If a potted history of India’s economy isn’t short enough, here’s a one-liner from the godfather of neo-liberal capitalism that neatly sums it up: If it moves, tax it; if it keeps moving, regulate it; and, if it does not move, subsidize it.
Starting with this blasphemous invocation in a land that gave Fabian socialism its second wind, it is prudent to quickly march ahead to the decade that brought a decided spring in the step to our lumbering economy.
1991 marked the year of makeover with the government getting its “aha moment” after facing its bloated image in lean times. Opening itself to brisk business, it liberalized the market and welcomed foreign investment. While the puffed up public sector continued to eat its way out of depression, the buffed up private sector helped trim the fat of rising expenses and falling earnings by investing in asset and job creating sectors and cashing in on the fast flowing FDI.
Yes, those were the good times with the country on a dream run, batting at an average of 8% growth rate. Then that blighter of epic proportions, the US of A got itself into a sticky wicket and dragged down the world with it.
Now all those getting het up about S&P, the world’s most creditable rating agency, demoting us from a ‘stable BBB’ to a ‘negative BBB’, chillax! Everybody is having a rotten time of it. So, how does it matter? Even our high strung stock market did not so much as blink at the prospect. Then again, S&P had given its best AAA rating to the mortgaged-to-the-hilt US firms before these worthies unleashed the Crisis Royale of 2008. So by giving us a bad rap, the ‘ we work in mysterious ways’ rater has probably made us hot property. No need for an image booster. What say, GoI?
“It is a timely warning, but I am not panicking,” asserted our FM coolly. Those bleating on about policy paralysis, crony capitalism, bureaucratic bungling, spiraling inflation, rupee depreciation, fiscal deficit, jobless growth…take a cue from the government and stop worrying about those holes in your sinking boat.
Here’s a Q&A session with our elected rep to help you along:
Q) Our current account deficit (when we import much more than we export) has widened to an unsustainable 4.3% of GDP from the manageable 1-2.5%. With the rupee expected to trade at INR 52.50 to USD 1, we will be spending more on imports. Shouldn’t we take proactive steps to bridge the gap and stop wasteful subsidies?
A) The question is too long.
Q) Okay…how about stopping heavy subsidies that widen our current account deficit?
A) That CAD can go on yawning till it breaks a jaw, but we are the people’s government. Economy might leave us, but we will not leave the people. Fertilizer subsidy, food subsidy, diesel subsidy…yes, that’s the way the money flows. What we lose in money, we gain in goodwill. Next.
Q) But isn’t the import of highly priced crude oil and gold straining the deficit? How will you continue to import when the rupee keeps on depreciating?
A) We are experts at minting money… We can also fall back on our foreign reserves to take care of CAD if it gets above itself. We have USD 294 billion in forex reserves while the CAD is just USD 19.6 billion. So there!
Q) But you can’t use much of it to fund the current account deficit as the reserves also comprise of securitized loans and gold. Further, RBI holds 557.75 tonnes of gold. You are not thinking of selling gold, are you? Gold is our security.
A) We have gold. We will import gold. And we will grow at 7%.
Q) But the rupee will continue to be under pressure because of foreign funds fleeing and investor confidence dwindling. Shouldn’t we stop this by sticking to our commitments (eg., no rollback on FDI in multi-brand retail) and reforming our tax laws so that there is clarity and investors are not worried about being taxed retrospectively (eg., Vodafone)?
A) Nobody is going anywhere. Where will the FIIs go? To Europe? USA? Hah! Brazil? ….Okay, they might go there, but we are still the goods.
Q) What about inflation? RBI’s rate cut will not reduce it as it is not a demand based inflation but is mostly food inflation (having an inelastic demand) where the problem is on the supply side.
A) Food inflation is not a concern. Our bang-on weather forecasters predict a good monsoon. We will have bumper food production this year.
Q) We had it last time, too, but most of the grains and vegetables went to waste in FCI godowns and traders manipulated the market prices by creating artificial supply constraint.
A) That is a statement not a question. We will grow at 7%. Next.
You get the drift. Adding weight to the word of the rep, is our highly perceptive and remarkable Deputy Chairman of the Planning Commission who made millions of poor Indians rich by the simple expedient of lowering the below poverty line to those spending INR 32/day. During NDTV Profit’s review of Ruchir Sharma’s “Breakout Nations”, a book on emerging economies, Monty pooh-poohed the panelists’ doubts over India bouncing back to peak form and masterfully asserted, “Pish Tosh! All that talk about 6.9% growth and less! India will grow at more than 8%!”
The quibbler might ask: What about our chief economic adviser Dr. Kaushik Basu criticizing the government for not being bold enough to carry out big-ticket reforms; instead, allowing itself to be constrained by coalition politics? Well, he is just an economist, and what do they know? Ultimately, whose word matters is the FM’s. And he has marked his targeted growth rate. So while the economic crisis might reach monster proportions, worry not, our man in charge is not one for shooting blanks but silver bullets. While we may be blind to the signs of recovery, he has no problems with his vision.
As for that little detail of a growing deficit, one can once again call upon the godfather of neo-liberal capitalism to put the matter in the right perspective: Don’t worry about the deficit. It is big enough to take care of itself.
Sangeeta Mahapatra 