State of the Economy
The high point of this election is that it is being contested predominantly on governance. The past few days have witnessed an intense debate on the state of the economy. Yashwant Sinha and Ravi Shankar Prasad of the BJP have launched a scathing attack on the government for its failure to act on the economic front. Yesterday the Finance Minister, P.Chidambaram put up a defense on behalf of the government.
The economic environment in the country has taken a beating during the UPA regime. From 1991 to 2004 three successive governments of different shades and opinion liberalized the economy. Slowly but surely the reforms kept coming. 2004 became a defining moment for the Indian economy. The UPA government abandoned the path of reforms. Growth rate in the initial years was primarily on account of the global environment and the impetus of the past policies. Thereafter the growth rates depleted. The revenue generation became modest. Expenditure and economic activity started shrinking. Employment generation has been extremely slow. The farm sector has not done well either. It is under a serious pressure. The manufacturing sector has not grown and during certain quarters it has even shrunk.
It is easy to pick up some odd statistics and base the entire argument on it. However, the UPA did not honestly analyze as to why things went wrong. It could therefore offer no corrective. From the UPA’s mistakes I have several lessons to learn.
Firstly, India’s Prime Minister should be a tall leader. He must have the last word; he must have the authority to overrule others. Prime Ministers will be judged not by the duration for which they hold office but by the footprints they leave behind. Regrettably, Dr. Manmohan Singh was unable to overrule others. Projects worth several lakh crore rupees were pending clearance for a few months.
Secondly, there should be no structure outside the government stronger than the Prime Minister. The National Advisory Council was a challenge to governance. It was an alternative power centre more powerful than the Prime Minister. This did not help the state of affairs. The policy shift did not help any large economic activity.
Thirdly, corruption in governance created an adverse environment for the investment climate. The 2G spectrum allocation and the Coal Block allocations adversely affected India’s image domestically and internationally. They hurt the investment climate. They added to the uncertainty of doing business in India where contracts could be cancelled and investment confiscated.
Fourthly, Retrospective taxation intended to create fresh liabilities shattered the confidence of the investors in the Indian economy.
Fifthly, the arrogance of the UPA government and the misuse of investigative institutions dead-locked the relationship between the Opposition and the government.
The result of all these factors has been that the economy has suffered. The argument that others in the world are also doing badly is untenable. Has the UPA taken any steps to convert India into a low cost manufacturing hub? The only inflation correcting mechanism that the UPA followed was to tinker with the interest rates. Did it ever look at expanding the supply side? UPA inherited an 8.5 percent growth rate in 2004. It leaves behind 4.5 percent growth rate and yet Mr. Chidambaram makes it appear that he is proud of UPA’s performance.