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Rediff.com  » Business » Economic mess: Blame it on India's political consensus

Economic mess: Blame it on India's political consensus

June 05, 2012 12:39 IST

Let me make an honest confession. With due apologies to the managers of the UPA government, one must admit that it is doing a great job of demolishing the Indian economy from within.

This paradigm was brilliantly captured by a Tweet: Given the success of the UPA in dismantling our economy there is a distinct possibility that ISI could actively consider winding up its Indian operations shortly!

Consider this: Overall growth is plummeting. Rupee is tumbling by the day. Inflation continues to soar. The key Index of Industrial Production (IIP) is already into negative territory.

Agriculture, exports and infrastructure are spluttering stagnating. Crucially, cabinet ministers are facing serious charges of corruption adding to the overall dismal scenario.

Despite all this, the Prime Minister has been maintaining a Zen like silence. The last time he spoke was when he was administered the oath of office in 2009. Of course he spoke last week when Team Anna hurled serious corruption charges against him directly.

The message was clear -- I may be incompetent but do not question my integrity. But honestly who cares about his honesty?

Surely if you are known by the company you keep, the PM can not claim to be lily-white as he pretends. Recall his defense to the charges made by Team Anna was limited to his own integrity.

That privilege was not extended to his colleagues in the cabinet thereby implying the obvious. Put pithily he could well be a saint; but little does he realise that he is akin to a saint who heads Al Qaeda!

Governance the mother of all issues

The net result is that India suffers from an unprecedented policy paralysis. The framers of the Indian Constitution did not fathom a complete breakdown of law and order at the centre and hence did not provide the equivalent of Article 356 for the central government -- the imposition of President's Rule.

Frankly one is unable to figure out whether we have mis-governance (where the decisions of the Government are one of omission) or mal-governance (where the decisions of the government are fashioned by commissions -- pun intended).

Naturally, given the scenario where the decisions alternate between mis-governance and mal-governance the confidence within the Indian economy is evaporating faster than petrol on a hot tin plate.

To explain the same in numerical terms a bit of technical explanation becomes necessary. If savings in an economy can be equated to fuel in a car, incremental capital output ration (ICOR) can be equated to fuel consumption per KM travelled and growth rate likened to distance travelled.

Needless to emphasise, to travel more -- read higher growth -- either we must increase the fuel in the tank (savings) or lower the consumption. mileage.

In the Indian context we have a savings rate of 32 per cent and an ICOR of 4. That gives us a growth rate of 8 per cent. To go up to 10 per cent growth paradigm, we have two options -- increase savings to 40 per cent or lower ICOR to 3.2.

Obviously, lower the ICOR, higher the growth (ICOR is measured in an inverse scale -- lower the rate, the better). In the alternative, with a constant ICOR, increase savings to increase growth.

What is interesting to note here is that our savings had peaked to 36 per cent in 2007. That was in the pre-global economic crisis period.

Since then our savings rate dropped to approximately 32 per cent now. More importantly the growth rate of 5.3 per cent for the fourth quarter of FY 2011-12 indicates that the ICOR has dramatically gone up to 5.7 from 4 -- indicating enormous inefficiencies have crept into the economy.

Frankly, this double whammy -- of reducing the savings rate and simultaneously increase the ICOR is a herculean task achieved by relative ease by the UPA.

Yet the UPA government has the gall to go about telling us that the fundamentals of the Indian economy are intact implying that the domestic savings, consumption and investment are well and truly intact.

The unsaid portion is equally ominous -- "we from the government have done our best to increase taxes to ensure Indians do not consume more, ensured higher inflation to erode the savings of the Indians and fashioned a dismal investment climate to prevent Indians from investing!"

In short we have done everything possible to stymie the great Indian economy story. India growing at even 5.3 per cent is indeed a miracle.

Time for UPA to go

Consequent to the bankruptcies of ideas within the UPA government it is important not to expect anyone from within the UPA government to take a lead role in fixing the Indian economy. The re-cycling of old ideas of austerity is a case in point.

Put bluntly, the days of team Manmohan comprising of Pranab Mukherjee, P Chidambaram, Montek Singh, Kaushik Basu, Rangarajan are all over.

They are well beyond their sell by date. Naturally to expect the very deformers of the economy for the past few years to nurse it to health is an assault on our intelligence.

As a first step to fix the economy is that the UPA has to go -- lock, stock and barrel.

Let us not forget that there is an important yet immeasurable ingredient within the economy – confidence. This is a highly nebulous and extraordinarily dimension in an economy susceptible to the performance or lack of it from the government.

And one may well, as the current incumbent to the office of the PM does, enjoy the confidence of 272 members in the Lok Sabha. Surely that is out of political compulsions and fear of mid-term poll and a case of self preservation.

That in turn implies a PM commanding the confidence of the Lok Sabha has by no stretch of imagination has necessarily the confidence of the economy. Recent events demonstrate exactly the reverse. What we are singularly witnessing is a lack of confidence of the economy in the UPA government lead by an economist Prime Minister.

In short, if the UPA government resigns tomorrow, things may well possibly improve the day after. But will it? Who is the alternative? Or better still what is our alternative?

Simply put it is not the question of personality but of alternative policies that matter. And herein lies the rub.

But that solves half the problem.

Let me hasten to add – the UPA, its (non) performance or the Prime Minister is only half of the problem. The other half is the relative failure of the main opposition party – the BJP.

While the leaders of the opposition in both the houses of the Parliament have been eloquent, media savvy and pointed in attacking the government, the fact of the matter is that in terms of coming up with alternatives, the BJP has been an abysmal failure.

In fact, if some analysts are to be believed there is a great deal of understanding between the main opposition party and the Congress party to form what is called as the ruling elite, aided and abetted by sections of the Corporate India, media and of course our bureaucracy.

It is this tiny yet powerful cabal that ensured that there is consensus in everything beginning presidential elections to economic policies. Contrary to the popular belief (of course aided by acrimonious debates at prime time) that our polity is divided, confrontationist and adversarial, the fact remains that it is extremely consensual.

To this cabal it matters very little whether it is Dr Manmohan Singh or whether it is anyone from the Congress Party or BJP that matters as long as they do in the overall collective interest of this cabal. No wonder the BJP is loath to attack the Congress on corruption, black money and on tax havens.

What else would explain that the BJP has not come about with any -- repeat any -- alternative to tackle the extant economic crisis? If the UPA is ideologically bankrupt and hence unable to come up with anything refreshingly new, so is the BJP.

If the UPA is besieged with old tired (and not retired) leaders, so is BJP. If the UPA has its share of corrupt, the BJP is equally perceived to be corrupt.

In short, we simply do not have policy or operational alternatives from the main opposition party. And there is a complete consensus out there. It is this consensual politics that is the root of our moral malaise, policy paralysis and the extant economic crisis.

The sound and fury demonstrated by the BJP spokespersons in the media is pure hogwash and can impress only the naive. Scoring quick brownie points does not absolve the BJP of all constitutional and moral obligations. Surely India deserves a better Government as much as a better opposition which comes up with bigger, creative and workable alternatives.

Silently but brilliantly this politics of consensus has been fashioned by vested interests. It is this ruling cabal that is now rooting for an alliance between BJP and Congress to form the next Government. That would be one step away from merging both the parties.

Did I hear someone talk of democracy as an elaborate exercise in alternatives?

MR Venkatesh is a Chennai-based chartered accountant. The views expressed here are that of the author's.

MR Venkatesh in Chennai