One of the uncharitable criticisms of the Bharatiya Janata Party (BJP), the main opposition party, against Prime Minister Manmohan Singh is that despite being a renowned economist he has failed to manage the economy. An able physician is not always successful in dealing with an ailment. The disease beats the doctor as many times as the doctor does the disease. Of course, Singh will have to take the blame for the decline and turmoil in the economy because he is at the helm. In the bid to blame Singh and the UPA government for the prevailing economic woes, most experts seem to shirk the responsibility of understanding what the problem with the economy is, in India as well as in many other key economies of the world. It is good to find a political scapegoat but that will not help in turning around the economy.
We have to look at the three main economic theatres to get a hang of the big picture. They are the Indian, for obvious reasons, the European and the United States economies. The Indian economy is dependent on the other two for export earnings and FDI inflows. The European Union is still not out of the economic woods. There is as yet no sign of the EU countries reviving their individual economies and Germany, the leader in the region, is bound hand-and-foot to the rest of Europe.
The US economy is still experiencing the after-effects of the financial meltdown of 2008. In the EU as well as in the US, government intervention in the economy became necessary. And the economies are still struggling. The market sentiment is still low and the animal spirits have not revived. In the EU and in the US, the jobs scene remains rather bleak, and that is the worrying point.
The G20 summit in St Petersburg in September turned into a political duel between US President Barack Obama and Russian President Vladimir Putin over the bombing of Syria for its alleged use of chemical weapons against civilians in the on-going civil war in that country. Prime Minister Manmohan Singh’s talking points on monetary policy were not heard, though G20 summits are ostensibly economy-oriented meetings.
On the other hand, Indian economists and other critics think that the problem with the Indian economy is due to the ineptitude of the Congress-led UPA government headed by Singh. It has also been described as “policy paralysis”. Bad governance is sure to affect the state of economy if the economy is State-controlled. Many are inclined to believe, including the pro-reformists, that the economy is still in the clutches of the State. And there are enough examples to prove the point.
The private players are unable to set up steel plants because they do not have land, and they do not have access to iron and coal mines. Posco, the South Korean steel giant, which wanted to set up a state-of-the-art steel plant in Karnataka which would produce six million tonnes of steel pulled out because government clearances were not coming through. And so has the international mining major, Arcelor Mittal, from a proposed 12-million-tonne steel venture in Odisha. Infrastructure projects like the highways are not showing any brisk activity.
Economists are worried by the government’s spending spree on welfare measures like the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), the National Food Security Act and the Direct Benefits Transfer schemes. No one has yet worked out as to how much these measures contribute to the emptying of the treasury. But it remains a talking point.
The three sectors that connect India to the world economy and which impact the domestic economy are exports, imports and the FDI inflows. The export-import gap has become a cause of concern because of the Current Account Deficit (CAD). That is, your export earnings are less than your import payments. Of late, the import payments have been brought down because of the steep decline in gold imports though export earnings have not improved substantially. The reduced CAD is good news for Finance Minister P Chidambaram because he has to show a clean slate in his Budget statement but it does not mean much for economic activity which is a key to growth. The manufacturing sector continues to limp and hope lies in agricultural growth because of a bountiful monsoon. That is, neither the government nor the organised private sector is doing anything significant to kick-start the economy. The farm sector is firmly in the private sphere but it lobbies openly for State support unlike the industrialists and business folk who seek government help indirectly for invisible assistance.
Planning Commission Deputy Chairman Montek Singh Ahluwalia was candid enough to admit that it was not lack of reforms that is dampening the prospect of economic growth. He, too, thinks that implementation of projects in the infrastructure is the cause. He thinks that it is not right to blame the private sector when the economy is in the pits and that the government should take responsibility for things going wrong. If the economy revives, then the private sector should be allowed to walk away with the laurels, he says in a martyr’s tone.
It is this gymnastic of political correctness that is preventing a frank discussion on what is wrong with the economy, of India and that of the world? No one is willing to say that the free market global economy has derailed and that it needs to be fixed through some kind of regulation. This should not mean a return to hidebound state socialism/capitalism. Capitalist economies have to rethink their basic concepts and they have to come up with solutions that will spur demand and create jobs. This is something that the learned economists cannot do. It is the capitalists who will have to work out the solution, if possible without government crutches.
The author is editorial consultant with dna.
Montek Singh Ahluwalia was candid enough to admit that it was not lack of reforms that is dampening the prospect of economic growth. He, too, thinks that implementation of projects in the infrastructure is the cause.