Even as key economic indicators point to a comprehensive slowdown of a kind not witnessed in eight years, policymakers tiptoe around the complex present, retreating to their ivory towers for flights of fancy into a roseate future. ‘Things will get better tomorrow' seems to be the emollient mantra of key policymakers.
Recently, the Prime Minister's Economic Advisory Council (PMEAC), which has frequently curbed overheated optimism with salutary notes of caution, deserted the increasingly narrow group of policymakers urging a realistic look at structural weaknesses in the economy. In its recent report, the EAC looks to the next fiscal for the good news. In what can be described as the Dale Carnegie-approach to the economy, it finds that come 2012-13 inflation will moderate, and GDP will bounce back to the sacred regions of plus-8 per cent on the back of a more salubrious investment climate. This after admitting that investments, or gross fixed capital formation, had slipped over the past four years — news that should not surprise anyone not living under a rock, with the RBI taking note of the depressive investment mood for well over a year.
Investment slowdown
Media reports have often quoted leading lights of industry and their representatives voicing reluctance to put their money onto a ground constantly slipping beneath their feet, on account of an ambiguous regulatory framework; the perception now is that corruption corrodes the political will to decisive action, masked by an increasingly fanciful rhetoric devoid of substance. Most industrialists will not say all this, focusing instead on the soft targets, such as high interest rates, cost of raw materials and, of course, the fiscal deficit.
Fortunately we have the Reserve Bank of India and its economic reviews that perhaps despite itself, hone in on the real problems, those tangible limits that will keep growth hemmed in to an average of around 7 per cent at the very best.
The central bank has long warned of tepid core sector growth; last October the eight industries' core group that has a combined weight of 38 per cent in the IIP registered an expansion of 0.3 per cent; the latest data for January posts 0.5 per cent growth, with output in some industries even contracting. These numbers bear testimony to the observation that investment activity, or rather the climate for it, has not been all it was cracked up to be.
The policy responses to crises of confidence increasingly show up frayed nerves. The Prime Minister's reactions to the protests over Kudankalam, certainly do not behove an economist-politician striving for statesmanship on the world stage: India has globalised, accidentally, by way of the economy, and strategically through the UPA's efforts at grandstanding on global issues. But like so many obviously fragile and paranoid governments, the UPA is getting close to acquiring a split personality over the gifts of an open economy: Brands are global but so is dissent or disagreement; yet, the UPA would rather have us enjoy malls than the liberty to differ.
Wrong target
New Delhi need not prove its credentials for governance by flexing its muscles at the wrong “enemies” such as NGOs or social networking sites. It has a lot going for itself in its wide swathe of legislations for the poor. It tends to rest on its laurels, exhausted by its penmanship when in truth, it should strive to give meaning to their potential substance.
The latest one, universal healthcare, initiated by a high level expert group, has the potential to redefine India as a truly welfare state But that would mean assuming the primary role as health enabler, quite unlike the view expressed by the Planning Commission, (according to some media reports), of farming it out to the private sector. Underlining this view, that could paralyse any initiative even as health conditions of an increasing number of Indians deteriorate, is an unwillingness to locate policies in historical time. Privatisation has had its day and what countries around the world are re-discovering is a discarded idea that governments need to step in where the private sector has failed.
Societies with the best, that is universal, health care systems are those in which governments play a major role; even Americans, barring the Republicans, are beginning to believe in the power of the state to deliver better health care than the private sector.
Changing context
New ideas are old ones re-contextualised, never original; as Borges once wrote, universal history is the history of a few metaphors and what policymakers need to do is to fit ideas to a given circumstance rather that the other way round. Fiscal correction is eminently desirable, but when it comes to an economy sobbing at the sink, or to people in need of cheap and effective medicine, societies may have to bear with a growing fiscal deficit.
So far, policymaking responds to India's complex crises without verve, determination or foresight. If the capital goods industry cries it's being threatened by Chinese equipment, the first reaction is to slap import duties. That such action might be viewed protectionist and invoke retaliatory action, all the more so at a time when national economies are rediscovering the short-term virtues of petty nationalism, should give us pause.
More than ever before India's Finance Minister will have to confront two almost distinct economies with a fragile one-way connection: the organised economy and its comparatively well-heeled inhabitants, with access to everything that makes for a prosperous life, and the vast unprivileged majority. Getting the Budget right for the former is less contentious and amenable to fiscal “discipline”.
Those on the dark side of the moon need uplift and resources that, according to some, may set new standards for fiscal “indiscipline.” But the FM would do well not to listen to those who have cut their teeth on Milton Friedman and Chicago economics.
Saving some pennies now may create havoc on the very young and cost us that demographic dividend we cherish.