What made the publicists of the UPA Government ignore the opportunity for self-congratulation when the country's GDP reached the trillion-dollar level on April 25 remains a mystery. Perhaps they were not sure whether this was an achievement or an embarrassment.

The critics of the Government's economic reforms programme can be seen in the Cabinet itself. Union Minister for Sports Mani Shankar Aiyar is a prominent example. Such critics may have restrained the Government's publicity department from celebrating the above feat. Besides, those who read the pink papers are already aware that the trillion dollar GDP is just a statistical line and India's GDP crossed the Rubicon more by chance than by design.

It was the rising rupee that offered the chance. The GDP was around $750 billion, which meant that the per capita income was around $750, assuming the country's population is roughly one billion. The $750 billion figure was applicable when the exchange rate was above Rs 46 per dollar.

The last 12 months have seen the rupee rising despite the RBI's efforts to keep it down to help industry, especially exports. China, for instance, has rejected all demands from the US and Europe to up value its currency for similar fear though it has a real trillion dollar foreign exchange reserve which is booming with huge export gains and trade surpluses year after year. Lately, the RBI had to stop buying dollars to mop up the excess American currency in the market caused by rising foreign exchange reserves and inflow of investments in various forms. Besides, the remittances from Indians working abroad had been steadily rising and are near about $25 billion now. With the Government seeking to contain inflation to a manageable level, if the RBI buys up dollars, it would be only releasing more rupees into the market that, in turn, will fuel inflationary forces.

At the same time, the policy of not mopping up excess dollars, as part of an anti-inflationary policy, has created some other set of problems. Exporters are affected as the rupee rises and Indian goods and services become costlier in the US and other markets compared to the competitors' prices. Some of the affected export sectors are fruits and vegetables that immediately impact the prosperous farmers. Already over $50 million worth these items are stranded in Kerala because of the rising rupee.

Exports of sugar, another commodity requiring more export space to overcome the odd sugar surplus, is also affected. Maximum impact is on the IT and ITeS industry which earns over $30 billion in foreign exchange. For them, the returns from their products would be far less in terms of rupees while their costs go up in an inflationary situation and wage bills rise due to the competition to retain trained and talented manpower. The entry into the US-led trillion-dollar GDP club - the US economy is worth $13 trillion - as the 12th member is, thus, truly an embarrassment.

The Government is caught in a Catch-22 situation. That such a situation should arise is itself the result of a medley of policies that are more traditional than innovative. The GDP rise in dollar terms hardly makes a difference to the common man because the per capita income in rupees is far from impressive. However, the last 15 years of reforms has released the country from an economy of shortages to that of plenty in many sectors - telecommunications, transportation, consumer goods, cooking gas, etc; several essentials like scooters to trucks, telephone connection, TV sets, FMCGs etc have become affordable.

The middle class need not now plead with people going abroad to get them small things like quality blades or chocolates. This has also reduced black money transactions to some extent. Till recently, a low interest regime enabled buying of cars and consumer goods and also houses good enough for typical middle class needs. But the last one-year has seen all this change as inflation has climbed and production has failed to keep pace with the growing demand for goods and services.

On the other hand, money supply has risen, riding piggyback on such faulty anti-poverty measures that have only funnelled cash into the economy without ensuring the outputs promised or expected. The critical reforms needed to accelerate the investment in infrastructure like power, roads, healthcare are stymied by the Left, which rides roughshod over the Congress, and Congressmen like Mr Mani Shankar Aiyar who want to deny the Prime Minister the glory of initiating the reforms in the early 1990s.

If we take 100 million as the total number of households in this country, the bulk of the consumer expenditure comes from the top 10 million households. The National Sample Survey report says this number would grow and be 20 to 25 million households in the next two or three years. However it would take a minimum 15 to 20 years for the trickle down effect to raise the standard of the next 70 to 75 million households. The study says on the other hand that these 70 per cent households could be directly addressed. Their present earnings average some Rs 3,500 to Rs 4,000 a month, going by the purchasing power parity method, though included in it are 26 crore people or 26 per cent of households classified in the Indian economic parlance as below poverty line people with incomes of only Rs 45 per day per household.

The study, following the policy put forward by Prof CK Prahlad, says that there is a business opportunity in uplifting these people and that potential business opportunity could be as high as Rs 31.11 trillion.

But addressing such a potential is beyond the capacity of the UPA Government because of its heterodox coalition and dependence on the Communist allies that are against any change in what was once a semi-socialist economy and still believes in the old licence-permit raj approach of living on a deficit economy. The business strategy to transform the BPL people is to enable them to participate in the production of goods and services and then back such acquired competence with capital. This has already been tried in several experiments like the launching of self-help groups that engage in the marketing goods meant for low-income groups.

There could be a hundred other openings. For all that, you need to let the people's creative energies to burst forth and build businesses at the bottom of the pyramid. The Marxist mindset basing itself on class conflicts and class hatred, predominance of state owned enterprises, the view of the business class as an enemy of the people and profits as exploitation, prevents this transformation from happening.

Courtesy: www.dailypioneer.com, May 4, 2007