The mirage of high economic growth
By the Economist
While the giants of Asia: India and China, have commenced their take off into rapid economic growth, we keep talking about the need for higher rates of growth and projecting higher rates of growth for future years. Merely saying that these should be attained in the future without any significant efforts to attain them is a futile exercise. The actual attainments in growth are modest and inadequate. A faltering growth scenario has characterised our economic history. And there are no signs that it would be any different in the near future.

Economists, planners, bureaucrats and politicians have repeatedly said that we must achieve a growth rate of 7-10 per cent and sustain it over a decade for economic take off. Only economic growth of this magnitude can bring about an economic capacity to resolve the problems of poverty, unemployment and low incomes. A seven per cent growth would enable the doubling of GDP in 10 years and per capita incomes would double in about 12 years given a continuing decline in the rate of population growth. In 2004 we achieved only a growth of 5.4 and the expected rate of growth this year is still lower. There is expectation that we could grow by over 6 per cent in 2006, but this is expectation rather than a sound projection as the Sri Lankan polity and the international economy are both imponderables.

In the past five years from 1999 to 2004 we achieved only an average annual growth rate of 4.4 per cent. Sustained economic growth of even 5 per cent has been difficult to achieve. There are no good reasons to think that this would change. The one favourable development since 1994 has been the broad consensus on the framework of economic policies.

Yet since last year there has been greater uncertainty about the continuity of these policies and fears of even reversals, consequent on the positions taken by the JVP. Besides this the lack of law and order, the incapacity to implement policies owing to bureaucratic incapabilities, opposition to reforms, constant strikes, lack of law and order and corruption, among other factors, make it difficult to provide the environment for rapid growth. The long-run prospects could be even worse unless there is a reversal of these conditions soon. The oft-repeated hope of achieving a 7 to 10 percent growth has turned out to be a mirage.

In contrast, the Indian economy has awakened from its slumber and is recording growth rates of over 7 per cent. Similarly China has posted a growth of 9.5 per cent last year in continuation of a recent trend of high growth. Both these economic giants, accounting for more than a third of the world's population, are poised for higher rates of growth. Cooperation between them that is being explored could also provide a stimulus for an economic boom in their countries. The policy constraints in these countries are being dismantled and they are on the way to sustained take-off to growth. They are pragmatic in their approaches to economic policy and fully aware about the need to cope with global competition to achieve higher economic growth to ensure better standards of living for their peoples. Communist China follows market principles under state guidance and eschews Marxist ideological principles that are inimical to economic growth. India too has moved away from its post-independent policies of controlling the commanding heights of the economy and adopting import substitution strategies. She has moved away from an inward looking economy to one seeking gains from the global market place.

There is an expectation that the growth in China and India would have some beneficial linkages to the Sri Lankan economy. Yet such benefits do not come automatically. The linkages must be sought and developed with adjustments and changes in the Sri Lankan economy for mutual benefit. Will we make the needed changes to benefit from the growth of these giant economies that are themselves linking themselves increasingly to the global economy of trade and capital movements?

Sri Lanka began a process of liberalisation that led to higher growth before these countries, but has been unable to sustain the momentum and continue the needed policy thrusts to take off. The Central Bank Annual Report for 2004 has outlined many of the constraints inhibiting economic growth. These factors are economic, political and attitudinal. There are needed reforms in many areas of economic and social policy that require to be addressed. The political context however is hardly conducive to undertaking these reforms. The country is still burdened with ideological baggage that prevents pragmatic policies being pursued.

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