#dnaEdit: 2015: Good economics

Here’s what Joseph Schumpeter, among the greatest chroniclers of the evolution of economic thought, wrote in his book History of Economic Analysis: ‘Nearer we are to an epoch, the less we understand it. Our own, we understand the least.’  

When Constantine embraced Christianity on the eve of his battle with Emperor Maxentius, little did anyone realise that this single decision would change the character of the Roman Empire and that Rome would dominate Europe for the next two millennia. 

Journalism, which is often taken as the first draft of history, does not have such leisure on hand. We take pot shots at understanding the events around us even as they unfold. The end of a year — the beginning of a decade — are encapsulated in a moment. This is when you look forward with your understanding of the immediate past. 

With the last economic year behind us now, what can we expect next year? After almost five years of inaction, towards the end of 2014 we did see the initiation of a new economic paradigm. Notwithstanding political impediments, the new government acted with fresh decisiveness. However, continued chaos in Parliament derailed several specific economic programmes, renewing apprehensions of yet another legislative stalemate. 

The Modi government, however, has sought to bypass Parliament by promulgating ordinances. For instance, an ordinance has been brought to break one of the longest impasses in India’s policy history: the raising of foreign investment cap in insurance from the existing 26% to 49%. Coal auctions are also to be implemented through ordinances. 

It may be argued that the government’s resolve to carry through its economic regeneration programme through the ordinance route carries positive as well as negative implications. On the one hand, it may signal a decisiveness — lacking so far — in pushing through reforms in 2015. Decisiveness — after all — counts most for creating a positive investment sentiment. It has a snowballing impact in further boosting the economy. 

Now for the negatives: Measures such as ordinances aimed at stonewalling parliamentary opposition encourage the opposition to intensify its resistance. Such political animosity does not provide a conducive environment for improving governance. Recall, the confrontation in the Rajya Sabha was not over policy measures in the interest of the Indian economy. The conflict was political in its essence. 

Will we continue to witness such brittle political confrontations in 2015 as well? 

But, for this single most important question, the economic prospects for India in 2015 appear to be much brighter than in the last half a decade. We are once again showing signs of moving forward: growth rate, projected to pick up momentum, is expected to reach at least 6.5%. India’s worst worry, a gaping external payment deficit, looks manageable. Oil prices have fallen. Prices, which were proving to be difficult to manage at least since 2007, are now declining. Even within its short incumbency, the Modi government has introduced some long-awaited steps. Elimination of fuel subsidy through market pricing should have salutary impact on finances. Global investors are viewing India positively among the emerging market economies. Funds are flowing from global markets. Once again growing at a pace not seen in the recent years, the US is generating hope for the global economy. 

India is set to grow and make a radical difference to the lives of the poor. Growth is the best antidote to poverty.  In the midst of all these positive vibes, let not narrow political shadow-boxing spoil the opportunities for bringing about some epochal changes. That is the hope for the New Year. Let it happen.