We have several indices to measure the economy. It is a set of indices that can give us a clear picture as to how the economy is doing. The economy being a complex beast needs many indices to measure it.
However, the indices are also not fixed and they are changed from time to time, particularly by changing the base year, or by recalibrating the main components of the indices. The base year gives the relative measure of the economics. It is like one thing is looked at from different points in space and points in time.
Recently, two indices Wholesale Price Index (WPI) and Consumer Price Index (WPI) have been changed. The base year is revised and adjustment is done to accommodate “structural changes” in the economy. Structural changes are subjective terms at least in Indian economic scenario. The government may have to qualify what they mean by the structural change in the economy.
The magic of changing the indices can make poverty disappear by a large number and it may make inflation look like deflation.
This exactly happened to the inflation, due to change in the indices the inflation decreased by many points. The change in the indices does not change the day to day reality of the Indian economic life. The common citizens know how difficult is to survive in the skyrocketing prices of essential commodities.
The RSS/BJP Government is blessed with the global oil prices, but it has not given any dividends of the major gain due to falling international prices of oil. India could have gained much from this, but it seems that the RSS/BJP Government is keen on “structural” change in the economy. We know for sure that RSS/BJP Government is on “statistical” change.
All said and done, no economic index can capture the reality faced by the citizens on day to day basis. A recent article in the Economist reflects very sorry state of affairs in the Indian economy, particularly how the aggregate spending of the States is exceeding the Union Government. The states are running into the deeper ruts of indebtedness, but they do not have to worry as the Union Government is the backing the loans raised by the Government bonds.
The Government bonds are rated just above the junk bonds with a credit rating: BBB. This means that at some point in time Indian economy will enter into a downward spiral of slowdown. The mounting debts will lead to a bigger catastrophe. The fiscal deficit of the states is larger than the union government, but the RBI is denying it. But given the mix of politics and economics in India at this stage, the Government will try to appease various constituencies by extending the dole outs. Fiscal prudence is more than needed in this country.
India is a federal country and the fiscal federalism is an important system to keep the country afloat. Therefore, the state and union relations, particularly in the area of finance is important. Babasaheb Ambedkar worked in this area for his doctoral thesis “Evolution of provincial finance in British India”:
It is a landmark work relevant even today for its suggestions in how to distribute money between the centre and the states. This is an important area and the field is open to further studies as to how the GST (one uniform tax throughout India) will affect the centre and state relationship. With a single taxation policy, the intricate levy, collection, and distribution of the tax proceedings must be examined clearly and cleverly. Before the Government tinkers the statistics further, the structural adjustment must be done and the areas waiting for the structural adjustment are key to India’s development: enabling young India to join the job market, free and easy access to education, and diversity in all areas.
Author – Mangesh Dahiwale