A MATTER OF ECONOMICS
What was the promise and what have we got?
By Dr R. Balashnakar
Statistics has a nasty way of telling things bluntly. This column and our repeat editorials in the last one year have been highlighting that sinking feeling about the Indian economy, which has now completed two decades of liberalization. This is time, and in this column in the coming weeks we will try, to understand how India has changed under globalisation, and how globalisation at its nadir with the decline of the US and European economies has now started giving way to aggressive protectionism and unconcealed socialism in the Vatican of capitalism. Is there a lesson for India in all this?
The rupee was depreciating against the dollar and the euro for the last one year. Since August, 2011, rupee has fallen 20 per cent against the dollar. Indian corporate have some $150 billion in outstanding dollar loans which means their debt has inflated by 20 per cent. Another aspect of this fall is that it has eaten up Rs. 4800 crore foreign exchange of Nifty companies, which is one of the highest foreign exchange losses in a single quarter and it wipes out eight per cent of their profit. In the past five years, there was a threefold rise in their foreign debt because of the sharp depreciation of rupee, Sensex has mirrored the fall in the rupee and the trade deficit. Imports far exceeded exports. During the last four months the decline in the value of the BSE-30 Sensex was 17 per cent. The net FII outflow during January to October 2011 was to the tune of $2.7 billion. The flight of capital from India has exceeded the FDI inflow.
For almost a year the government and the RBI did not do anything to arrest the decline of the rupee. Some even suggested that in the course of the steady inflation during Manmohan Singh’s regime, the real purchasing power of the rupee has fallen steadily and the fall of the rupee against the dollar was only a realistic valuation and market correction. Some reform evangelists even suggested an official devaluation of the rupee and a non-interventionist approach by the RBI.
We should not get affected by ideological branding. The issue at the root of our problem today is largely the result an unholy mix of Maoist populism and crony capitalism converting the behemoth called the central government into an ever expanding balloon of entitlements.
In the initial stages of liberalisation, we were told that one of the basic features of reform was to down-size the government. Most of the work the government had grabbed into its monstrous armpit is for the private sector to perform and profit: “There is need only for half a dozen core ministries,” we were informed. Another oft-repeated suggestion that irritatingly propounded on sponsored reform propaganda space was, “there is no free lunch.” Which meant, the days of populism and subsidy were over. Don’t depend and wait for populist largesse which socialist politicians had perfected into a strategic art for winning elections. The hapless voters had to wait all the time for the rulers’ mercy for anything and everything.
Twenty years later Sonia Gandhi and her handpicked National Advisory Council behave as if it is the politburo of the erstwhile Soviet Union. Incidentally, it is also twenty years since the Soviet Union collapsed.
There was supposed to be no use for a Soviet style Planning Commission in a liberal capitalist economy. Two decades later, however India’s Planning Commission has grown so big in size and strength that the elected chief ministers have to stand in queue with their plan proposals before the never retiring handpicked bureaucrat who has converted the Commission into a personal fiefdom. Here the members and the deputy chairman hiked their perks and allowances on par with the members of Parliament.
The focus of the Planning Commission, if at all it was to exist in a market economy should have been to ensure balanced growth with focus on people’s welfare rather than the promotion of neo-liberalism to advance profit margins of transnational corporate giants by arm twisting state policy. And the expenditure it’s incurring to the tax payers has increased multifold. Instead it should have found means of funding itself through market research, corporate rating studies, sectoral surveys, investment advisories and statistical data analysis like the science and research institutions are doing in post-liberalisation India. Post-liberalisation every institution—Universities, IITs, IIMs and CSIR labs—have been asked to fend for themselves as far as possible. But not the commission. As of now it is only duplicating the work ministries and states are doing.
Ministries like I&B, Civil Aviation, Tourism, Shipping, Transport, Food Processing, Steel and Industry, to name a few were to be abolished as part of down-sizing the government and reducing administrative expenditure under the reform regime. Most of these were the areas supposed to be open exclusively for the private players and the government was to withdraw. Telecom — now in news for entirely unsavory reasons – was also to miss its ministerial tag. Instead, Manmohan Singh added more ministries like Minority Affairs and Welfare into the white elephant list.
Subsidy was another area liberalisation was expected to tackle. The idea was to eliminate wasteful, non-productive and administrative spending. The government spending on welfare schemes, health, sanitation, education and other people oriented ventures has substantially come down in recent years. But its subsidy bill is up. A recent Finance Ministry reply in Parliament revealed that its subsidy to the poor and the corporate together exceeded a whopping Rs seven lakh crore, two third of which going to industrial subsidy.
The idea behind the government vigorously pursuing VRS a few years ago and imposing a moratorium on fresh recruitments were aimed at reducing administrative spending. Yes, millions were made destitute, and fresh job seekers turned away, but the irrational spending has only galloped, with the political class cornering the lion’s share — another area where the promise of reform has been self defeated.