The seven year glitch
Seven days, they say, is a long time in politics. Manmohan Singh completes seven years as Prime Minister, the longest tenure by any Prime Minister in over a quarter of a century. As he looks back on the 2,550-plus days he is bound to wonder what his legacy is. The father of India’s liberalisation story, it would appear, has been rendered a mute witness to the slow strangulation of reforms.
The UPA’s seven-year tenure threatens to tear asunder the delicately constructed India Story. The symptoms of a serious crisis are building up. Growth is shrinking as populism fuels inflation. Food prices have shot up nearly 100 per cent since the UPA came to power, petrol prices have spiralled from Rs 35 to over Rs 63. The world over, price is defined as a function of supply and demand. India boasts of a third variable, called politics. The magnitude of political profligacy is such that the Government which borrowed Rs 220 crore every day in 2004 is now borrowing Rs 1,142 crore a day. Thanks to this profligacy, home loan rates have gone up from 7 per cent in 2004 to 12.25 per cent in 2011, and State Bank of India which was lending to corporates at 9.75 per cent in March 2004 now has a prime lending rate of 14 per cent. Small wonder GDP growth projections for this and the next year range between 7.5 and 8 per cent. Foreign Direct Investment, which has averaged a poor $20 billion since 2000, dipped 25 per cent last year and is down by 33 per cent for this calendar year. Exports are dipping, pushing the current account deficit to over 3 per cent of GDP—a level last seen at the onset of the BoP crisis of 1991.
UPA’s acts of commission and omission
For over six months public and political attention has been focused on the UPA’s acts of commission. Mind you, the acts of omission are no less damaging. Last week, the Governor of the Reserve Bank of India had to admit that growth was being sacrificed at the altar of high inflation. Can India, which pours 11 million new job seekers every year into the market, afford the luxury of this sacrifice? The UPA’s spin doctors could argue that the economy has chugged at 8-plus per cent for seven years but that is cold comfort for two thirds of the population dependent on agriculture which has averaged a poor 2.1 per cent growth in seven years. It is a no-brainer that opening up of farm-to-fork retail supply chains would improve incomes for farmers, bring down inflation and deliver affordability for consumers. Yet despite the wide constituency of beneficiaries the UPA has allowed the capture of policy by vested interest groups.
To get a sense of the neglect consider these factoids. It is no secret to the government that projects worth over Rs 5 lakh crore are stalled and delayed. Posco has been in India for over six years now but is yet to break ground for the plant. L N Mittal is the largest steel producer in the world but has no presence in India barring an acquisition in Orissa. Land acquisition is a bane of most stalled projects yet the bill to reform the 1894 law is rotting since 2007. Power plants are starved of coal and India, which has the world’s largest reserves, is importing coal. Yet the policy on coal mines continues to be trapped in the “go, no go, GoM” continuum. Vedanta took over Cairn in August 2010 but Anil Agarwal is yet to get a clearance from the government. Not surprisingly, corporates are sitting on cash reserves in excess of Rs 1 lakh crore. The Ambanis, Adanis and Mittals find it easier to invest abroad and therefore FDI out of India, not into India, is the dominant trend.
The UPA perhaps has the most talented and experienced group of politicians in high office. But rarely ever has so much talent—including nine former chief ministers—delivered so little. They could easily qualify to be the Deccan Chargers of the Indian Political League. In its seven years it has allowed over three dozen bills to lapse. Over 20 bills—all critical legislation for the economy—are pending for over five years. The verdict in the recent polls affords the UPA to push its agenda forward. The DMK would be less of a pest and Mamata will finally have to come to terms with the need for development and jobs and the installation of former FICCI chief Amit Mitra as finance minister is perhaps a sign.
The seven-year-itch is proverbially a symptom of infidelity. India though hopes that Manmohan Singh dumps the politics of profligacy and reaffirms his fidelity to reforms and growth once again.