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Journalism of Courage
The year 2007 will gladden the hearts of economic policy makers. It ends on a high note of continued economic buoyancy, daunting GDP indicators, modest inflation, and India remaining a favourite destination in the boardroom of multinational companies. It is legitimate that the current policy managers take credit for these many favourable outcomes. It is another matter that many view the current growth to be on auto-pilot.
Mumbai is believed to have decoupled from Delhi and there is palpable absence of significant policy initiatives. The comment, that why tamper when things are going well, suggests complacency and can at best be comforting in the short term.
So how to sustain this trend in 2008?
• First and foremost, a reassertion of prime ministerial authority. There is a growing perception both nationally and internationally of a weakening of the prime ministerial writ on coalition partners, many of whom have increasingly begun to believe and behave as if they were governments in themselves. The tardiness in the award of contracts for the prestigious road projects or the mess in the decision-making on spectrum allocation are anecdotal examples.
Given his unimpeachable integrity, a reassertion of prime ministerial authority could qualitatively alter perceptions and improve governance quality.
• Second, a continuation of strong macro fundamentals. Compliance of the quantitative targets under the FRBM Act may have been achieved but, as is well known, there are significant under-recoveries from the petroleum sector. There is also under-provisioning for the fertilisers subsidy. Besides, the food subsidy bill will continue to rise. The inevitable impact of these factors on consumers needs to be gradually calibrated, notwithstanding its inevitable fiscal and inflationary implications, to avoid a rough landing. Looking at global shortfalls in food production due to unfavourable climate and land diversion to bio-fuels, international food prices in the medium term may remain high, and protecting the poor would entail rising subsidy bills. The revamping of the public distribution system thus assumes urgency.
Similarly, managing the exchange-rate remains a difficult balancing act.
• Third, the government’s flexibility in dealing with the Left parties may have been severely dented by the outcome of recent state elections, but will this mean totally abandoning the legislative agenda? Finance Minister P. Chidambaram himself confessed at the recent World Economic Forum Summit at Delhi that action in the financial sector, namely banking, insurance and pension, was disappointing. He hoped that even in the remaining period of this government, progress was possible.
We need to encourage him to move in this direction. Incidentally, incorporating them yet again in budget announcements is pointless, because they have been said earlier but it was the implementation that remained mired in coalition politics. So between the prime minister and Chidambaram, a negotiating strategy is necessary to transit from this stalemate. This, of course, raises the larger issue of reactivating action in many stalled areas, because no credible government can remain in a holding mode or lame-duck state for the 14 months remaining in its tenure.
• Fourth, the pace and quality of public expenditure remains worrisome. Infrastructure projects in general are lagging behind with clear evidence of cost and time overruns. Public private partnership is still in a nascent phase. Chidambaram has been wary about the efficiency of public delivery systems and project implementation. We are overloading the state apparatus, and more so at the district level, with projects they are ill-equipped to cope with. Ask any diligent district official and he will not be able to truthfully recount the number of development projects he is expected to oversee. Each year, we add more projects but subtract none. While increased public outlays for infrastructure and social sector will remain inescapable, dependence on the traditional machinery for project implementation needs a basic rethink. We need to learn from better international examples. Increasing reliance on civil society and NGOs can ameliorate but we need to think beyond them on alternative means for implementing public outlays.
• Finally, budget making would have just commenced. Those who expect elections in the near term believe that this would be a populist budget. Others, looking at the current political configuration, expect the government to last its full term and expect the forthcoming budget will be the penultimate one.
Whatever be the case, the government must redeem its many unfulfilled promises. Announcing more populist schemes or a large provision for additional emoluments of public servants can cripple the fiscal health that has been nurtured carefully. There is ample evidence that new projects take time; the leads and lags are significant. The electoral gains from many populist measures to the party in office remain questionable. Completing the unfinished tax reform agenda, putting in place mechanisms to better monitor public outlays, and a number of small steps to improve the cost and competitiveness of the Indian economy will have a more lasting value.
Notwithstanding exogenous risks, 2008 can build on the economic momentum of 2007. Only time will tell if the government will rise to these challenges.
Meanwhile, here’s wishing my readers a very Happy New Year.
