Much ado about GDP growth

On exactly 10 occasions in the last half-century, Indian agriculture has grown by more than 7 per cent when a good monsoon followed a drought year and agricultural decline.

GDP growth in those 10 years averaged exactly 8 per cent -- and this includes performance in the first three post-Independence decades when average GDP growth was the miserable "Hindu rate" of 3.5 per cent.

The feel-good year to beat all feel-good years was of course 1988-89 (when Rajiv Gandhi was at the helm), for GDP growth crossed into double digits for the first and only time, hitting 10.5 per cent on the back of 15.4 per cent agricultural growth.

There was also 1975-76, when GDP growth touched 9 per cent, powered by 12.9 per cent agricultural growth; and 1967-68 when GDP growth was 8.1 per cent, helped by agricultural growth of 14.3 per cent.

This history is worth keeping in mind when we celebrate a "feel-good" year of supposedly record growth, because what we are seeing this year is not exceptional: every fifth year in the last half-century has been such a "feel-good" year. If we did not go overboard then, perhaps it's because political management in those days was less deft. The Congress needs to learn from the BJP.

But the BJP, since it hopes to win the election along with its allies and form the next government, had better take a peep round the next corner.

For in the years that followed those boom years of 8 per cent average growth, GDP grew by an average of no more than 3.2 per cent, because it is difficult to sustain high growth on a high base.

If we take away the early decades of low growth, then the post-boom year's growth has averaged a more respectable 5.5 per cent -- but even that is just par for the course and nothing to write home about. If history repeats itself next year and we do 5.5 per cent once more, then all it will mean is that we have stuck to the statistical trend.

For we will be back to the average growth rate of the previous 24 years, which happens to be the same as in the six years of Mr Vajpayee's economic stewardship: 5.6 or 5.7 per cent annual GDP growth. And this includes the current boom year!

There have been only two periods when high growth of more than 7 per cent was sustained. The more recent one of course was Manmohan Singh/Chidambaram's high-noon of 1994-97, when the economy clocked more than 7 per cent growth for three years in a row, averaging 7.5 per cent.

But that was in fact marginally slower than what was achieved by Rajiv Gandhi/VP Singh in 1988-91, when GDP growth averaged a flattering 7.6 per cent! Both boom periods proved unsustainable. One led to the 1991 fiscal and foreign exchange crisis, the other led to industrial over-capacity and a long slowdown as the economy caught its breath.

Should we then stop celebrating? Perhaps not, because this time it is different in some important ways. First, there is software and IT-enabled services, which were insignificant in the earlier boom periods, but which now add more than 0.5 per cent to annual GDP growth.

Second, the slow-moving agricultural sector accounts for a steadily smaller chunk of GDP. And third, Indian manufacturing is internationally more competitive than it was in the earlier periods. In other words, growth of 6 per cent and a little more should now be sustainable, even on a high statistical base.

Anything more than that will require radical improvements in India's physical economic infrastructure, and sharp improvements in the levels of education and health care.

One must hope that all the parties in the electoral fray will focus on these in their manifestos, and then deliver after the new government is formed. Otherwise, the economy will have flattered, only to deceive once more.

By way of a footnote, it is a curious fact that there was no "feel-good" factor in the earlier boom years/periods. Narasimha Rao lost the 1996 election despite delivering 7.5 per cent growth, and Rajiv Gandhi lost the 1989 elections despite doing even better.

In short, bountiful harvests and record growth are not enough to deliver political dividends. But once again, Mr Vajpayee might have better luck than his predecessors.

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