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-33Our Economic Performance Our current levels of affluence visible in cities and towns and all our efforts

at eradication of poverty in the country are anchored to the strength of the economy. Let us have a close look at it. score card , for some relevant parameters. Our Growth Rate Y !"
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Irrespective

of the current dip in our economic performance , it should be interesting to take a look at our macro

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Does it look like if all is lost, or it is a dip that might correct sooner or later?

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3ere is an interesting view point on our current dip in the economic performance. ! very well researched and statistically validated article, 45iracle of India4s 6egative #rowth4 by 0hri 0ur7it 0 8halla, a well known economist, in the Indian 9press of :une &3, ()&3 , is worth a serious look. #iven below please find one relevant e9cerpt. ;<he strong results are that each & percentage point rise in real interest rates decreases the share of investment by (.+ to 3 percentage points = decreases growth by ).. to & percentage point>> In other words some thing else happened, in addition to bad monetary policy that helped collapse the Indian economy. That something else was the CAG & its weak and misguided analysis which contributed largely, to policy paralysis.

Our Foreign Exchange Reserves 5ost of us would recall the precarious situation that the country had landed in &'') in this respect, when plane load?s@ of our gold had to be shipped out or were about to be shipped out, which was the immediate cause for the launch of some welcome economic liberaliAation policies.

-3/Y !" &'+)-+& &'.&-.( &'.--.+ &'.*... &'.'.') &'').'& &''3.'&''/-'* &'''-)) ())(-)3 ())+-)/ ()).-)' ()&&-&( ()&(-&3 Our BO" I#6 &.' -.+.' /.( 3.' +.. &'.3 (/.3..) *+.&+&./ (+(.) ('-.('+./
0ource 1 internet, 0tatistics 3'* <able -.+!

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Our Foreign Exchange Resreves - thousand mln ! including gold " #DR$s
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Does it look like if the ship is about to sink ? <he steep rise after the &''& liberaliAation is clearly evident. 3owever, the point to note is that at present the trade deficit
?more of imports and less of e9ports@

has been

on the increase , to the e9tent of &3) billion F in ()&)-&&. It is F(& bln in 5ay, ()&3 as against F&*.. bln in !pril. ! good chunk of our imports would be the import of crude oil H F &-) billion in ()&&-&( I. Our Fiscal Deficit
?0ource 1 %lanning 2ommission@

-3'-

Let us scan the above track record J Kould you say that following macro trends stand out J <he Fiscal Deficit was at a peak of *..+, of #$% in &'')-'&, which led to the economic liberaliAation. 0ince then out of (( years upto ()&&-&( it has touched above /, of #$% four times during &''3-'-, &''.-'', ())&-)(, below /, = below +,. Bor ()&(-&3 it was reported to be below the target at -.. ,. Does this broad trend indicate that the current situation in !"#$%#& is correctible ? ())'-&). Bor the rest of the years it has been

3aving got hold of this wide range of data , it may also be worthwhile to look at few other trends J . $uring the four years &''/-'*, &''*-'., ())/-)*, ())*-). our net tax revenues have been above ., of $#%. 8ut for 3 years ?&''3-'/@ the revenues have hovered around the fig of *, of #$% 2ontribution of %0E Divestment to #$% has been above ).+, in four /ears
)./, in ())3-)-, ).*., in ())*-)., ).+&, in ()&)-&&.@

? ).+, in &''--'+,

--) Our lia0ilit/ against interest has hovered around the figure of -, up to ())3-)-, has come down below -, thereafter
? 3.'( in ())--)+ and down to 3.)- in ()&&-&(@.

Our investment in defence has hovered around the fig of (, of #$% up to ()+-)/ and has come below (, thereafter
?&.(, in ())/-)* and &.&+, in ()&&-&(@

Our investment in su0sidies has hovered around the fig of &, of #$%, e9cept for four /ears of &'')-'&, ()).-)', ())'-&) = ()&&-&(, when it has touched (, above. !s against this, one comes across investment in subsidies being mentioned around &+, of #$%.

Our investment in develo1ment Plans has hovered around fig of -, of #$%. It has been below -, for si9 years from &''+-'/ to ()))-)& and in ())+-)/ = ())/-)*.

Do these facts paint a really 'ery gloomy picture of our national balance sheet?

