The Hindu Business Line : Three years of UPA Government

Anniversaries are reckoning moments. Behind the glittering lights of urban prosperity lies the dark hinterland of slumbering growth and despairing poverty that the UPA Government, like its predecessors, has ignored. Simply appearing earnest with the right budgetary rhetoric does not create jobs and re-affirm the spiritless farmer's faith in life, says ASHOAK UPADHYAY.

THE PRIME MINISTER, Dr Manmohan Singh, and the UPA Chairperson, Ms Sonia Gandhi, releasing a report on the UPA government's achievements over the past three years... Taking credit for sending positive signals on economic growth.

On its third anniversary the United Progressive Alliance Government must look back on its rule and experience a warm glow of satisfaction at having presided over the fastest and most sustained growth in GDP in post-Independence India. That average of 8 per cent has not been a simple statistical number but has defined a new economic modernism that in a sense defies traditional development models.

India's experience over the last three years has been unique in more ways than one. It has challenged the established three-stage model of development by moving into the tertiary sector — services — even as manufacturing transforms itself into a globally competitive enterprise. Second, it has created a third model of development, distinct from both the Anglo-Saxon approach, as outlined by Walt Rostow, and the East Asian paradigm predicated on a purely export-led economic boom. Beneath those magical numbers that have fascinated us for three years, lie the shifting tectonic plates that for better or worse, will reshape the economy in the years ahead.

Many for the records

In 1991, the idea that India's foreign exchange reserves could cross $200 billion would have appeared inconceivable. In 2004, the NDA Government, while exiting office, proudly pointed to the $100 billion in foreign exchange reserves. It took 13 years of protracted reforms to score a century, but a mere three to add another $100 billion.

For the first time in its history, Indian companies are on an enterprise-buying spree. The country's traditional merchandise exports are losing out to services betokening a shift in its competitive advantages. Gifted with one of the youngest populations in the world, India nevertheless, faces, for the first time, a shortage of skilled manpower. And, at no time in its history have so many farmers taken their lives because they found life unsustainable.

Presiding over these shifts is one thing; influencing their course quite another. When the Finance Minister, Mr P. Chidambaram, presented his first Budget in July 2004, the economy had already moved into the fast lane; in February that year, Mr Jaswant Singh, the outgoing Finance Minister, in his vote-on-account had estimated a growth of 7-8.5 per cent. Mr Chidambaram promised that his government would maintain that growth over a period. The message was from a government of action. Or so it appeared.

The next year's Budget paid reluctant homage to the 8.9 per cent growth of 2003-04 that came on the back of a very poor 4 per cent the previous year. The Finance Minister played it safe, estimating 6.9 per cent growth. Inflation, he said, was high, business confidence, low. In a sense, the UPA Government was writing its own script that would veer away, in practice, from its budgetary rhetoric.

Over the last two and a half years, the UPA has shown very little by way of reform. Barring some more freedom for Foreign Direct Investments in aviation and telecom, its attempts to open the retail sector have been ham-handed getting investors cross-eyed. The Special Economic Zones (SEZ) that it promised would set exports on fire have more than anything else exposed the abysmal lack of a land acquisition and compensation policy. For the rest, the UPA Government has remained silent.

That has, in hindsight been one of its strong points. Its decisive inaction has allowed the economy the freedom to race ahead on the back of a benign global environment and domestic monetary policies. The policies of the 1990s paid dividends in the last four years of sustained growth

Winning formulas

Economies, like stock markets, work on sentiments and perceptions. If the UPA Government must take credit for anything it must do so for sending positive signals on economic growth and its own agenda. Nothing, not even Mamata Bannerjee or the CPI(M) can faze New Delhi; it knows that the organised sector is venturing out with self-confidence and the global investor rushing in with rising trust in the economy. The UPA Government need only affirm with the right degree of earnestness that faith and watch the economy do the needful.

It is this element of exuberant optimism that puts a gloss over New Delhi's profound weaknesses and lapses in policy. Inflation, North Block assures the nation, is under control. Watch the Wholesale Price Index slipping back under the tolerance level of 5.5 per cent, it hints. The Reserve Bank of India's ratcheting up interest rates, a necessary evil, is working wonders. So long as the large firm can access cheap debt or equity abroad and the middle-class can be assured of hefty pay hikes why bother about the Consumer Price Indices that show inflation averaging 8-10 per cent, or the WPI for individual commodities some of which are higher than 30 per cent?

Anniversaries are reckoning moments. Behind the glittering lights of urban prosperity lies the dark hinterland of slumbering growth and despairing poverty that the UPA Government like its predecessors, has ignored. Simply appearing earnest with the right budgetary rhetoric does not create jobs and re-affirm the spiritless farmer's faith in life.

Paying obeisance to the farmer is part of the political compulsion of every formation that aspires to power. But the Congress claims special historical rights as the `true' representative of the rural poor. Every Budget of the UPA Government has confirmed this bonding through innumerable schemes, increased allocations and catchy slogans. But the sector has been in terminal decline for years with the policymaker content simply to fixing growth targets, as does the Planning Commission that figures on a 4 per cent growth.

A hollow victory

On balance the report card of three years in office is a disappointing one for a government with the most articulate and clear-headed politicians in key economic ministries. Yet, for all the pioneering work that they have done in the 1990s as individuals in varying positions of power, Dr Manmohan Singh's men, as a collective, suffer from the same weakness that afflicted their predecessors — a lack of vision, an idea of India 20 years from now. And for all his statesmanlike qualities, Dr Singh himself has not been able either to get that team to work consensually or to prevent the more hidebound politician from raising issues that smack of perverse social engineering

Blind to the future

For all its remarkable economic and administrative skills Dr Singh's team has shown little acumen or foresight. In 2004, it should have begun the task, with the help of its Left allies, of rejuvenating agriculture, creating investment opportunities in it and infrastructure instead of waiting to make the right noises three years and so many power shortages and farmer suicides later. A growing economy does gobble up skilled labour faster than a nation can produce them and the policymaker should have read the tea leaves and thought of ways to upgrade technical institutes that today run like factories for menial manufacturing skills.

The UPA Government enters its fourth year with a record of indifferent policies and an enthusiastic rhetoric that have paid dividends both for itself and the organised economy. Presiding over an 8 per cent growth was fortuitous; the organised sector can at best thank it for being so decisive in its inaction.

But the story changes from here onwards because growth in manufacturing will also depend on investments in infrastructure and agriculture.

The sustained prosperity of the past four years has earned India plaudits from around the world. But it has also brought home to Indians the long festering problems that have been tip-toed around by policymakers for decades not to mention new ones that appear equally fearsome. Acquiring land for industry and enhancing the supply of skilled labour, for instance.