Monday, June 11, 2012

A Made-in-India economic decline

By Swapan Dasgupta

One of the features of my student days in Delhi during the big, bad years of the shortage economy in the early-1970s was the sheer modesty of expectations.
For the more sartorially conscious students, the ultimate of high fashion lay in possessing a pair of Levis jeans. Indeed, faded American-made denim trousers was such a craze that shopkeepers around Mohan Singh Place, off Connaught Circus, made a handsome profit buying jeans from foreign backpackers and re-selling these to deprived Indians at a premium.
India has come a long way since that era of socialist deprivation. So much so that Delhi’s Chief Minister Sheila Dikshit told Economic Times last week that it was inconceivable “that I can afford a can of cheese imported from Ireland or New Zealand but I cannot afford to pay 10 per cent of the price of what I buy as tax to the Government.” However, in a curious sort of way, sustained bad news on the economic front has once again triggered a dramatic lowering of expectations.
This is particularly true of India’s investing classes that have been battered senseless by an unending stream of bad news-high inflation, industrial slowdown, ratings downgrades, the falling rupee, mounting fiscal deficits and, above all, a policy paralysis that has blocked off light at the end of a long tunnel. Like those misguided souls who found solace in second-hand jeans, they too are clutching desperately at straws, ferreting desperately for good news.
Some good news seemed in the offing last week after it was revealed that the Prime Minister had convened a proverbial high-powered meeting of Ministers and like a stern taskmaster set them targets that would help rejuvenate the economy. There was a flurry of excitement all round as news channels went into overdrive-which, to be fair, doesn’t call for much doing. A receptive stock market reversed its bearishness, registered gains and a Deputy Governor of the Reserve Bank even suggested that interest rate cuts were possible.
There is no “magic wand”, the Prime Minister had proclaimed from the ramparts of Red Fort on Independence Day last year. Now, suddenly, someone must have discovered a magic baton. Speaking in Mumbai last Friday, the hapless Deputy Chairman of the Planning Commission who had earlier in the week been forced to explain toilet arrangements at Yojana Bhavan, rediscovered his bullish instincts. According to a report in Hindu Business Line, Montek Singh Ahluwalia said that “India will see a turnaround in its economic fortunes in the July-September period…The economy is expected to grow at about 6.5 to 7 per cent in the current financial year.”
Less than a month ago, on May 20, he had told PTI in New York that “Falling rupee and high inflation would make it difficult for India to achieve 7.5 per cent economic growth during the current financial year.” He said that the Finance Ministry’s target of 7.5 per cent growth this year was “going to be tough but not impossible”. Three weeks before that, on April 28, in London — he certainly does get around — he had said that “he expected India’s growth rate this year to hover around 7 to 7.5 per cent”.
More to the point, it is even more instructive reading what Montek was saying on January 10 this year to a convention of automobile dealers in Delhi: “Dr Montek Singh Ahluwalia who was the chief guest at the Valedictory Session, expressed the view that the current downturn in economic growth due to developments in Euro zone, had bottomed out. Allaying the fears, he said that the economy was on its way back to the high growth trajectory as the inflation was subsiding and the rupee stabilising against the dollar. The economic growth would climb back to 9% in the next couple of years.”
January, incidentally, was the time the stock market had witnessed a ‘news-based rally’ caused, among other things, by a belief that the Congress would do rather well in the Uttar Pradesh elections and that the Prime Minister’s Office would get more purposeful following the induction of Pulok Chatterjee as the Principal Secretary. At that time too there had been a series of meetings to remove the bottlenecks confronting power producers.
Reading these reports in reverse chronological order, certain conclusions are warranted. First, that there have been attempts by the Government, helped by a gullible media, to talk up the economy at critical junctures. Yet, these contrived initiatives have invariably faltered following the realisation that the Government just doesn’t have the capacity to deliver on its promises. Secondly, like the time Montek told car dealers in January that the Eurozone crisis has bottomed out, the Government has expediently used the international situation to wish away what is essentially a Made-in-India economic decline. Thirdly, that there is absolutely no sanctity that needs to be attached to the Government’s growth projections. If the regime’s foremost economic thinker can vacillate so markedly in his utterances over six months, it suggests that either the Government itself is clueless and crippled or that it is being wilfully disingenuous.
Therefore, when Montek is pilloried these days for spending too much on his frequent foreign visits and mocked for spending `35 lakhs on the renovation of two toilets in Yojana Bhavan, there is an underlying story that is also unfolding. The country has lost faith in the intellectual integrity of its glib economists.

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