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BW Businessworld

Numbers Alone Won’t Help

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March and April have been full of news of the elections and the UPA’s economic performance. Finance minister P. Chidambaram, deputy chairman of the Planning Commission Montek Singh Ahluwalia and former RBI governor C. Rangarajan would have us believe that the Indian economy has been in fine fettle during UPA II.

Chidambaram has argued time and again that the economy is far more stable now. He says his government has contained the fiscal deficit — down from 6 per cent in FY09 to 4.5 per cent in FY14 — while the revenue deficit dropped from 4.5 per cent to 3.3 per cent in the same period. He also says the UPA has substantially contracted the current account deficit and swelled India’s forex reserves, citing a dip in inflation from 8.1 per cent in FY09 to 5.9 per cent in FY14.

Ahluwalia concurs with this, barring the dip in inflation, which he blames on high global inflation. He argues that inflation during the NDA rule was low since global inflation at the time was low; in other words it had little to do with the policies pursued by the NDA. Ahluwalia has also been reiterating that poverty has fallen more sharply in the past 10 years than in any other 10-year period.

And, yet, if everything has been so hunky-dory, how does one explain a drop in India’s rank on the World Bank’s Logistics Performance Index, which measures a country’s performance on six key criteria including efficiency and competence. A recent Deloitte report on Indian logistics says that the country’s rank has fallen from 37 in 2007 to 46 in 2012. India now lags other major markets such as Brazil (41), China (26), US (9) and Germany (4). India’s rank on quality of trade and transport-related infrastructure has deteriorated from 47 (2010) to 56 (2012). “Congestion witnessed on roads and ports, longer dwell-times on ports, longer overall transit times and overloading of trucks leading to faster deterioration of road infrastructure would reflect this,” the report says.

Ahluwalia argues that half the roads built in the past 10 years were commissioned in the last year of the NDA rule (but were built under the watch of the UPA), but he seems to ignore the fact that public-private partnerships in roads have been severely hit in the past two fiscals. Hardly anything has been commissioned let alone built — the National Highways Authority of India has managed to award projects for around 550 km in the first half of FY14. Most projects under the National Highway Development Programme are awaiting financial closure. The cost of transporting goods by road is 30 per cent higher in India than in the US.

How do these gentleman explain why the railways are under such immense pressure and most major routes face congestion and oversaturation even as the railways are losing market share to the roads sector. Passenger and freight traffic have increased at a CAGR of 8.54 per cent and 6.70 per cent in FY07 and FY12, respectively; addition of line capacities and rolling stock was done at a snail’s pace during the same period at less than 5 per cent.

Over 90 per cent of India’s international trade is carried out through the sea route. The share of major ports has come down in the overall port traffic with the current levels at around 60 per cent. Accessibility to ports seems to have come down due to increased traffic on roads that lead to various ports, say industry insiders; thus, the time taken to transport material and finished goods to ports has also gone up. As a result, the average turnaround time and average pre-berthing detention time have deteriorated from FY07 levels.

According to a recent McKinsey study, inefficiencies in logistics infrastructure cost the Indian economy an extra $45 billion a year, or about 4.3 per cent of GDP every year.  It may, therefore, be a good idea for the Chidambarams, Ahluwalias and Rangarajans to focus less on economic indicators, data and numbers and more on the ease of doing business in the country. That is what will eventually push growth closer to the desired levels. 

(This story was published in BW | Businessworld Issue Dated 02-06-2014)