--&Our 1roduction of steel 0teel output is the foundation on which most development initiatives rest upon, be it for building of roads and bridges or be it for housing or be it for the cars and tractors or be it for the manufacture of defense related infrastructure or be it the humble safety pins.

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In Beb &'+', when I witnessed $r "a7endra %rasad, the first %resident of India inaugurating the & st 8last Burnace of the %ublic 0ector 0teel %lants at 8hilai, our output was still &.) 5illion <onnes per annum and to supplement which three million ton steel plants were being set up in the public sector and it was beyond our imagination that in our life time India would touch .) plus million tones. Look at the spurt between the decade of ())& 1 ()&&.

--3-

!nd can you forget that the largest steel maker of the Korld, Lakshmi 5ittal and one and the only one, "attan <ata, who chose to buy most of the 8ritish 0teel Industry, are Indian. !nd this is another thing that had not even crossed our imagination , when we were there in &'/) as trainees under the 2olombo %lan to learn steel making in 0heffield, that an Indian company would be owning these steel plants, in our life time.

Electric Power

!part from lighting up our homes, industrial output of vast range of items is linked to the availability of power supply. 0o let us see what has been happening on this front

---Y !" I60<!LL $ 2!%!2I<Y in 5K ?includes captive capacity@ &3/) &'-* +)))L &'/) &+)))L &'*) (*)))L &'.) /*)))L &'') '))))L ())) &&+)))L ())+ &/*))) ()&) &*3))) ()&& ()&3 (-/&3)

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23#5866ED 98P8925: for PO;ER GE3ER852O3 in 23D28 - 7 ;


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<he fact that (,-/,&3) 5K of installed capacity that we have today &.& times over /+ years.

?including captive capacity@

is still short of

our current level of needs, cannot diminish the achievement that we have e9panded our installed capacity

--/<he fact that overall %lant Load Bactor in the country is still below bench mark levels is a challenge that we have to meet sooner than later. <his 7argon only means that many units are generating at levels below installed capacity for whatever reasons and , utiliAation of the installed eMuipment needs to go up. In our well run public sector utility 6ational <hermal %ower 2orporation, %LB has been around '+, and above for most years, however one understands that in the recent past it has come down slightly due to fuel supply constraints 1 both gas = coal as well as some states not buying power at the rates prevalent which have gone up due to cost of imported coal, which has become essential to import due to shortage in domestic supplies. $uring early &'.)4s when I had the opportunity to visit 0ingrauli area, came to know that the %LB for the state electricity boards was said to be around -)--+, or as low as &--&.,, which one understands has now come up to around /)-/+, and above.

0ince #lobal warming is a hot topic and a topic of concern these days, it is worth mentioning that the coal based generation that has a high carbon foot print = contributes more to this phenomenon, is at present at +3.3 , of the total capacity in India. <here is little doubt that the Nuality of electric supply is yet to reach acceptable standards. !lso many villages in the hinterland of India remain yet to be electrified. --*6ot with the idea of gloating over the troubles of our neighbour %akistan might as well have been there today, but for some actions takenJ ; 5ost of %akistan, even the big cities, have load shedding for &/-&. hours>>.. <hat no new dams have been built in decades, in fact none after <arbela = 5angla and they don4t even have 5edha %atkar. 5ost of the power is fuelled by gas ?now scarce@ or furnace oil ?too e9pensive@ . #overnment mandates low prices for most consumers, so utilities have gone bankrupt. ! prominent independent power plant owner in Lahore tells us he is not being paid. 0o, like others, he has also shut his plant down. 0ounds familiarO 9cept that %akistan have not even carried out the reform India has, particularly during the past si9 months or so. !nd at least for now, %akistan produces almost no coal. %eak hour shortages , therefore, are higher than in any part of India >>> <hat4s why you do not even list him and his %akistan %eople4s %arty ?%%%@ among the ma7or contestants
in %akistan on 5ay &&, ()&3@. supply@ ? reference general elections due ? uninterrupted power

, but 7ust to realiAe that we

Its rout is written on the walls in those three deathly letters J E % 0

%ower crisis has become such an overwhelming symbol of mis-governance , it has put other vital issues in shade. 6o India, no Pashmir, no 0arb7it-0anaullah, no army, some terrorism and bit of !merica. ;
ri 0hekhar #upta in <he Indian 9press on 5ay &), ()&3, under head 1 Bor $emocracy = bi7li,@

