A striking lack of hubris accompanies the official forecast for the growth of the economy this year. Not without reason. For one, the 8.6% projection is disproportionately buoyed by farm output recovering after a drought year. Second, the world's second fastest growing major economy has not yet been able to bounce back to the rate at which it was growing before the global credit meltdown in 2008. Third, investment is displaying a hint of fatigue, a sign that the economy will lose steam. Fourth, our trade deficit is yawning appreciably as Indians spend their way out of the biggest economic crisis in living memory. Finally, and most ominously, the spectre of inflation that not only threatens India's growth prospects but also risks excluding millions of people a Robin Hood government is trying to drag inside the circle of prosperity.
The sobering reality of galloping food prices — partly caused by rising living standards — is no longer restricted to the managers of the economy. By hurting the vulnerable, food inflation renders itself unacceptable ethically, economically and politically. Hunger is not price sensitive and dearer food tends to squeeze out consumption elsewhere. Prime Minister Manmohan Singh sees the growth momentum faltering unless inflation is brought to heel. Yet, it is difficult to shake off the helplessness inherent in his appeal for systemic reforms that could tame food prices. Since India began liberalising its economy, prices on the farm climbed by a fifth against prices on the factory floor. The first 10% occurred over 13 years from 1994-95; the other 10% in the 20 months to December 2009. Productivity gains in manufacturing and services have completely sidestepped Indian agriculture. Capital and technology have transformed India's non-farm economy; farming needs its share of both.
Modern and efficient agriculture would require economic reorganisation that carries a politically higher price tag than persistent inflation. It is unlikely that any political party can at this stage seriously countenance revolutionising Indian farming. But the UPA may have to revisit its ambitious welfare agenda if it makes economic growth less inclusive. Huge income transfers may have shielded India during the downturn, but entitlements that cost the moon may now achieve the exact opposite of what they set out to. Government austerity, on the other hand, could keep the economy ticking along without inflation eating away much of the gains that rapid growth renders. The growth-at-all-costs approach may well have run its course.