In a world economy that is fraught, India requires strong leadership to sustain its growth momentum
So we are once again in the thrall of a global economic crisis. The double dip recession appears round the corner in the US, while the eurozone continues its struggles to stave off impending Armageddon in the form of an outright default by one of its peripheral countries. Stock markets are forecast to test their 2009 lows and the outlook is grim at best.
So what about India — where do we go from here? We have our own issues to deal with, which are multifaceted, but all have one thing in common — they are all pointing in the same direction, and it’s not upwards. Policymaking has come to a halt in the absence of leadership in the government. Whatever leadership there is, is busy dealing with issues such as Anna Hazare or inflation, or simply fending off the Opposition. It seems that this government’s main task at the moment is to defend itself from various attacks and prolong its rule, rather than take concrete action to move the country forward. UPA II is paying for the sins of UPA I. Unfortunately, this policy paralysis has led to a stasis in the country’s growth momentum.
Frustratingly though, given where the growth outlook is, inflation continues to be skyhigh. Whether it’s in food articles or manufactured products, inflation refuses to be tamed. Of course, inflation itself is a result of past (in)action on the supply side as well as a profligate fiscal policy that has put a lot of money in the hands of the people, on the back of government borrowings which in turn has led to pressure on interest rates. The RBI’s belated attempts to tackle, through monetary policy, fundamental mistakes in our fiscal policies and reforms inactivity, is leading to all sorts of further problems for the economy in the form of higher interest rates meant to choke demand fundamentally, but which is also killing along with it, whatever little investment momentum there was in the economy. The monetary policy hammer unfortunately cannot discriminate between good demand and bad demand — it simply kills all demand. So, instead of the economy purring along at a high level of investment with a more optimum demandsupply balance, we have a situation where the supply curve did not move adequately, and demand was instead put on steroids through the government’s fiscal policies. Clearly, the RBI has its work cut out.
Alarmingly, with the world falling apart, oil prices, so central to India’s economic future, have not budged much. Certainly, one would have expected a steeper correction than has happened and this lack of correction in oil prices, and in fact in other commodities as well, is a bit of a mystery, but one which is not working in India’s favour. Corruption is an issue that has long tarnished the India story, as well as blighted the quality of life for ordinary Indians. Anna Hazare and his followers militating on the Lokpal issue have become the leading edge of middle class anger. In truth, the outpouring of expression we are witnessing represents the angst of middle class India on an issue which is threatening the spirit of this country. Are we to be a banana republic where every Tom, Dick and Harry politician is able to walk away with riches made illegally while ordinary Indians toil, pay taxes and suffer less-thanmediocre government, and where the daily grind of life is made worse because of the petty corruption of petty bureaucrats and civil servants? This issue, if properly harnessed, can lead to fundamental societal and governance changes. But we have not yet reached the tipping point. The primary backers of this movement are still the media and a few civil society representatives. It is not yet a broad-based cathartic movement which can lead to reforms across a broad swathe of areas encompassing, crucially, political funding, and the sale of public assets across the country — whether it be spectrum or land or mines. But it has the potential to get there and therein lies its promise.
Politically, we are roughly in the middle of UPA II. The government appears tired and jaded. Clearly, fresh leadership is called for at this stage — people with more energy and a fresh outlook. This will not come through a change in the party at the Centre — given the Congress’s grip on the Lok Sabha numbers — so it necessarily has to come from within the ruling party.
Second, we have to insulate ourselves from global developments. The one bright spot is exports and if we move on the reforms front, global money looking for investment opportunities and safe havens which can give returns of anything more than a few percentage points, will immediately begin to flow to India. We have the unique opportunity of taking advantage of the current uncertain global environment and differentiating ourselves from the pack. What needs to be done for this? Clearly, infrastructure reforms are key, the passage of key Bills such as DTC and GST, faster approvals for FDI, mining applications, land and environmental approvals, more transparency in decision-making, and more than anything else, simply taking decisions. And taking the fight on corruption to its logical conclusion with reforms and more transparency on political funding and tighter enforcement of laws to prevent corrupt activities. We are lucky in that we have a predominantly insulated economy — we are not so dependent on the outside world for our economic growth. Let’s take advantage of this unique strength now, at this point, and set the ascendancy of India even more firmly in the world.
Source: Economic Times