FOR a government that has been unable to come out with any major policy decisions or reform initiatives during the first three years of its second term, the United Progressive Alliance government in Delhi continues to be buffeted with bad news.
GDP figures for fiscal 2011-12, released last week, reveal the true state of the nation’s economy, and the massive beating it has taken since the Congress-led government was voted back to power in 2009.
India’s GDP growth rate plunged to 6.5 per cent in fiscal 2011-12, lower than the 6.9 per cent projected by the government. Worse, it was the lowest rate in nine years; in 2002-03, the penultimate year of the BJP-led National Democratic Alliance (NDA) government, the economy expanded at four per cent, marginally higher than the ‘Hindu rate of growth’ of 3.5 per cent that had trapped India in a time warp since the 1960s, even as other ‘tiger’ economies of Asia were leapfrogging ahead.
A break-up of fiscal 2011-12 indicates the drastic slide in growth rate: in the first quarter (Q1) of financial year 2011-12, GDP grew by a healthy eight per cent; it dipped to 6.7 per cent in Q2, fell further to 6.1 per cent in Q3, and plunged to 5.3 per cent in the last quarter (January-March 2012).
And this was on the back of a vibrant 8.4 per cent growth rate in fiscal 2010-11, when India had successfully emerged – unscathed – from the economic crisis that rocked the world. A bungling UPA government, battling charges of corruption and policy stasis, had in a short span of three years succeeded in turning what was one of the brightest economic turnaround stories in the world into a dull narrative of a stagnating economy.
Screaming headlines on television channels and newspapers have been highlighting how the UPA government has managed to turn the ‘India Shining’ story into an ‘India Sinking’ one within such a short span. Indeed, the UPA came to power in 2004 by dislodging the NDA government and mocking its ‘India Shining’ campaign.
The UPA projected itself as representing the ‘aam aadmi’ (or common man), and accused the BJP-led government of having worked only for the welfare of the affluent and middle-classes. Though the Congress-led coalition did not roll-back reforms, it stubbornly refused to push ahead with any new initiatives, fearing it would be seen as helping the elite.
It was also forced to pour tens of billions of rupees into social welfare schemes that were being pushed by the national advisory council – a think-tank headed by Congress president Sonia Gandhi, and packed with left-leaning activists, dubbed the ‘super-cabinet’ – which resulted in fiscal indiscipline and a widening fiscal deficit.
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BOTH international and domestic commentators have been red-flagging the government’s bizarre spending on schemes that only enrich the undeserving – a clique comprising petty local politicians, bureaucrats and contractors – and warning of a crisis. Last week,international bank HSBC described India as ‘a grasping elephant.’
“Administrative obstacles have held back key investment projects and the much talked about policy paralysis has significantly hurt investor sentiments and added to the negative external spill overs through the finance channel,” said the bank. “With policy paralysis not likely to ease any time soon, however, India may have to settle for sub-par growth and elevated inflation over the next couple of years.”
High inflation, especially food price inflation, has dogged the government for the past few years. Amazingly, food prices have been galloping at a time when the granaries have been overflowing with wheat and rice and millions of tonnes of foodgrain have also been rotting.
Lack of reforms in the agriculture sector and government interference in the foodgrains and commodity trade – for instance, by arbitrarilyimposing bans on exports – combined with the failure to open up multi-brand retailing to 100 per cent foreign direct investment have resulted in high food prices.
Even today, on the eve of the monsoon, state-owned warehouses across the country are overflowing with grains. According to government figures, there were nearly 20 million tonnes of wheat in the warehouses, as against a target of a mere four million tonnes for the quarter ending June. More than 33 million tonnes of rice were being stored in warehouses, as against a target of a little over 12 million tonnes.
Rodents and worms feed on the foodgrains, which also rot following exposure to the elements. And with the south-west monsoon about to set in, million tonnes of foodgrain will rot, even as the poor in many drought-ravaged parts of the country starve.
The UPA government, headed by economist-cum-reformer Manmohan Singh, the prime minister – who initiated landmark economic reforms as finance minister in 1991 under Congress premier P.V.Narasimha Rao – has been adept at mismanaging not just foodgrains and inflation, but even the economy.
The Reserve Bank of India (RBI), the country’s central bank, went about tightening the monetary policy, raising interest rates to unrealistic levels, even as industry and trade lobbies were screaming that it would discourage growth and investments. But busy as they were battling corruption charges for much of 2011, the UPA’s leaders had no time for the economy, which was allowed to languish.
So even as global crude oil prices soared, state-owned oil marketing firms were not allowed to go in for modest increases in the price of products. Inter-ministerial battles – especially between the ministries of environment, coal, roads and power – scared global investors, even as billions of dollars in investments were being held up because of the inability of ministers to sort out issues.
And the confusing signals given out by the government on key issues such as reforms in the banking and insurance sector, retail, civil aviation and infrastructure – and the abrupt U-turns in policies, forced by untrustworthy allies in government – saw foreign investments dry up and stock markets tumble.
With both the fiscal and current account deficits soaring to uncontrollable levels, the Indian currency began to bleed, losing value against the dollar and other major currencies.
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HAVING painted itself into a corner, the UPA government is now left with no other alternative except to look skywards and hope and pray for a good monsoon. Despite all its progress in information technology, telecommunications, satellites and nuclear power, the Indian farm economy is even now completely dependent on the vagaries of the monsoon.Though the share of agriculture in the country’s GDP has declined sharply in recent years, more than 700 million people are still dependent on it for their livelihood. Inadequate rains can not only hurt agricultural production – which could anyway be tackled by importing grains – but it could cripple other sectors including industries and services, as the farm segment accounts for a huge market for goods and services.Unfortunately for the UPA, the signs are ominous even on the monsoon front. Though the India Meteorological Department (IMD) has forecast a normal monsoon season – likely to be 99 per cent of the long-term average – there are signs of nervousness in the weather bureaucracy. While the IMD was confident the monsoon would set in over Kerala on June 1 as scheduled, it had to go in for a last-minute revision last week, announcing that the rains would be delayed by about four to five days.And in a repeat performance of what happened in 2009, the IMD initially pooh-poohed fears of the El Nino phenomenon – predicted by experts around the globe – setting in. The phenomenon results in warming of air surface pressure over tropical west Pacific, causing sharply reduced rains in India.In 2009, the IMD was in denial about the existence of El Nino, but ultimately India suffered the worst drought in nearly 30 years, with a nearly 25 per cent shortfall in rains. Even this year the department initially tried to downplay the likely impact of El Nino, but has now realised that it is inevitable and has cautioned that rainfall could be lower in the second-half of the season (August-September).