One day the dream economic team had to face the consequences of its own actions. The current wheat crisis is a case of “as you sow, so shall you reap.” It used to be said before the base was revised that a million ton of additional wheat contributes half a percentage point to GDP growth.
Of course a loss of wheat output of equal quantity would knock off the same percentage point of growth. After the change of base, the weight of wheat is less than before, but is still significant for a regime whose religion is growth. Any come down in terms of growth weakens its only legitimising argument.
So growth must not only happen, it has to be high enough. In October last year, the data of large scale manufacturing for the first quarter of FY 2006-07 made it very clear that the high-pitched target of 13 per cent for the whole year would be impossible to achieve.
The manufacturing of last year missed its target.
No data was issued for the following two quarters, neither monthly nor quarterly, as is the practice. It had to be fixed by creative national accountants.
time when the repeated missing of targets was not publicized
If large scale manufacturing fails, a respectable overall growth is still possible if agriculture performs exceptionally well.
because manufacturing failed, agriculture has been artificially propped up
Data for kharif crops – rice, sugar cane and cotton – becomes available in good time for the fiscal year. By March-April, the state of the news was not very good for cotton and rice. Sugar cane was the only crop worth talking about.
All these data are presented by their source agencies at the annual meeting of the National Accounts Committee headed by Secretary, Statistics. In the light of information presented, this committee is competent to decide the growth rate that is published in the Economic Survey. The importance of the chair of this committee for a growth-crazy regime cannot be underestimated. It should come as no surprise that in the past seven years, all secretaries of statistics were either those nearing retirement and hoping to get extension or additional secretaries in-charge looking for promotion. Some have had the rare distinction of double extension even as additional secretary in-charge.
The above paragraph simply says nepotism/"bureacrat licking politician" was rampant
This committee used to meet in the end of April or latest by early May. The practice was to have provisional estimates based for the year based on nine months data. All this has changed and this meeting is pushed as late in May as is expedient.
again an indication of something is wrong
The effort is to include a good estimate of wheat, a big ticket item. Being a rabi crop, its output can only be judged about this time. The PR advice is that a bumper crop not announced with the budget is like it never happened.
This time the pressure to perform was much greater. In an election year, a bumper wheat crop and the achievement of the trade-mark growth rate of GDP of seven per cent would be the best argument for policy (read political) continuity. There was no way to achieve this GDP target without a bumper wheat crop. The target fixed for wheat was not based on an expectation of bumper crop. It was 22.5 million tons and was ambitious any way when compared with the actual production of 21.3 million tons and 21.6 million tons in the previous two years.
The provinces, whose job it is to provide crop estimates, are stated to have reported a total of 22 million tons, which was higher than the previous two years but less than the target by half a million ton. This would have undermined the targeted GDP growth of seven per cent and, therefore, utterly unacceptable. Some midnight oil was burnt and, lo and behold, the target of 22.5 million tons was not only achieved but surpassed by as much as a million ton.
abraca-dabra anyone?
With 23.5 million tons of wheat, the GDP growth rate of seven per cent was credibly achieved. The announcement of the outcome of the deliberations of the lowly National Accounts Committee came, for the first time in the history of its 86 meetings, directly from the Prime Minister’s Secretariat.
Even 22 million tons is a comfortable level of output and does not signal a difficult situation to the market despite the extra demand of Ramazan. Prices came under pressure when attempt was made to export a non-existent surplus.
With an eye on the elections which cost money, the lords of the land asked their ministry, the ministry of agriculture and food, to seek permission for exporting wheat. With a bumper crop and rising world prices, how could the permission have been refused?
Paper crops were shown as surplus and real crop was exported, simple economics says, prices will raise and if they raise to a very high level, the crop has to be imported, often at higher prices- which is what happened in a nut shell.
The bad experience of exporting wheat at the time of an earlier bumper crop, a real one, was forgotten. The venerable Mr Shafi Niaz, who then was Advisor on Agriculture and a passionate advocate of support prices, was accused by the dream economic team of an economic mentality of shortages in an era of surpluses.
So the ministry of agriculture lost no time and exported half a million tons. This brought down the actual supply of 22 million tons to 21.5 million tons. With orders for more, prices in domestic market started to rise, not only due to reduced supply but also in sympathy with the rapidly rising world prices. The panic ban on export of wheat and wheat-related products confirmed what the market had already discovered, that there never was a surplus. But the damage had already been done. The decision to import one million ton at prices way above received for the half a million ton exported, only shows how costly it was to jack up GDP growth on the basis of a spurious surplus.
It is not even amusing to see those having claimed success of first generation reform and want to go on and on to do their second generation reform, speak the language of run-off-the-mill politicians. To warn smugglers and hoarders of actions for which either no machinery exists or it has been weakened in the name of good governance, to talk of price magistrates and subsidies to utility stores, and to rely on bans rather than duties is a retreat that reformers are failing to admit. What to speak of action against private hoarders, the official hoarders – the provinces holding on to over four million tons – have ignored the dream team.
The provinces have the last laugh because the economic team had gone out of the way to encourage credit to private sector to build stocks in competition with the corrupt and inefficient food departments. As for the smuggling, the market has always catered for it, whatever the level of production. To say that two million tons have been smuggled and hoarded is an attempt to cover up the lack of integrity in the estimation of wheat crop.
Perhaps the dream economic team needs to learn some old generation lessons from a populist politician. Once atta prices go out of hand, there is no end to this atta-push inflation. Everyone who can raise the price of goods or services s(h)e sells, will do so and those who cannot, will protest. With a high incidence of poverty and no social protection worth the name, atta continues to weigh higher in ordinary budgets than the price indices assume.
