Monday, August 19, 2013

Economy down….but anyone got any better ideas????

The economy appears to be in a “crisis”, thanks to the consistent fall of the rupee, and the temporary fall of the stock market. Well, just for the record, the GDP growth is expected to be higher this year than it was last year. So India may actually have overcome the worst. But still, there is a political rhetoric building against the government. And that’s fair in a democracy. But what would also be fair is for the opposition to tell the people what their own plans would be. Is that happening? Are opposition parties bursting with ideas that the government is not listening to? Nah!

Before we get to that, let’s look at how the Congress is handling this so called crisis. The Congress understands that while there are huge external factors that have caused this decline (and no one can deny that), there are things that are “local” in nature and under its control. It’s efforts are focused there. For example, the thrust of all the economic policies of the last one year, since Chidambaram took over, has been to “liberalize” and “reform” (words that the opposition seem not to understand). That’s why the FDI policy has been opened up. That’s why the insurance FDI limit is sought to be raised. That’s why the pension sector has been opened up. That’s why the Finance Minister has exhibited so much flexibility on the GST. That’s why the Commerce Minister has announced sops to exporters. That’s why the PM has set up the CCI, which has cleared projects worth more than Rs 1 lac crores (ET, yesterday). But there are limits to what can be done by the Executive. The insurance bill won’t go through since the opposition wont allow it. The foreign retailers – who could invest billions and create jobs in the millions – won’t come because the opposition threatens that they will revoke the policy if they came to power. The 2G auctions will only stumble through slowly and painfully because everyone from the Hon’ble SC to the CAG have wanted to write policies. And worse, because in any case the House is not allowed to function on most days. So while the Congress is doing the best it can, the opposition is hardly doing anything to help.

Lets look at what great ideas our opposition parties have given so far. Take the principal opposition party first. All of those who thought the subsidy culture of the Congress (the Food bill, MNREGA, etc) was responsible for the state of affairs (high fiscal deficit etc) should note that the BJP is supporting the Food Bill. In fact, it highlights the Chhatisgarh government’s Food Bill which is apparently even more generous. In fact, the question the party is asking is “why is the food allocation 25 Kgs and not 35, and why is the price of rice Rs 3 and not Rs 2?”. Take fuel subsidies. Yes, the BJP removed administrative controls when they were in power. Yet, when the government increases fuel prices now, they consistently oppose them. What about reforms? The BJP has steadfastly opposed most FDI proposals – be it insurance, multi-brand retail etc. What about coal mining? I haven’t heard the BJP say they want mining opened up to the private sector. In fact, it appears the party’s CMs opposed the efforts of the PM to auction coal mines back then when he was handling coal. The BJP does talk about “governance” and “development”, but gives no plans to convince us. The performance of one or two states cannot be evidence. There are good performing run under all parties.

What about the Left parties. One has to give it to them. If nothing, they are consistent! They oppose anything (well, most things) to do with FDI, especially if the currency is the $. That’s why they don’t like anything this government does (well, almost!). They also don’t like the private sector very much. That’s why they accuse the government of favoring companies when it increased the cost of natural gas recently. But what do they really want? Do they tell us what they would do? Here’s what senior CPM leader Sitaram Yechuri said, as quoted in The New Indian Express ("The Prime Minister has virtually failed to tackle the situation. We demand immediate alteration of policies being pursued by the government,". Yes, but what alteration? Then again: “If this rate (of fall in the Rupee value) continues, the Rupee will soon touch Rs 80 per US dollar”. But we already know that, and do you have another idea? Then again: “The economic policies of the government have brought the economy at the same place as we started in 1991, two decades down the line”. A good rant, but again, no ideas. And ending with their favorite subject “FDI in retail has shown this (that FDI was not a panacea for all economic ills). Not a single FDI has come in the retail trade sector. They have burnt their fingers (by allowing FDI in retail). Now they are opening up insurance and telecom sectors to FDI." So the drift is consistent and clear!

What about our economists? Most understand the subject better, but don’t seem to have any consensus amongst themselves on more than a few issues. Most believe subsidies should be cut. Most believe the economy should be liberalized further. Most believe FDI must be welcomed. Most, but not all. And again, most don’t have the same view on other subjects. There is wide disparity between economists on whether the RBI should fight the rupee slide at all. Should it rather focus on inflation and/or growth?

That’s why the government has to act on its own belief. And be patient. The government does not appear to be in panic. Chidambaram and the PM know what is to be done. And they are going about doing it. Will it take time? Yes. But is the direction clear? Absolutely. Even the worst critics of the government are not saying that GDP growth could be less than last year’s 5%. These critics often quote China’s growth to mock the government. Well, they should read up. There is a growing disbelief with China’s official statistics. Several economists are now questioning their numbers. Stephen Green of the Standard Chartered Bank has been most vocal. He believes China may have grown by just 5.5% last year and not by 7.8% that it claims ( “Lies, damn lies, and China's economic statistics”, Aug 15th). Quite a fall, wouldn’t you say?!

The real truth is that the times are bad, and we are bound to suffer. Anyone who has ideas should contribute. But what do we see across the political spectrum? Criticism, and nothing else….Those who quote the US Presidential system and demand a face-to-face debate between opposing sides should know that to do that, each side must have their own strategies. And vision. Do they have them?

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