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Mismanagement by team Manmohan stalls economy

It is the government alone who is responsible for the slide.

MADHAV NALAPAT  New Delhi | 29th Jun 2013

Illustration by Sandeep Adhwaryu

ow that the Indian rupee has crossed the 60-mark to the dollar and thereby become a "senior citizen", it is necessary to focus on just when and why the downslide in performance has taken place. From 2007 onwards, it has been clear that the Indian economy has been retreating towards the "Hindu rate of growth" of below 3% that was the hallmark of Jawaharlal Nehru and Indira Gandhi. By the time national elections fall due in mid-2014, an economy that was expected to break into the double digit league of China has instead become a byword for economic mismanagement. Although Team Manmohan blames the global economy, the United States, the weather and any factor other than themselves for the sharp deceleration in growth, it is they and they alone who are responsible for the slide. Not just by what they have done, but even more by what they failed to do. During UPA-I, there were factors which ensured that the economy continued to hum. These were the strong showing of the IT, telecom and construction sectors, and the opening up of the infrastructure sector during 2002-06. Roads, ports, airports, telecom and energy were among the fields thrown open to the private sector, both foreign and domestic. While the NDA had during 1998-2004 made preliminary moves in this direction, especially in the energy sector, it was the UPA which carried the policy forward, in the process attracting substantial interest and participation from major players, each of whom believed that double digit growth was around the corner. Today, when the GDP in China is nearly five times that of India, it is hard to believe that just a few years ago, the two economies were being placed in the same bracket.

The first major misstep in the field of economic policy took place during 2006-09, when the UPA began selling off natural resources to private parties. Petro products, coal and iron ore were earmarked for such a sell-off, and those in the industry soon began to suspect that decisions were being taken on the basis of political rather than economic considerations. Huge volumes of natural resources began to get siphoned off without being reflected in paper records, while many of those to whom these resources were gifted had zero prior knowledge of the fields relevant to utilising them properly. Coal was assumed to be getting parcelled out to those setting up power plants. In reality, very few power plants came up as a result of the allocations made. Instead, those given the bonanza of natural riches at a throwaway price began trading, for example in coal, selling the mines to others or pricing them (and other resources secured from the state) in a monopolistic fashion instead of ensuring that prices for the end-user reflected the low values at which such assets were secured. Huge profits were made by those allotted natural resources, with little of this windfall being shared by the ultimate consumer, who continued to groan under higher and higher prices.

The manner in which the natural wealth of the nation has been handed over to a few well-connected entities has been an important factor hurting the economy as well as the faith that Team Manmohan ran a transparent and fair system. The effects of such allocations on the economy were not obvious in terms of economic performance till around 2009, largely because outsourcing by the IT sector was still buoyant and the service sector had yet to exhibit the ill-effects of the rain of taxation that it began getting subjected to during UPA-I. Housing and construction, followed by other lines of manufacture, however began showing the impact of the dear money policy of the RBI.

If iron ore, coal and other natural resources get arbitrarily allocated to players unable to make the best use of them in the matter of energizing the economy, can telecom be far behind? The sector was among the stars of UPA-I, attracting substantial investment. However, once again the indecipherable (by economic logic) way in which spectrum got allocated created heartburn among those operators who had lost out to the better connected, and it is reported that some of these ensured that the RTI was used in a manner designed to expose the nature of allocations. During both 1992 and 2000, there had been — briefly — a similar outcry about the stock markets, with first Harshad Mehta and later Chetan Parekh as the lead players, but in both cases, the quick setting up of a JPC ensured that public interest died down and the committees produced the usual kind of report, one with no operational significance. Unfortunately for his government, the system of diarchy followed in India since 2004 meant that Manmohan Singh lacked the ability of P.V. Narasimha Rao and Atal Bihari Vajpayee to stanch the bleeding of confidence through political opposition and public exposure. While the drip-drip-drip of RTI-fed revelations on telecom were going on, the PM made it clear that he would in effect hand over policy to the courts, in a context where many cases take decades to get finally resolved. From that time on — the start of 2010 — the perception of a "leadership crisis" began from that period, and intensified the gloom in business circles.

It did not help that the Ministry of Finance behaved as though the British were still in charge, by instituting a tax regime that placed emphasis on higher and more imposts, searches and penalties. New taxes on growth leaders such as services discouraged them from investing in growth. The Central government became one of the least business-friendly setups in Asia, at least to the politically unconnected, in contrast to states such as Gujarat or Tamil Nadu.

From about 2007 onwards, the earlier system of "share and share alike, which had for long been prevalent among business groups, appears to have broken down, with a few operators grabbing as much as they could grasp. Small wonder that their rivals soon discovered in the RTI a mechanism through which they could get just enough information to drag a decision to the courts, and thereby delay it indefinitely. Now that the courts were, in effect, dictating policy, it became clear to business that there was no longer a functioning government in the national capital, in a system where almost all critical decisions were still taken at that level.

A government delivers, and this is what has been absent for six years in India. Because of a hyper-active CBI, roused out of its torpor by any talk-show host on a television channel, combined with the ease and speed with which cases are getting filed in India and people are being sent to jail, it has become a health hazard for a bureaucrat to take any decision. So arrest-prone have the police and the magistracy become that the mighty have now become victims of the very culture they unleashed. A magistrate recently filed FIRs against Home Minister Sushilkumar Shinde and Finance Minister P. Chidambaram for the "crime" of "promising Telangana without granting it". Our laws are such that anybody can be sent to jail for any reason, so vast are the powers gifted by the departing British colonial power to its successors, and these days, they are. Hardly a surprise then that businesspersons are relocating abroad in droves, as is their surplus cash. The "Arrest first and justify later Raj" has resulted in inaction becoming the preferred option, for both business as well as the bureaucracy. A change will come only when the Prime Minister takes decisions and enforces them.

 
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