Devil's Radio

Devil’s Radio


Gossip, they say, is the Devil’s radio--so what does that make government propaganda? Going into the last few days before the UPA government submits its last full budget on February 29th, this leap year, the overall feeling is one of economic slowdown and drift. This budget, of course, will be dominated by considerations of the general elections coming up, perhaps later in 2008, or, on schedule, in 2009. Meanwhile, industrial growth has slowed, high-interest credit off-take is down, sale of white goods, automobiles, housing, has slackened, business returns have moderated, foreign investment is pausing and the stock market is listless.

But you wouldn’t think so, to listen to the official interpretation of the situation. Fiscal 2008, it is true, is likely to close with at least 8.5 per cent growth of GDP despite progressively slowing quarterly results, and the prime minister himself assures us we can look forward to another year of 9 per cent growth in 2009. But, while this may be true enough and is commendable in itself, is it sufficient, given the relatively modest overall size of our economy, to tackle the burdens it is forced to carry year after year?

The answer is probably no, but you can’t get this government, probably any Indian government in power, with its democratic and populist pressures, to admit to it. There is a good explanation for this outlined by psychologist Annie Jia: “What happens when your behaviour and your beliefs don’t match up,” she asks, and goes on to say, “you can’t change what actually happens to clear up the cognitive dissonance, but memories and opinions are infinitely malleable”. So our government, run by learned denizens who are all too human, may well be busy spinning their memories and opinions into the economic data available to them.

The pity however lies in the fact that the more the economy slows owing to avoidable government policies that curb growth to contain inflation; the more onerous do the burden of subsidies, sops and badly executed government relief programmes become. It must be hellish difficult for the finance minister to find the funds for all the populist programmes being demanded by the constituents of the UPA at this time. Ironically, this cannot be lost on the phalanx of eminent economists currently at the helm including the prime minister, the finance minister, the reserve bank governor and the deputy chairman of the planning commission. But, singly and collectively, they seem tired and dispirited when it comes to reform or fiscal probity. Perhaps they are worn down, in this fourth year of their five year term, by the effort of running a coalition with Left support. The finance minister might yet pull a rabbit or two out of his budgetary hat, but it will be hard to be magical given hardly any room to manoeuvre.

Look at the facts: The Economist of February 16, 2008, quotes a recent International Monetary Fund Report (IMF) to contrast the economic health of the two Asian giants China and India, though one is infinitely better placed than the other. China “has the best fiscal position of any big country”, giving her plenty of room “to cushion the economy if demand suddenly falls”, whilst India, “has one of the worst fiscal positions in the world”. China too has a vulnerability, being highly export led; but she is in robust financial health to defend her economy, whilst India, despite being domestic consumption based, is not.
China’s public debt stands at 17 per cent of GDP while India’s stands at 75 per cent. This is comparable to the Organisation for Economic Co-operation and Development (OECD) average for public debt at 77 per cent, if that is some consolation. China has a budget deficit of just 1 per cent of a much bigger economy than ours, which could morph into a surplus of 3 per cent if you add back the profits of their state owned firms. India, conversely, has an actual budget deficit of 8 per cent, though the government says it is a mere 3.3 per cent projected up to March 31st, 2008, down from 6.5 per cent in 2001-02. Our union government, however, does not add the state government deficits and various off-budget items such as the oil bonds to help offset PSU petroleum company losses. Nor does it add on the losses of decrepit state electricity boards. These are intractable haemorrhages that are getting more and more difficult to carry but happen to be political hot potatoes.

Still, you can’t fault the IMF for telling it like it is, and inevitably, suggesting various fiscal remedies that they know will fall on politically deaf ears. However, it does set up a certain Caveat Emptor (Buyer Beware) quality to the India Growth Story underpinned by the positive of our robust democracy. Conversely, China may be doing very well economically but politically it is opaque and authoritarian and that is potentially unstable. The world can therefore take six of India and half a dozen of China and they actually tend to!

But because it is politically hazardous to tackle many of the long standing issues that burden and drain the Indian economy; it is all the more important for the government to do everything in its power to stimulate growth everywhere they can. The odd thing is, knowing what they know, they still don’t do this! But if we could grow faster, strongly aided and abetted by the government, we too could develop an economic cushion, eventually, of the kind that China enjoys today. This, particularly, if we hold the line for a coming decade of high single digit or even double digit growth.

Removing infrastructure bottlenecks will prove crucial, as will sustained growth of agriculture and related value addition in the hinterland. We must allow more competition and let in more foreign investment and technology. Of course, a classical economist’s approach would have us do away with subsidies and sops but this would not be fair in a country like ours. Nor can we stamp out the very real threats posed by breakaway movements and internal insurgency if we promote an oligarchic model of growth. But, having said this, we do need to become more efficient in our governance. Implementation, as always, has been the Indian Achilles' Heel.

(1,050 words)

By Gautam Mukherjee
Thursday 21st February 2008

Also published in The Pioneer www.dailypioneer.com as "Pinch of mirchi on devil's radio" on Wednesday 27th February 2008 in the Leader Edit slot