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Industry bodies like the Confederation of Indian Industry (CII) which had benignly suggested ways of pruning government in the early 1990s by drawing up a blueprint of the minimum number of ministries and so on are not now averse to pleading with the government to do all they can to stimulate the economy. The private sector wants to be placed in the intensive care unit (ICU).The Assocham report on job losses of 25 to 30 per cent is a mere symptom of this feverish state of mind. There is something very disturbing about the wobbly response of the captains of industry, with gloom booming through their opinions.
But the mood was very different last year. All who counted — the government, the private sector and the media, especially the English language one — were on cloud nine.
They could see no problems except that of meddling by stupid politicians. They feared political instability. Financial instability was literally a bolt from the blue. There was however a voice of caution, but it was brusquely brushed aside. Former US secretary of treasury and Harvard University president Lawrence Summers had expressed reservations about India surging ever forward at a CII-organised meeting in New Delhi last year. He thought that the soaring stock market was riding on irrational exuberance. He irritated all those present who thought that India was just winging away, and that only fools and pessimists could express doubts.
It is uninformed optimism that has so easily undermined the flaky self-confidence of the most discriminating Indians. They are now demanding help from the state whether they need it or not. It is the old, bad habit of seeking tax sops and other incentives at the drop of a hat. And those in seats of power —ministers and officials — are only too solicitous towards the petitioners of aid. The state is back in the saddle and politicians are happy calling the shots and doling out favours.
While American and European policymakers are taking a hard look at the economic system and how it needs to be mended to get out of the crisis, in India both policymakers and the private sector are hunting for palliatives to ease the immediate discomfort.
There is confusion among the thinking folk about what caused the problem. They partly think the liquidity crunch is the result of the tight monetary policy pursued by the government since the summer to rein in inflation. They also feel that the financial meltdown in the US will have its impact in India, and that the government must do something to protect the economy from it. On both counts, the buck stops with the government. That leaves them free not to think.
The one issue that is troubling in the Indian situation is that of Foreign Institutional Investors (FII) which seem to be the cause of turbulence in the domestic stock market. The Bombay Stock Exchange breached the stratospheric 20,000 points barrier because of FIIs, and the dizzy fall to below 10,000 is also to be attributed to the FIIs pulling out. It is possible that relative financial stability can be ensured if the dependence on FIIs is reduced. This is quite different from shunning FIIs for ideological reasons.
The question that follows on this is how much domestic savings and investments are required to sustain a growth rate of 10 per cent and more. This requires hard thinking, and it also would need policy measures of a certain kind. And policy initiatives will not rest entirely with the state. Private players in the financial markets will have to do their bit. It also means that we should not judge the health of our economy by foreign investment inflows, or only by our export earnings. It would mean a sober exploration of opportunity at home.
Email: r_parsa@dnaindia.net