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The 'bailout' India really needs

By Kanika Katta
October 31, 2008 10:35 IST
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It is difficult to escape the notion that governments around the world are running around like US Ambassador Ronen Sen's notorious "headless chickens" as stock markets and banking systems collapse.

India is no exception. In swift actions this past month, the market and banking regulators reversed, respectively, the strictures on foreign institutional investors and the high-cost tight money regime that were imposed just last year as the markets and inflation surged.

These actions may or may not do the trick. If high interest rates money slowed the economy in the first half of the fiscal (but scarcely cooled inflation) much will depend on global business sentiments in the second half. All the same, this rash of policy announcements and emergency Raisina Hill meets suggest that the government may be getting a little blind-sided.

Providing the conditions for banks to offer cheaper money and shoring up the stock markets are, at best, short-term measures to meet an exigency. But what of the long term? Could the current crisis provide the political leadership at the Centre and states a useful alibi to push through some genuine reform?

Not the kind focused on India Inc's promoters but systemic change that will accelerate growth and truly impact the aam aadmi, who are ostensibly the concern of all political parties.

The urgency for sustainable reform has spiked not only in light of an impending slowdown but because evidence has been gathering over the past year that India's business environment and quality of life are deteriorating.

Let's start with corruption. India is hardly a beacon of systemic integrity. Nevertheless the country had been inching its way to improvement after some local administrations began to understand why it mattered. This year, however, India has slipped to 85 in Transparency International's Corruption Perceptions Index from 72 last year (the sample size has changed from 179 countries to 180 countries in the same frame).

India is now on a par with Albania, which, incidentally, has hugely improved its ranking from 105 last year.

In the World Bank's annual "Doing Business" survey, India has slipped two places from 120 to 122 out of 181 economies. Apart from the parameter "Registering a property", where the country's ranking rose nine points, India slipped badly on others measures such as "starting a business" (-7), "protecting investor interests" (-5) and "trading across borders" (-9).

For a country that prides itself on - and strenuously talks up - its IT prowess, there is little pride to be derived from the fact that India ranks 48 in a ranking of 66 countries on the Global IT Competitiveness Index. Here, too, India has slipped two places from last year.

Significantly, one of the parameters that pulled India down is the availability of qualified manpower - a pointer perhaps to where our HRD ministry should be turning its attention instead of OBC quotas.

Most worrying of all is India's track record on hunger. The Hunger Index, brought out by Washington-based Food Policy Research, ranks India at 66 out of 88 countries. The intra-state study described the situation as "alarming" in 12 out of 18 states - and these included the more prosperous states of Gujarat, Maharashtra, Tamil Nadu and Karnataka. Several states were ranked the same as countries in sub-Saharan Africa - something that our Human Development Indicators repeatedly suggest.

Overall, the picture is disturbing. India is not only a challenging place to do business, it lacks a sufficiently educated population and has too many hungry and under-nourished people to ultimately sustain the economic growth that will pull them out of backwardness (so much for the "demographic dividend"!).

It would make as much sense for political leaderships everywhere in India to start focusing on deeper, practical ways of improving the business environment and bolstering social infrastructure as it is to ease foreign borrowing norms and liquidity for Indian corporations. In states like Gujarat, Himachal and West Bengal, for example, the change agenda is still driven by individual personalities instead of being institutionalised.

Indians and Indian politicians are wont to dismiss comment from foreign sources (like the institutions that produce these indices) as biased or irrational. They need not, however, depend on them for evidence.

They only have to look at the sudden growing popularity of the ultra-destructive politics of the Raj Thackerays, Mamata Banerjee, the Naxalites, the Bajrang Dal and Islamic terrorism to understand that the aam aadmi are reaching a point of desperation.

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Kanika Katta
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