THE HINDU EDITORIAL – May 16, 2017
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THE HINDU EDITORIAL – May 16, 2017
a) Timely refresh
The latest revisions to the base year for the Index of Industrial Production and the Wholesale Price Index reveal an overall macroeconomic picture that is at once heartening, given the underlying resilience reflected in the data. IIP data founded on the new base year of 2011-12 show that industrial output has grown annually at an average pace of 3.82% over the last five fiscal years, with a 5% rate of growth in the 12 months ended March 2017. Contrast this with the 1.42% average pace based on the previous 2004-05 base year, with 2016-17 showing a paltry 0.7% expansion. It is clear that the change in the base year with accompanying changes to weights of the component sectors, and restructuring of the individual sectoral constituents have all helped signal industrial activity as having been far more robust over the entire time period than had been previously posited. The caveats and explanations too need to be mentioned upfront. For one, the simultaneous updating of the base year for WPI to the same 2011-12 means the deflator applied to the 109 items captured in value terms in the new IIP (54 in the older series) has also changed, with a more benign wholesale inflation reading automatically lifting the value of the corresponding industrial item. Also, the Central Statistics Office makes clear that the growth rates of the two series are not strictly comparable since the indices for 2011-12 have been normalised to 100 at a monthly level. The breadth and relatively contemporary nature of the data capture — with an increase in the number of reporting factories and the exclusion of shuttered units and restructuring of the items basket — has meant that the in-formation is now appreciably more representative. Manufacturing sees its weight in the index raised by slightly more than 2 percentage points to 77.63%, while electricity, which now includes renewable sources, has had its weight pared to just under 8% in the new series. And most interestingly, a mechanism in the form of a Technical Review Committee has been put in place to periodically review the products featuring in the item list and to revise the series dynamically. The reviews, to be undertaken separately for both the IIP and the WPI, will help ensure that data pertaining to industrial output and wholesale price inflation will be relatively current and more accurately reflect economic trends. It would be interesting to see to what extent the recent divergence between the IIP and the GDP numbers will narrow, or even disappear, with the new series. While the significance of the IIP figures as a policy determinant cannot be overstated, especially given that the RBI considers it as a key gauge of economic health while reviewing its monetary stance, all data will finally need to stand the scrutiny of consistency and credibility against the conditions prevailing on the ground.
b) Off the road
Three years after the plan for the Belt and Road Initiative (B&RI, formerly called the Silk Road Economic Belt or One Belt One Road) was announced, China has concluded the first Belt and Road Forum. While 130 countries participated, of which at least 68 are now part of the $900-billion infrastructure corridor project, India boycotted the event, making its concerns public hours before the forum commenced in Beijing. India’s reservations, according to the carefully worded statement issued by the Ministry of External Affairs, are threefold. One, the B&RI’s flagship project is the China-Pakistan Economic Corridor, which includes
projects in the Gilgit-Baltistan region, ignoring India’s “sovereignty and territorial integrity”. Two, the B&RI infrastructure project structure smacks of Chinese neo-colonialism, and could cause an “unsustainable debt burden for communities” with an adverse impact on the environment in the partner countries. And three, there is a lack of transparency in China’s agenda, indicating that New Delhi believes the B&RI is not just an economic project but one that China is promoting for political control. These concerns are no doubt valid, and the refusal to join the B&RI till China addresses the objection over Gilgit-Baltistan is understandable. The decision to not attend even as an observer, however, effectively closes the door for diplomacy. It stands in contrast to countries such as the U.S. and Japan, which are not a part of the B&RI but sent official delegations. Each of India’s neighbours, with the exception of Bhutan, has signed up for the B&RI, expecting to see billions of dollars in loans for projects including roads, rail, gas pipelines, oil pipelines, electricity and telecommunications connectivity. India’s anxiety about the possible debt trap may be well-founded, but it ignores the benefits these countries believe will accrue from the project. Simply put, India cannot appear to be more worried about these countries than their own governments are, or to determine their stance. As a friend and neighbour, India can at best alert them to the perils of the B&RI, and offer assistance should they choose another path. India may also face some difficult choices in the road ahead, because as a co-founder of the Asian Infrastructure Investment Bank and as a member of the Shanghai Cooperation Organisation (from June 2017) it will be asked to support many of the projects under the B&RI. At such a point, especially given the endorsement from the UN Secretary General, who said the B&RI is rooted in a shared vision for global development, India should not simply sit out the project. It must actively engage with China to have its particular grievances addressed, articulate its concerns to other partner countries in a more productive manner, and take a position as an Asian leader, not an outlier in the quest for more connectivity.
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