Serving the Nation

Serving the Nation

It is not just that the Indian economy is drifting rudderless. And possibly towards the shoals where it could run aground. And this, a debacle from near iconic status as the second fastest growing economy in the world.

This drift in the ship of state is being attributed to “policy paralysis”, descriptive also of the lack of serious accountability in governance. But it is indeed a Government paralysed, in denial, immune to criticism, practising the “masterful inaction” much favoured by the father of reforms Mr. PV Narasimha Rao, cynically hanging on to power without discharging the function it was elected to perform. It seems to be at loggerheads with itself and its allies and unlikely to take any reformist initiatives till the general elections of 2014.

This has resulted in the slowing of growth in the GDP from 9 per cent to less than 7. And in the ebbing of optimism nationally and internationally with regard to the “India Story”.  

On top of this, there is inexplicably cheeseparing activity such as the proposed GAAR to trap those taking advantage of perfectly legitimate tax treaties with Mauritius, and even retrospective legislation to extract tax from multinationals and others for acquisition/sale of enterprise/India based entities. This is rightly seen as avoidable chicanery with a Stalinist streak. After all, entities such as Vodafone were well within their rights per the prevailing laws of the time, as clarified and upheld by the Supreme Court of India.

Some, like economist Mr. Ruchir Sharma suggest the India Story was a chimera in the first place, caused by the “rising of all boats” in the 2003 to 2007 period, when the world economy powered on, driven forward on a sea of liquidity. Till that is, it floundered against the Lehman Brothers icebergs of Wall Street in 2008.

That was the beginning of the end of the party of rank excess, and it will be a long decade or more before the rosiness returns to the financial hubs of the West.

Happily Mr. Sharma astutely also thinks that India is capable of changing gear to “break out” the soonest amongst all the emerging economies in the BRICS. The break out will have to shun complacency though, because the next time around is unlikely to be based on just global liquidity to propel us forward. Our policy makers and entrepreneurs alike will have to show real merit and initiative to make the difference.  

Mr. Sharma’s first observation is harsh hindsight, and may be something of the revisionism that has seized some observers. But even if one subscribes to this logic, it is clear that a national policy effort to indeed bring about an economic high-tide that raises all boats is a classic win-win formula. It has the added strength of being both non-doctrinaire and non-discriminatory.

As for the second break-out idea, Mr. Sharma knows and we know, that given the Indian context of gross indiscipline and the way our reactive democracy works, it will be riddled with ifs and buts. Getting India to move forward and let go of its hard wired self-image of poverty exploited by generations of politicians, its petty concerns at the expense of the big picture, and particularly to have it adhere to a consistent plan, is no easy task.

As a country poised on the edge of destiny despite itself, we will have to find a way. After all, it is debatable whether we arrived at our growth by design or default thus far. The obvious reality looking forward is that we need a lot more infrastructure and modernisation because we persist in living in several centuries at the same time.

But given the wherewithal, Indian intelligence, enterprise and ingenuity, much admired around the globe, will utilize the resultant opportunities on their own.  With the help of building block enablers, such as roads, rail, ports, airports, power, water, IT and so on, which many countries are fortunate to take for granted, we could have a very reasonable India story indeed.

Right now, most things are hopelessly antiquated, over-burdened and choked off because of avoidable policy lassitude. And this even as we have changed tremendously over 20 years since the reform process properly began in 1991. As an Indian, it is therefore only natural to be caught fuming in the logjam wondering how long it will be before we can become a developed nation.

However, the demand is there, and that is the main thing. Not only is it there, it is there domestically, in the urban and rural areas alike, from the middle classes and the rich, bigger in number than most national populations, and from the poor too, who are themselves twice as numerous. India does not particularly need the global market to grow, and that is a most advantageous position enjoyed by very few economies.

Potentially, as a consequence of our 1.2 billion people today, the demand projections do look rosy, as do the perceived aspirations, but the reality is disappointing. Much of the demand in every sector of the economy is inadequately, inefficiently and crudely serviced. Our slow downs are unnecessary. And our prosperity is tantalisingly within our reach if not our grasp. But very little political thought actually goes towards nurturing the economy.

Economic growth is seen as something that favours the rich become richer still. It is a message that can be twisted too easily by rivals at the hustings. Whereas freebies and give-aways, subsidies, loans and hand-outs to the poor are seen as politically productive, even as they help to further damage our economic health.

The international rating agencies, watching parameters such as the GDP, Capital formation and utilisation, the deficit, investment and so on, and the development banks, such as the IMF, the ADB and the World Bank too, are giving India the thumbs down presently. Somehow all the euphoria with regard to this country seems to have vanished.

