Opinion Investing in ourselves

Grey clouds loom over the economy outside the agricultural sector. As early as five months ago,as the global recession deepened,China began to boost investment in infrastructure. It was severely criticised by the global financial sector and proponents of FDI. The Bretton Woods institutions alleged that China had over invested in public infrastructure. Nevertheless,the present generation of Chinese reformers pressed on with their policy,and are now reaping a 7 per cent growth rate. Our government and economic advisors,in contrast,kept pinning their hopes on FDI in the insurance and retail sectors. In a year in which the world economy has not been doing well,this resulted,as some expected,in nothing. The non-agricultural sector has gone from bad to worse. The men who work in finance,and move billions of other people’s dollars,smile at one derisively if one expects anything better.

It is now getting quite tiresome to hear people who should know better tell us that the next quarter will see an improvement in the economic scenario. Three months ago,when India’s economy seemed to be on the brink,I argued that even though the Indian response is slower than the Chinese one,a strategy would be unveiled soon. I also argued that the administration would send a signal that they are raising resources,inflation would be checked and a stimulus package would be announced. We would definitely clock more than 5 per cent growth,maybe five and a half,maybe six. But nothing was done. Manufacturing went from bad to worse and the services sector collapsed. The only message sent out was a stale one about FDI in insurance and retail. Of course,the next quarter will be better.

A part of the problem is the government’s inability to tell the country the truth and prepare it to pay the price for improvement. Investment,both public and corporate,is at a low point. The last five-year plan’s target for infrastructure investment — 10 per cent of the GDP — was not realised. In reality,the figure was around 8 per cent. Unlike China,India cannot be accused of over investing in infrastructure,which is now largely done through public-private partnerships. Not that long ago,the leadership would have said this was the price we had to pay for not raising the price of petroleum products.

It was fascinating how not a single qualified commentator said a word about the failure of the global markets when,in the span of a few days,$11 billion were sucked out of India on account of the apprehended tapering of the US stimulus. Logically,the appreciation of the dollar would lead to an upswing in India’s exports,and in fact it did. That the capital outflow petered out is another matter; it was actually a speculative run on the rupee. The steady drone that FDI would be the answer was kept up,even though none came through. But to say that the run on the rupee was illegitimate was not kosher. It was left to the indefatigable Brazilians and the hapless South Africans to tell the world that the Brics were being harmed for no fault of their own.

The opposition in India is more culpable. Chief ministers,armed with appeals for FDI,come to Delhi with their tales of woe. They are entertained because of their alleged growth potential and to maintain the appearance that India is investor friendly. But the FDI never materialises. And if anyone points out that investment is down,the messenger is shot. Such a policy has hit poorer states more. We desperately need a new leadership to crank the economy back to life.

The writer is chancellor,Central University of Gujarat express@expressindia.com