It’s the economist, Stupid!
The Indian economy was held up as a beacon of hope in the time that the international crisis began but it looks like we have manufactured our very own crisis. This post argues that the Indian economy’s problems arise out of the Congress’ leadership dichotomy and a fanatical obsession with retaining power – even at the expense of losing their way.
It was not long back when our economist PM found occasion to advise top leaders of the G20 on how to run their economic affairs in the midst of a global meltdown triggered by the sub prime crisis in theUS. That the contagion has spread to the Eurozone in non liner ways and impacted countries not really on the radar of trenchant economists who are more used to worrying about the health of their plumper patients like the US and China, is testimony to the abysmal understanding of how we are all linked in a multi polar world and where the proverbial sneeze in one part is now enough to cause a cold elsewhere.
PM Manmohan Singh on that occasion doled out sagacious homilies but look at how the tables have turned. The architect of India’s liberal economic policy framework today looks like a hack trying to save a boat drowning under its own weight. It is as if in a strange and quirky way the Congress’ distaste for India Shining is coming back to haunt them. Today we stand to be judged by smaller neighbours, who have done much better and the punditry ofIndia’s greatest economist is struggling to find a scripture.
Statistic after statistic points to a compounding cocktail of policy drift, paralysed decision making and just sheer bad politics. The pressure from allies is merely a smokescreen for the internal conflicts of the Congress. Led by the nose by a supra-natural agency like the NAC the Congress is being sucked into a social spending maelstrom of its own making which is infusing abnormal liquidity in the market and causing the supply-demand balance to slide out of control. The frequent bailouts and stimulus packages to corporates and impacted sectors only exacerbates the situation. The Congress President’s advisors, whose main interest is to build fences around power structures, have been busy influencing policies that they believe will secure the next term in power for the party, throwing caution and sensible economics to the wind. The PMO, on the other hand, peopled with mild mannered bureaucrats is left wringing its hands at the blundering ways the party’s decision making apparatus has been fuelling the consumption bubble. The resultant status quo, is what leads to the favoured term, policy paralysis.
Every index of the last quarter of the current financial year points southwards, be it GDP, services, industry or the agricultural sector, just like morale and mood. The guidance is similarly poised. In a time when most economists have discredited themselves globally, first for missing the signs of the impending global crisis down to the euro zone, then by continually trying to extrapolate solutions which have failed with embarrassing regularity, it is hardly probable that an answer lies in the direction of more such economists. Our economist Prime Minister too has been a prisoner of his own making, to the extent that his weak hold over the political levers of his party, render him ineffectual to the task at hand. The NAC’s draconian influence must be weighing heavy on his plans for a revival of sentiment and in the absence of any real time structural adjustments available to him, he can at best live a day at a time when the country’s current account deficit has soared, and the rupee slides down and up like a yo-yo.
The more we see the phenomenon at work, the more we are convinced that it is a death wish. The self inflicted wounds are showing in the figures. It takes talent to run a 8.6% 5-year compounded annual growth with unemployment at 10.8% and inflation (CPI) of 13.2%. Any other country would give an arm and a leg to get those growth figures but it would be left scratching its head to see how we could still manage the corresponding depths of unemployment and inflation.
Although it might be unfair to single him out, Finance Minister Pranab Mukherjee in his swan song term hollowed out policy and offered us panaceas to problems that did not exist and refused to see that the medicine was worse than the malady. He disregarded the power of sentiment and instead focused on engineering a turnaround with little more than rusted old world idioms that have little to do with today’s economic downturn. To evaluate the legacy of the leadership at this time – Prime Minister Manmohan Singh, Finance Minister Pranab Mukherjee and the UPA Chairperson in particular – one needs only take a cursory look through the 2012 Index of Economic Freedom, an international study by The Heritage Foundation in partnership with the Wall Street Journal, which captures this dilemma succinctly. Topped by Hong Kong, Singaporeand Australiarespectively, Indiacomes in embarrassingly at number 123 on a global scale of economic freedom, and embarrassingly again, one rank below Pakistan, which is at 122. Similar contradictions abound in the details of this ranking to prove the point. With labour freedom that matches the top ten countries on the list and government spending higher than that ofAustralia, the ranking belies logic and indicates the concentration of the Government’s failure to do with issues fundamentally of governance and fiscal profligacy led by a fixation with populism aimed at permanence in power, and not of any other shortcomings.
Congressmen are frequently seen to be taking recourse to the international crisis to explain away the problems of the economy or defend the tattered reputation of their planners. But it is plainly disingenuous for them to first take credit for making us slaves of economic liberalization and then use it as an excuse for the woes it brings. It was the Congress regime that brought matters to a head when in 1991 Manmohan Singh first decided to sell the family silver and pledge our gold reserves. It is the Congress that has led us into a trap of its own making. What should then have read as desperate measures by our economist Finance Minister has been lionized by the Congress and the media as a miracle only Manmohan Singh could have pulled off. What is now a relic of history is about to be remodeled as another bravura performance by the reluctant PM with the dispatch of Pranab Mukherjee to higher office. Might we see yet another miracle? The world is agog. Easy, I say. Read between the lines, and expect more of the same. For maybe, in our case, “It’s the economist, stupid!”