All this, while inflation rages on, bloating the food bills of every man.  There is also the somewhat bizarre debate about the absurdly low per capita figures that rule the poverty line as defined by the Planning Commission.  In addition, The National Sample Survey Organisation (NSSO) data on household expenditure quoted by Left leader Mr. Sitaram Yechury recently, says over 60 per cent of the people in every state seem to be below even the Rs. 28 per head expenditure a day.

And this is cited as the level of income below which true penury begins, qualifying for Government relief programmes! There are about 360 million people below the Planning Commission poverty line, without going into the far larger numbers which the NSSO data suggests.

The political hot potato such poverty numbers suggest preoccupies the mind-space of every politician, but none seem able to dare break out of the vicious cycle of such poverty politics into the next stage of aspirations met and choices increased for the people. The tried and tested distribution of Government largesse, even if somewhat dog-eared with over use, is preferred to the uncharted territories of macro-level growth lest the trickle down effect is not thought to be effective enough. The lessons of the ill-fated “India Shining”  political campaign has not been lost on the polity.

Besides a good deal of our present woes are imported. Petroleum prices, not only at the pump but because of ever increasing demand, are boosting cost push inflation with every barrel of crude purchased. The Western economies are moribund after a very long innings of leveraged growth, but are nevertheless awash with speculative money at near zero percent interest. And this money, as in the earlier days of liquidity, is scouring the world economies and its commodities for a quick speculative buck.

The economic thinking behind this is that austerity will kill the West much faster than continued spending, albeit redirected and better harnessed than before. Sometimes it is even linked to security. As Vice President Mr. Joe Biden says as part of President Obama’s re-election bid this year: “Osama Bin Laden is dead and General Motors is alive”.

We are, of course, most adept at making problems for ourselves in addition to the macro challenges of a global economy in varying degrees of trouble. To wit, the Left thinks the wooing of the public-private partnership (PPP) model is the culprit and has resulted in the betrayal of the hopes of the poor. It thinks anything private just puts up the prices beyond their reach. And almost every political party tends to have to chime in with their own Leftist mantras in order to not be discarded by the electorate.

The pantheon of Indian business, industry and the multi-nationals however, are exasperated. They feel that almost none of the hoped for reforms or liberalisations have materialised during more than three years of the current Government. Things pending from UPA I are also left undone.

Interest rates are amongst the highest in the world at this juncture. Capital is scarce. Coalition pulls and tugs, plus differences of approach and emphasis between the Government and the ruling Party are making it very difficult to govern.

Besides the future too is undecided. General Secretary Rahul Gandhi is still searching for his political metier and traction. This has involved some old fashioned minority appeasement and socialism combined with a modern management approach, but is still very much a work in progress. Here too, there is very little emphasis on the revival of the economy.

So we slide from bad to worse with FII and FDI drying up alongside. And yet the longed for action to resolve our problems does not come. In fact, even as growth plummets, welfarism gains ground alongside a yawning fiscal deficit heading towards the unmanageability of stagflation.

India seems to be at a crossroads of its destiny because nothing is being done to keep both horses, that of growth and welfarism going strong. But at the crossroads we do face stark choices. One road will take us back into the mire. This is the way of reckless welfarism with scant regard for balancing the books. The bills and IOUs after all will be presented after the 2014 general elections, when all is already lost and won.

The focus of such largesse is to cater to a voting public far removed from the intelligentsia or the media, but spawned and reared on a culture of socialism over our first 40 years as an independent nation. It doesn’t work very well in 2012 or 2014, with its developmental aspirations, but there are many in powerful places who think it to be their best bet to retain power.

As for stimulating the economy, the jury seems to be out on the political dividend. The rich are not much good at voting and neither are they numerous. As for getting money from them for any purpose, it has never been difficult to do so for the political classes.

Hence the complicit policy paralysis, though nothing explains adequately why nothing to speak of was done in the three plus years already run through. But presently, no one wants to bell the cat before the general elections, not even the Opposition. Everyone is looking for vote catching stratagems. Nothing else really matters.

So Government is deaf to the learned arguments of international economists and inured to the criticisms of the Opposition who are themselves very keen to avoid being perceived as anti-people in any way.

And so the economy is held hostage to the imperatives of electoral politics. The good thing about all this is that there is nothing fundamentally wrong that can’t be taken up once the political battle is over. Let us just hope the collateral damage of inaction is not too great. This is, after all, the price we pay for our freedom and political system.

It’s good to know however, for the long run particularly, that most of our present predicament is self inflicted and we are not unable to fix it when we get around to finally wanting to.

(2,000 words)

1^st May 2012

Gautam Mukherjee


Published as Cover Story in The Sunday Pioneer in the AGENDA Section as "India no longer shining" on 13th May 2012