ECONOMICS IS NOW HOSTAGE TO POLITICS

Should good economics always be sacrificed at the altar of bad
politics? Well, in this debate which is as old as the Aravali Hills,
populism appears to be trumping simple economics again and again.
India remains a capital starved, infrastructure, energy and power
deficit nation which does not have the wherewithal to generate enough
capital to pump prime its myriad requirements. On the verge of
becoming a 2 trillion dollar economy, its structural inadequacies lie
exposed. Not that the door to opportunity does not lie ajar. It is
ready and waiting, but it requires gumption, sagacity and in many ways
a bold outlook.

The same Manmohan Singh who heads the government at the Centre took a
series of bold, innovative and even dramatic decisions 21 years ago as
finance minister. The question is whether the majority of those
pragmatic measures were all his own or then Prime Minister P V
Narasimha Rao’s? The reality is that Manmohan Singh, a respected
economist, was the instrumentality of change and in many ways the
poster boy of a new India. Perhaps that is why the expectations from
him as PM rose. But hemmed in by the Left and DMK in his first term
and by allies like Mamta Benerjee in his second, he has failed to keep
the promises.

Devaluing the rupee, decontrolling gold, freeing up the stock markets,
dismantling import controls, slashing customs duties, virtually
abolishing licensing controls on private investment, cutting tax rates
and breaking public sector monopolies – a veritable catalogue of
initiatives changed the course of this country. From a nation trapped
in its socialist moorings, Narasimha Rao understanding the need of the
hour backed the economist FM to the hilt.

Interestingly, a vast swathe of extremely capable bureaucrats and
policy mavens assisted the new FM in all his endeavours. Montek Singh
Ahluwalia (still here as part of the A Team), Shankar Acharya, K P
Geetakrishnan, M R Sivaram, N K Singh (now a RS MP), Y V Reddy (who
became RBI Governor) and even Rahul Khullar (now Commerce Secretary)
who was private secretary to Dr Manmohan Singh then. N K Singh
recently told me that, “Reforms were as much prompted by an impending
economic crisis than intellectual persuasion; more by the former than
latter.” Interestingly two other gentleman played a handsome part as
dramatis personae in those tumultuous times – P Chidambaram who was
commerce minister and his able secretary Montek Singh Ahluwalia who
were instrumental in ushering the spanking new trade liberalization
regime. Montek Singh then moved to finance and assisted the FM.

But over the last seven years, several opportunities have been
frittered away by the present dispensation to undertake path breaking
reforms which could widen and deepen the economy so that it could
neutralize the capital deficit and move to the next level of
competence. N K Singh also made the point that once again the
floundering Indian economy requires a push. Yes, we have over $325
billion in forex reserves, but a burgeoning fiscal deficit, the ever
growing size of the economy and a fattening import bill are reasons to
take notice of. Most policy makers will privately tell you that deep
corrections need to be made for the writing is on is on the wall. For
if they are ignored, then it is at our own peril. A party with 19 MPs
– Trinamool – cannot hold the nation hostage. For the first time in
nearly 10 years, the railway minister Dinesh Trivedi has bitten the
bullet and decided to hike fares. Why, because it is the need of the
hour, one cannot subsidise passenger fares with freight hikes
endlessly. In the process making railway freight uncompetitive. At one
level, the end user has to pay for services and the fares have been
increased modestly by an Indian Railway which is more or less bust,
despite Laloo Prasad Yadav’s falsehoods.

In Manmohan’s first term, for starters the 2008 global meltdown set
India back, but Pranab Mukherjee with a series of calibrated and
considered responses managed to ride out of that crisis ably and
soundly. Now once again India stands on the cusp of change. The choice
is ours – do we want to allow ourselves to be held to ransom by Mamta
Banerjee or do we want to get on with business and life in general? It
is nice to see railway minister Dinesh Trivedi refusing to dodge the
bullet on the issue of a rollback in passenger fares. He reckons his
country comes first and the party that he represents second. The time
is here and now for Pranab Babu. He has shown astute political insight
to straddle both worlds – a world where Mrs Indira Gandhi’s socialism
prevailed and a world where market forces determine everything.
Insulation cannot be proferred as a reason to run the state. Commerce
is the modern axis, everything revolves around it. Deep rooted beliefs
and dogmas have to be consigned to the rubbish heap of history. The
Hindu rate of growth is now an aberration, not the norm. India has to
move on.

Ironically, the moves to liberalise the economy and have it plug and
play with a globalised world was done by what was in effect a minority
government headed by Narasimha Rao. In 1991-92, GDP growth hit skid
row at an abysmal 0.5 per cent. One can argue that in an era of
coalition politics, a policy of gradualism is required. Maybe the time
has come to cut the umbilical cord and once again embark on a path of
least resistance. Highly unlikely given the compulsions of coalition
politics and the state of play in parliament. Yet, hope floats.

-MAIL TODAY,15TH MARCH,2012