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A sleepwalking economy

There is no passion for growth,and no one is taking up the cudgels on its behalf.

Written by Pratap Bhanu Mehta |
Updated: January 9, 2014 10:39:48 pm

There is no passion for growth,and no one is taking up the cudgels on its behalf.

If you followed Indian debates over the last couple of years you would struggle to hear one simple word: growth. India has been through several crises recently. There is an institutional crisis,evidenced in debates over corruption. There is the loss of legitimacy of India’s elites. There is a social crisis as India struggles to develop norms for a new society. Each of these crises is playing out,spewing more poison on one hand,but also,in some instances,creating conditions and opportunities for renewal. The jury is out on how this dialectic will work. But one crisis seems to have dropped out of our consciousness: the economic crisis. It occupied us for a while,when the current account deficit was a headline number. Once that number nominally came under control,the economy once again passed into background noise,where the crisis still festers.

The crisis is still real. We can pat ourselves on the back and say 4 to 5 per cent growth is still good,foreign institutional investment is still coming in,we are in a better position to deal with the Fed’s taper,we adjusted well to currency depreciation and the fiscal deficit number will not look bad on March 31. But these surface truths cannot hide real anxieties: inflation is structurally endemic. India’s inflation has been higher than that of its peer economies for over three years in a row. Inflation messes with everything,from the prospects of the poor to high-end investment decisions. The fiscal deficit may not look alarming,but behind it is a story of creative accounting and arbitrary administrative suppression of payments. Many banks are tottering,with the true extent of their vulnerability disguised by creative ever-greening. The index of industrial production is still falling; the balance sheets of companies are not an encouraging mixed bag,to put it mildly. But more importantly,even if we have managed to avoid a catastrophe,we are not leveraging this historical moment to our advantage and laying the foundations for long-term success. We will pass all kinds of laws,have a new high of daily outrage,but sleepwalk through the economy.

This curious lack of urgency over the economy requires some explanation. There is a lot of loose talk about the new aspirational voter. But the aspirational voter doesn’t seem to be translating into an aspirational India. The narrative of our place in the world has suddenly become one of consolation rather than ambition. Oh,we are not Nigeria,is the new benchmark of aspiration. And even this is complacency. Except for shedding a momentary onion tear,no political party seriously wants to debate a plan to get India back to an intelligently executed 8 per cent growth rate. There are some genuine growth sceptics. But what is going on with the rest? It seems the thinking on the economy is now a victim of different but converging fatalisms.

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The first fatalism is a reluctance to think hard about macroeconomics. The last few years have revealed the superficiality of our intellectual responses to globalisation. This is evidenced in two aspects. First,while inflation remains a politically potent topic,concern over inflation does not translate into serious political macroeconomic debate. It takes the fear of a ratings downgrade rather than criticism from the opposition to get the government to worry about things like the deficit; there is virtually no parliamentary oversight over expenditure. But more importantly,what kind of macroeconomics is appropriate for a globalising open economy? In political terms,we cannot even pose this question. In our approach to the trade talks at Bali,there was a justifiable consensus on preserving the space to design food security policies. But there is virtually no political discussion on better paradigms of food security in a globalising context,or how we need to place ourselves in the strategic context of global economic developments.

The second fatalism came from a convenient narrative the government and its collaborator economists peddled. It is all global forces beyond our control. When growth was good we did not worry about the world because we were decoupled; when it fell there was nothing we could do except pray that the Fed would continue to pump money. The trouble with these myths was that they were not just used for political exoneration. Large sections of the establishment actually came to believe them.

The third fatalism comes from an excessive faith in deliverance by a leader. The complete abdication of responsibility by the top leaders of the Congress has sowed the seeds of confusion. It is also true that the institutional chaos in the wake of the corruption scandals has slowed down some sectors. But it does not follow that a single leader can come and fix this. For one thing,there is no evidence yet that the current opposition party has anything sensible to say on macroeconomics. And what Narendra Modi does in fact say on a range of issues of fundamental reform,from FDI to the value of the rupee,is not very reassuring. He also distinctly seems to lack control of his parliamentary party,which is busy putting its weight behind all kinds of half baked laws,including the Lokpal Bill. But it has little time to intelligently talk about the economy.

Admittedly,administrative decision-making at the top will help. But it will get you only so far. Cleaning up the institutional mess on a range of things from contracting to environmental clearances will be a huge task. The UPA’s legacy of institutional corrosion is so deep in these areas that rebooting them will not just be a matter of one man’s will to give orders. It will be setting new norms. Indeed,the big worry is that the system will again risk wheels getting stuck in the sand if new norms are not institutionalised. While there is some discussion of institutions to tackle corruption,there is very little about institutions to promote growth in a new context.

The fourth fatalism comes from genuine intellectual confusion. Disagreements are inevitable. But there is now a generalised scepticism about economists. To a certain extent,this scepticism is justified. The crisis of credible mediation is afflicting economics as well. But this has licensed a general fatalism about growth: we don’t understand where growth came from. So we are waiting for it to fall from heaven.

So as the dance of democracy continues,you find almost no passion for growth. No one is taking up the cudgels on its behalf. We will pass everything,but it will pass over the one thing that truly matters: growth.

The writer is president,Centre for Policy Research,Delhi,and a contributing editor for ‘The Indian Express’

express@expressindia.com

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