#ome other 2nteresting 2ndicators


#$% at B!2<O" 2O0< at 2E"" 6< prices ?cr "s @ #$% per head in "s at 2E"" 6< prices ?, increase over the decade@ #$% per head in "s at 2O60<!6< prices ?, increase over the decade@

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--'0ome conclusions that stand out and are clearly evident from above table of facts J Percentage increase in 1o1ulation over the previous decade , after 1ea>ing in %&,*-,% at (+., % decades. Per ca1ita GDP at current prices
< in Rs 1er head =

came down to %,.. % in (*%*-%% , with a drop of about * , over a period of three has been going up each decade, starting
?(&+ times @

from &'+)-+& at Rs (,' to Rs )&!,(, in ()&)-&&. ;here as

GDP at constant prices ?in "s per head@ has been going up each decade, starting from

&'+)-+& at Rs ,!,+. to Rs +*!'*( in ()&)-&& ?+.3 times@. Khich means that after allowing for 1rice increase! 1er ca1ita income has gone u1 ).- times in (*%*-%% as com1ared to %&)*-)% . (ut then you cannot cross a ri'er based on its a'erage depth. Can you? )e know that the range of distribution of wealth is 'ery wide in our country and is an area deser'ing more attention.

Bood grain production rose from &&.* kgs per head per annum in &'+)-+& to &*.- in &'')-'&, perhaps reflecting the impact of our #reen "evolution. It has come down to &/.. kgs per head per annum in ()&)-&& at a much higher le'el of population. <an increase of ).% >gs 1er head 1er month=

-+)8 #ilent 5ransformation <he following is an eye opening economic phenomenon in progress in our rural 'illages and small towns. ; Nuite clearly two of the three pillars of the Indian economy are weakening dramatically J investment and middle income consumption. 5ost large pillars of investment , such as power, metals, railways, national highways have weakened and are unlikely to recover for several years>>>.. !nd yet, all is not lost. In what we call ;the silent transformation4 of India, the third pillar of Indian economy, low-income consumption is holding up remarkably well. In the last five years, the wages at the bottom of the pyramid have risen by levels unseen in several decades and most likely since independence. <his wage increase is well known J the rising costs of farm workers and even urban skilled labour ? particularly new found difficulty in holding on to domestic help@ seem to be common theme across India.

Khat is not well understood, though, is why this happened. <his is important, if only to assess how sustainable this trend is likely to be>>>.. <he initial fillip provided to wages by 6" #! may indeed have allowed unskilled landless workers to buy cell phones, which in turn increased their productivity, or to get the initial capital to start a grocery store. 8ut our research suggests that it cannot e9plain the wage growth of the last ( to 3 years. <hen what canO -51<he 2redit 0uisse research team conducted several field trips across the country and e9tensive secondary research earlier this year. Ke concluded that India is going through once-in-a-life-time-of-acountry transformation. <he remarkable spread of rural roads ?-)),))) kms built in the last &( years@, cell phones and electrification are changing lives in ways often hard to imagine for most middle class city dwellersJ by creating local economies of scale. >>>>.. <he trouble is , you cannot trade without roads and cell phones. <he spread of roads, phones and electricity has in a period of four to five years shaken up the whole economy. Bor e9ample during our trips we were amaAed to find multiple grocery stores, even in villages in remote areas of 5%, 2hhatisgarh and 8ihar, stocking every thing from packaged pickles to #ulab :amun instant m9. %eople in villages have clearly moved beyond costs and purity to optimiAing time and convenience. <his is a good e9ample of productivity improvement J instead of every one mi9ing their own gulab 7amun mi9, a factory &))-&+) kms away does it more effectively with a machine ? and creates factory 7obs@, stockists ?more 7obs@ store and distribute to the village? 7obs created for small truck drivers and khalassis@ and stores

then sell it to the consumer

? 7ob for the store owner@. <he time freed up in the household is then is used

in other more productive activities like poultry farming or weaving>>>. In fact poultry farming seems to have created more person days of work between ())+-()&) than 6" #!>>>> <his has fascinating implications for politics, society and of course the economy>>>.. the silent transformation is on.4
9cerpts from, ; 3ope lies Low 4 by 6eelkanth 5ishra, Indian Muity 0trategist for 2redit 0uisse, published in <he Indian 9press of !pril &(, ()&3.

