to represent the values and qualities that it is intended to represent, in a way that is shocking or offensive.

Example: Their production of “Sweeney Todd” was the worst I’ve ever seen – it was a travesty.

Synonyms: Ridicule, Distortion

Antonyms: Seriousness, Solemnity

17) Extravagant

Meaning: Spending too much money, or using too much of something.

Example: He rarely used taxis, which he regarded as extravagant.

Meaning: Extreme and unreasonable.

Example: The product does not live up to the extravagant claims of the advertisers.

Synonyms: Absurd, Excessive

Antonyms: Careful, Believable

18) Scintillating

Meaning: Funny, exciting, and clever.

Example: A scintillating personality/speech.

Synonyms: Brilliant, Exciting

Antonyms: Dull, Blah

19) Menial

Meaning: Menial work is boring, makes you feel tired, and is given a low social value.

Example: It’s fairly menial work, such as washing dishes and cleaning floors.

Synonyms: Boring, Common

Antonyms: Honest, Moral

20) Gamut

Meaning: The complete range or scope of something.

Example: He covers the gamut of aesthetic surgery, from the initial consultation through post operative recovery.

Synonyms: Range, Spectrum

21) Peddle: Try to sell by going from place to place.

Pedal: Each of a pair of foot-operated levers used for powering a bicycle.

Petal: Each of the segments of the corolla of a flower, which are modified leaves and are typically colored.

22) Reverend: Used as a title or form of address to members of the clergy.

Reverent: Feeling or showing deep and solemn respect.

23) Peek: Look quickly or furtively.

Pique: A feeling of irritation or resentment resulting from a slight.

24) Eminent: Famous and respected within a particular sphere.

Imminent: About to happen.

25) Taut: Stretched or pulled tight; Not slack.

Taunt: A remark made in order to anger, wound, or provoke someone.

26) Smash-and-grab raid: A crime in which thieves break the window of a shop and steal things before quickly escaping.

27) Jack-knife: If a truck that has two parts jack-knifes, one part moves around so far towards the other part that it cannot be driven.

28) Road toll: The number of people who have died in road accidents.

29) Stack up: To compare with another thing of a similar type.

30) Credit crunch: Economic conditions that make financial organizations less willing to lend money, often causing serious economic problems.