River Deep Mountain High

River Deep Mountain High

The Indian economy is stuttering so badly that it conjures up a whole host of metaphors. There is the story of the prodigal son for example, who squanders his health and riches before returning home to a loving welcome from his father. Like the hapless if compassionate father, we the people of India, can only hope for a better tomorrow, this being our very own country.

Other metaphors that come to mind are altogether more grim. Such as the medicines that are poured into seriously ill patients in an Intensive Care Unit, sometimes without obtaining much purchase. Consider that USD 8 billion has been invested by FII’s in the stock market in less than the two months of 2013, but the Sensex and Nifty and all the other indices are still unimpressed.

We once had an economy which was on an enviable growth path. Today, after some nine years of misrule by the UPA Government, we are aptly described by the “nation’s son-in-law” as: “mango people in a banana republic”. But an enormous part in the decline is due to a conflict between socialist and capitalist ideas in the Government’s thinking.

The periodic disdain with which growth is regarded by our policy makers is responsible for our bipolar progression. We want to spend the money in ever larger tranches, mostly on welfare rather than development, and forever grow the size of Government. But we do very little to earn more in any serious manner and care not at all about balancing the books.

Socialism always speaks of social responsibility and employment but never about productivity and profits.  The results are apparent in the collapse of the USSR, our own erstwhile 2% rate of growth, the time warps that are Cuba and Myanmar, the sorry plight of China till Deng overturned Maoism, etc.

In India, all Reform initiatives have never really topped the first flush. Namely, Mr. PV Narasimha Rao’s five brilliant years at the helm of the Congress-led coalition. Of course, he was simultaneously President of the Congress Party. But Mr. Rao was prime minister over two decades ago. The next bit of real growth came under AB Vajpayee, during his five years presiding over the NDA Government. The rest of the time, it has always been two steps forward and sometimes three steps back, or forget the forward progression altogether, just let’s spend the money on  vote- bank politics.

 And then there has been Diarchy at the top through the last nine years, a formula for confusion. With the Congress Party playing Socialist politics, and the Government trying feebly to get in at least a measure or two that faintly resembles Reform.

And so, we are on the brink of a Budget, a year before the general election. If this fails to enthuse, we can be fairly sure of being down-graded by the international rating agencies to “junk” status from the lowest rung of “investment grade” in which we find ourselves presently.

The current and fiscal account deficits are slated to worsen to 4.4% of a declining GDP. The GDP which was about to breach 10% nine years ago, is now limping at 5% and trending even lower.

This is so partially because of a futile attempt to control inflation and the RBI’s adamant moves in this regard, with the Finance Ministry both complicit, and missing in action. Inflation has worsened however, because most of it is imported via our petroleum which accounts for some 35% of our total import bill.  But the constant garrotting of liquidity and sky- high interest rates have definitely stymied business and industry.

So what can we expect in future? We can certainly look forward to a change of Government in 2014 and be clear that not everyone suffers from the malaise of inaction plus wrong action. Madhya Pradesh, Chhattisgarh, Goa, Bihar, Gujarat- all Opposition run states, have all done quite well.

The Centre, alas, has been an unmitigated disaster, with nothing to show for itself in UPA II. In the first term, at least there was the Civilian Nuclear Deal. In the second, there is just a procession of scams and corruption, civil unrest, high prices, terrorism, law and order failures, and rampant welfarism.

Elsewhere and ironically, there is a huge amount of money at near zero rates of interest floating around in the moribund Western economies.  A proportion of this money is always looking overseas, and could very well come to India for greater returns. What we need to do is attract large FDI and FII with a commitment to keep our business environment welcoming and consistent.  If this budget can do that, well and good. Otherwise, it becomes an urgent task for the next Government at the Centre.

 (787 words)

February 21^st, 2013

Gautam Mukherjee