-52MY INDIA on the MOVE, albeit slowly VILLAGE ( 30 kms diversion on Pathankot Kullu Road) Journey of 60 years

based on FAC ! obser"ed #ersona$$y %&'% (When my father settled here on retirement ) June (0%% 3o electric 1ower su11l/ Electric connection in ever/ house 3o 1i1ed water su11l/ ;ater ta1 in ever/ house 3arrow co00led main alle/! no re1airs ;ider cement concrete alle/! cars ? tractor-trailers 1l/ 7ain alle/ dar> at night 7ain alle/ lit 0/ solar lam1s 3o school #chool u1to 'th class in a 1ucca 0uilding! with around -** children #till no medical facilit/A 0ut am0ulance on call at + >ms! free service 3o medical facilit/ Pucca motor a0le road in 1lace. 8round half-a-doBen cars! ( doBen (wheelrs 1ar>ed in the village. Cehicle service facilit/ availa0le. 3o motor a0le road 8round .*% house 0uilt of 1ucca material 8round '*% houses have in-house sanitation facilit/ 7ost houses 0uilt with mud walls 8ll! including us! went out in the morning with a 0ottle ? @lota$ of water 9ould see some residents with clothes torn at the >nees ? el0ows Ever/ one well dressed 3o such reDuest

#till use 0ulloc>s! tractors not usa0le! can see some green house farming

#ome would come to m/ mother reDuesting loan of atta ? rice E else will go hungr/ at night 9ultivation E using 0ulloc>s 6iterac/ around )% Po1ulation around %)*

6iterac/ around ,)% - one girl a Dualified medical doctor! another doing 798 Po1ulation around %%**

Last year I was surprised to find that in our village of &&)) population, bottles of mineral water were available.

-+3*5he countr/$s 0iggest manufacturer is 2ndian. what does it see> from and give to FritainG

<he steelworks at 0tocksbridge in 0outh Yorkshire are strangely Muiet. Its furnaces are not of the roaring blast varietyQ they are small, purring vacuum-arc furnaces that use electrical current to re-melt steel. 8eer-barrel-siAed ingots made from scrap at a sister steelworks in nearby "otherham are cleaned, welded to a stub and lowered into the furnace. <he drop-by-drop melting takes &(-&- hours, removes impurities and strengthens the steel. Once cooled and tested, the blocks of steel are ready for use in aerospace and oildrilling, where high-strength steel is priAed. -+--

<he steelworks were once part of 2orus, an !nglo-$utch firm, and before that of 8ritish 0teel. <hey are now owned by <ata 0teel, which belongs to an Indian conglomerate that also makes cars, chemicals and tea. <ata 0teel paid F&( billion DR/.& billionG for 2orus in ())*, after a bidding war with 206, a 8raAilian rival. <he following year <ata 5otors bought :aguar Land "over D:L"G for F(.3 billion. <hat purchase already looks astute. <his month Land "over launched the (),))) orders before it even went on sale. <ata EP is now the country4s biggest manufacturer, with almost -),))) workersS7ust ahead of 8ritish !erospace. !dd in <ata4s service industries, such as consultancy, and the payroll tops -+,))) Dsee chartG. Its presence in 8ritain is part of a growing trend. 8ritain is second only to !merica as a destination for investment by emerging-market firms, many of them from India. <ata4s purchases of 2orus and :L", as well as earlier takeovers of <etley tea and the 8runner 5ond chemical works, raised eyebrows, a few an9ieties and at least two big MuestionsJ what does <ata want from its acMuisitionsQ and what does the firm4s stewardship of :L" and its stable mates mean for 8ritish industry ? voMue, a mini sports-utility vehicle, which attracted

Enderstanding the <ata connection reMuires a look back at history. <he firm opened an outpost in London in &')* to buy supplies for its Indian operations. <his housed <ata4s first 8ritish venture, when <ata 2onsultancy 0ervices D<20G, which pioneered the outsourcing of computing to India, set up a one-man shop in &'*+. arly <20 custom came from thrifts and insurers looking to update their systems cheaply. It now employs -,')) people in 8ritain and has roughly three times that number in India servicing 8ritishbased clients. <20 grew almost unnoticed. 8ut the group4s first big 7ump into 8ritish industry could scarcely be ignored J in ())) <ata <ea bought <etley, a household name. <he purchase was a template for the future takeovers of 2orus and :L"J in each sector <ata was buying a bigger, established firm and financing the deal with bank loans. <he logic of its buying spree Dand the 7ustification for the risky debtG was that <ata

