Thursday, 27 June 2013
Getting Back To 8% Plus: A Chimera? Or A Realisable Dream?
This is the second part of the article http://reflectionsvvk.blogspot.in/2013/06/the-indian-growth-engine-hobsons-choice.html
eruse any newpaper, online business site dedicated to India (or any other for that matter) - you will find a set of reactions and analysis posted using the words "urgent need for kick-starting reforms" or "Indian Problems are structural in nature"; apart from a rare article in business newspapers, and the odd analytical article in Business Magazines, few - if any - deal with this at any length. Reams are written on Current Account Deficit, Rupee's Free Fall, FII redemption pressures, Policy Stasis; the assumption is that certain policy matters, if corrected, can get us back on track again. Accordingly, our political classes come out with plans and schemes to attract FDI into the country by various means; as if the answer lies in that alone.
What use is a policy that cannot be implemented fully, whose benefits do not reach the people? Furthermore, what use is a policy that attracts FDI in non-core sectors, and ignores the problems facing India's core sector? What use is a policy that does nothing to encourage domestic capital formation? What use is a policy that does not improve the business environment? Granted that FDI will lead to an immediate relief; it will make things slightly more comfortable for India. Granted that policy measures in a nation growing at 5% - which is far higher a rate than the developed world will serve to attract capital; but this does nothing to correct the structural issues that are facing the economy. The danger of a relapse will remain.
The real problems facing the nation are shortage of skilled manpower; shortage of electricity; shortage of good motorable roads; shortage of good affordable healthcare in the rural regions; insufficient internet access speeds; poor agricultural productivity; among others. What has been done - leave alone done - what intent has been stated to meet and solve these problems? Nothing. Precisely nothing. Electricity Projects are mired in Land Acquisition Problems; Coal is mired in corruption allegations; ditto Oil; there is no focus on primary education and secondary education - which is also deeply mired in corruption allegations; Road projects are at a virtual standstill and beset with huge corruption, leading to even life threats for some decent IAS officers... in fact, virtually every significant area of the core sector has been shaken to the core with corruption allegations and lack of access to funds due to Land problems, water sharing etc issues. How anyone expects a return to those halcyon days of 8-10% growth is beyond me.
Those lovely dreamy days and frenetic growth were in a period when almost the entire emerging markets were experiencing fast growth. The Global atmosphere was one of low interest rates, optimism, global surplus and newly opened markets with the attendant enthusiasm they brought into the global stew. This is clearly absent today; the global scenario is depressed and market after market is showing regressive tendencies. In this changed atmosphere, the requirement is a sea change in approach. And this is quite clearly missing from the scenario in India. Unless we do something radically different to change the prevailing atmosphere - confidence is not going to return. And radical changes don't happen often; the only realistic path is to attend to the serious challenges mentioned above and get back on a gradual recovery path. The alternative is now not an option anymore- with each and every sector hit - and severely hit - by scam allegations in the past 4-5 years, rebuilding confidence over the long term, and attracting domestic capital as well as stable FDI as opposed to short-term FII investments is just about the only path ahead for us.
India has now acquired a justified reputation of being a nation of scams; there can be no argument against that. Add to this the real policy issues - Fertiliser and Oil Subsidy, Land Reforms, Labour Reforms and Police Reforms. This is a deadly combination that is throttling real growth and market performance. The Government has shown no intent on tackling these very serious and vexing issues plaguing the economy; what is worse is that there is a palpable lack of a national dialogue on these issues in the Media. No one seems willing to bell the cat - even in the media. It is not enough to state "structural problems" - please identify those problems, give a solution/s, and don't hide behind the words "political hot potato"! Does their being politically difficult mean that should not be cured? Try that in a disease in your own body! Try and ignore any disease like cancer - or even a fever! The person who does so will like as not be in an ICU 7 times out of 10! This is the perfect corollary - these structural issues have now become cancerous - and need attending to with affirmative action, not glib dialogue. It is because things are tough that we have highly paid IAS officers and experiences politicians to deal with such matters. And yet, the Media, The People, The Officers and The Politicians choose to ignore these matters, and concentrate on frankly short-term measures that will alleviate the immediate problem.
Yes, short term measures are important - if you are a cancer patient who has been bitten by a snake, the need of the hour is treatment for snake-bite. Similarly, to alleviate CAD pressures leading to BOP problems, short term measures are needed urgently - but that does not mean we ignore the other, more pressing structural issues. Unfortunately, we are treating only the snake-bite, and ignoring the cancer. How sustainable is this model going to be? Not very.
Even the people are in a stupor - witness this article : http://reflectionsvvk.blogspot.in/2013/06/usne-kiyaa-he-did-it-he-did-it.html. They are either mute spectators, or willing collaborators in the dance of death that is the game of corruption. In the next article, I shall examine the causes of this stupor, and look at possible solutions to this quagmire... an ambitious task, but at least I can make an attempt