Roar no more for the economy

I don't need to repeat again and again what's being said all around about our economy, which again shows deep signs of distress after this week's (July 12, 2008) inflation and industrial growth numbers came out. Business Standard calls it a black friday, because while our inflation rose from 11.63% to 11.89%, now inching close to the 12% mark as you can see, and our industrial growth, compared year on year, fell from 10.6% to 3.8%. Already the RBI has raised the CRR and Repo rate to 8.75% and 8.5% respectively, and that will definitely put more pressures on our industries.

Also, India's sovereign ratings might be lowered from the current investment grade of BBB. So all in all, the government is fully prepared, and in the process of implementing its full monetary policies to reign in inflation by taking money out of the economy. Also, the lowering of investment grade rating will take away a lot of foreign money from the markets as well. Already, the market cap of BSE has lots a few billion USD over the past months, and it fell below the country's GDP. However, that may also mean that the country's stock market is currently undervalued, which shows its a time to buy, but I think India as a economy is very vulnerable to speculation and market runs. Already a lot of small Indian investor money is going out of the market, and now we may see a flight of FII's as well.

Anyways, I just regurgitated whats on the media, but what I need to again rant about is the lack of a fiscal front in our fight against inflation and other recessionary tendencies. You will notice that the only leverage the RBI gets is to play around with the rates, but there are two fronts on which inflation is fought - the monetary and fiscal fronts. However, in the case of India, the fiscal measures are totally absent, and rightly so, because to implement fiscal measures here would mean a government will have to be headstrong and committed to reforms, but thats too much to ask. Even for a government which once boasted of being led by Manmohan Singh, Chidambaram and assisted by MS Ahluwalia, I think they have been utter failures on the economic front.

I don't remember any major fiscal/economic measure coming out of Chidambaram's budgets. He has only been following the Sonia Gandhi line of thought - more sops for minorities and all the vote banks that matter, put money in projects like the NREGS, which by the way is now a pan-India scheme, which has been reporting of intense corruption and incompetence in many parts of the country, including Bihar and Orissa. I think the government pushed it as a vote bank generator rather than an actual well-planned, well-thought and well-executed project. Its suffering from corruption, and lack of funding and lack of administrative capacity.

Then there is the Chidambaram whammy in the fourth year of the Con'gress, or the UPA government, a loan waiver of Rs. 60,000 crores for the rural farmer. The debate is still open on this one, because there have a number of issues raised, including the lack of institutionalized credit system in most rural parts of the country, thus still forcing the farmer to borrow from the local money lending entities. Of course, since they don't have a government loan, they will still be under heavy debt, and I think this number is huge. Then there is the criticism that it is unfair to all the farmers who actually worked hard to pay off these debts, and they will get absolutely nothing to show for it.

I believe even this is a massive exercise in trying to corner the rural vote. Indian agriculture does not need loan waivers, it needs the government to enable the rural agriculturalist to successfully pay their debts and actually make money. Amply wiser after my Indian economic history class, I know that Indian agriculture suffers from deep, and old failures which have existed for decades, and unless they are taken care of, Indian agriculture will never pick up. India never took up land reforms in a planned way, or rather, left open so many loopholes that took away the former's effectiveness effectively (!). Similarly, India never pushed for education in the rural masses, thus the farmers were still at the mercy of the rural rich, who were the traditional owners and lenders.

Indian agriculture does not need loan waivers, and the rural populace does not need massive subsidies and doles. India needs a second green revolution and nothing less to bring our farmer into the growth story. Similarly, education needs to be pushed with a greater gusto in all levels of the population. Its embarrassing to think that we need to get our basics right even after 6 decades of independence, but I believe that India is still not being able to rise to its potential only because a lot of its fundamentals need to be looked at again.

This may be the proverbial downturn in the business cycle and we might get out this economic downturn, but I do hope that this forces the people to take a deeper look at our policies, about how we work, and try to do something about it. With the elections around the corner, the UPA getting rid, or rather dumped by their old girl friends and strutting around with a new one, probably will try to achieve a lot more than they achieved in their past four years, but I believe India has suffered one of the worst four year periods with this circus in power.