-+/could not confine itself to IndiaQ it needed to be big and international to thrive in its chosen businesses. 8ig acMuisitions were a way of reaching the reMuired scale Muickly. <hey were also a shortcut to name recognition and technology that would otherwise have taken years to develop. <hat was part of the thinking behind the <etley deal. TKe wanted to learn about brands,U says %ercy 0iganporia, deputy head of <ata #lobal 8everages. <he <etley label has been e9tended from the black tea that is a staple of 8ritish shopping baskets to green teas, once the preserve of up market brands. <ata4s approach to brand management is global J in 2anada the <etley name had long been given to fancier teas. :aguar4s brand was also part of the appeal to <ata of :L". 8ut Land "over4s off-road technology was the more valuable asset for <ata 5otors4 truck and passenger-car business at home. 2orus was bought to keep up with other firms, such as 5ittal, that were making acMuisitions. It also gave <ata a speciality-steel business that would have been hard to build, however. 6ame recognition and know-how are valuable if the price is right. 0ome think <ata was so caught up in the steel industry4s rush to consolidate that it overpaid for 2orus. 6ational pride was at stake J the group4s chairman, "atan <ata, said after buying 2orus that losing the bid would have left India itself disappointed. 0teel plants have since been sold, mothballed or slated for closure, in part because urope4s economy is so weak. In the depths of recession even the high-end speciality-steel business saw its workforce halved to &,*)) Dit is now (,+))G.

-+*<ata4s fans point out that the cost of buying 2orus has to be weighed against the opportunity cost of not buying it. <hey note that past deals which seemed dear or risky have turned out fine. TKhat looked too high in ())) looked brilliant by ())*, and a sweet deal by ()&),U says one <ata e9ecutive of the purchase of <etley. <ables turned - 8ut 7ust how sweet is <ata for 8ritainO !ny fears that <ata would strip out technology and ship it home have proved baseless. <he headMuarters of <ata4s beverage business is E9bridge, a London suburb, not India. "esources have been poured into other businesses. <he workforce at the 3alewood car plant on 5erseyside, where the voMue is made, has doubled to 3,))) this year, and :L" is building an engine plant in Kolverhampton. <ata 0teel is investing in its stronger plants, including 0tocksbridge, and <ata has brought with it firmer links to fast-growing !sian markets. :L"4s sales have been turbocharged by 2hinese demand. <etley is now sold as a premium brand in India alongside <ata <ea. Indeed <ata4s animal spirits contrast with the rather depressed mood in 8ritish industry. TIt comes down to our belief in the business,U says !nwar 3asan, head of <ata Limited, the firm4s EP umbrella. 8ritish staff say <ata was a preferred bidder for their firms because it could be relied upon to support research and product development. <here is an Indian stamp on management, too. <ata e9ecutives are more adventurous and better at lateral thinking, says one senior 8ritish employee. Bor their part, <ata folk admire the 8ritish obsession with management processSwith solving a problem, not 7ust fi9ing a situation. <ata has a strong identity in India but not yet in 8ritain, which accounts for around /), of group revenues. 5r 3asan4s

-+.office is the glue that binds the 8ritish businesses togetherQ they are run at arm4s-length from each other. <he lu9ury hotel at +& 8uckingham #ate, owned by <a7, <ata4s hotel arm, has a :aguar-themed suite at R+,&)) a nightSa rare collaboration between <ata firms. 0till, 8ritish managers like the chance to network with, and learn from, e9ecutives at other <ata businesses. %erhaps <ata4s success can make conglomerates fashionable again in 8ritain.4
0ep &)th ()&& , <he conomist

3aving scanned the macro view of our economy, it should be possible for you to take a considered view of the situation, to decide if we are about to sink or are likely to bounce back. Ke have not deliberately touched on the global factors that did contribute to the present scenario to some e9tent . Ke have also deliberately not indulged in comparison with 2hina. <here are many factors contributing to the huge gap. <hey liberaliAed their economy in &'*., thirteen years before us. Ke have chosen two very different paths 1 $emocracy vs !utocracy. Ke dwell on this aspect in detail in a later chapter, ; On $emocracy4. !nd then we are two very different people. Ke dwell on that aspect in another chapter, ; Ke the people4. 3owever, the fact remains that we need to learn a few things from our neighbour. 5ost of all a little more of 0elf $iscipline.

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