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India@60: Are we on the right track?

By A V Rajwade
October 13, 2007 19:29 IST
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The fun and games, reception and speeches celebrating Incredible India@60 in New York have ended. The Sensex recently touched an all-time high, unaffected by political uncertainties. GDP will grow in the current year (if not forever) at 9 per cent plus.

The rupee is at a decade-high in nominal terms, and perhaps higher in real effective terms than at any time since 1993. Foreign investors seem more anxious than ever to invest in the country. The monetary tightening over the last 12 months has succeeded spectacularly and has halved the inflation rate. Vishwanathan Anand is the world chess champion; the Indian team has won the inaugural T20 World Cup; and even the hockey team is Asian champion.

In such a time of general euphoria, it would sound churlish to strike a discordant note. But, paraphrasing what Robert Samuel wrote recently about the US economy, "by taking (growth) for granted, people perversely subvert (growth). The more we - business managers, investors, consumers - think that economic growth is guaranteed and that risk and uncertainty are receding, the more we act in ways that raise risk, magnify uncertainty and threaten economic growth … the fact that the (Indian) economy grew in spite of so many daunting obstacles - (very high real interest rates; an uncompetitive exchange rate; a rapidly growing deficit on the current account; a crumbling infrastructure; az soft, inefficient state; a political class with few convictions, only too willing to change policies in response to a demonstration; a country ranking pretty low in Transparency International's league table, etc.) - may have created a false sense of confidence that it could overcome almost anything. Sophisticated investors and (media commentators) alike seem to have fallen under the spell of this logic" (Newsweek, September 24).

Perhaps the weakest and most worrying part is the political economy and governance:

The socialistic, dirigiste mindset of our political masters, despite the failure of the "socialistic pattern" to deliver any significant improvement in per capita incomes for 40 years. Netas and babus want to control everything from independent regulators to IIMs. As Alan Greenspan comments in his memoirs, India's economy "remains heavily bureaucratic"; that the recent growth rate is from "a very low base"; and that "India's per capita GDP four decades ago was equal to that of China, but is now less than half of China's and still losing ground".

Is there also a vested interest in perpetuating poverty, in disclaiming any improvements, in giving half-rotten fish to the poor instead of teaching them how to fish? We obviously do not believe Deng Xio Ping that "to be rich is glorious", that "poverty is not socialism"! Will the money spent on umpteen, overlapping, administratively cumbersome programmes not lead to better outcomes through direct cash transfers, and investments in rural infrastructure? But there are no votes in it or at least that is how the political class perceives it. Interestingly, just as most people believe that the political class is corrupt, the latter return the compliment by bribing people through quotas, subsidies, make work programmes, "free" water, power and TV sets.

Under the NREGS, only 6 per cent of the households registered got 100 days of work; in Orissa, out of the Rs 733 crore spent, an estimated Rs 500 crore was pocketed by officials and middlemen (a survey by the Centre for Environment and Food Security, reported in Mint, October 5). The record elsewhere is not much better, but the scheme is to be extended to 660 districts. In general, no programme once started ever ends - howsoever ineffective, in achieving objectives, it may be. There are too many vested interests in its perpetuation.

The licence-permit Raj has been replaced by the quota subsidy Raj. Our political masters clearly have learnt a lot from the British - and their divide and rule policies: the caste- and community-based quotas (not economic criteria) and subsidies, including the recent Rs 11,000 crore package for the followers of Islam, are clearly aimed at perpetuating the different identities, instead of merging them in a melting pot. No wonder we see the bizarre spectacle of the Gujjars advertising (boasting?) their superstitions, polyandry, child marriage, etc. to "prove" their backwardness, and qualifications for reservations.

The flip-flops on organised retail would be laughable in almost any other country. Nobody seriously denies that organised retail would give better prices to both the producer and the consumer, improve storage and transportation infrastructure, reduce waste of agricultural produce, improve tax compliance, etc. But our leftists are highly concerned about the livelihoods of bourgeois middlemen (but not about the potential of new jobs in organised industry), who add little value but only costs. The threat of an agitation or disturbance is enough for most chief ministers to close organised retailing - as the UP chief minister recently did. Arguably, since the retail shops had broken no laws, it was the duty of the government to give them protection rather than succumbing to vandalism. And, Delhi's deafening silence suggests that our political masters have few policy convictions, and no desire (or ability?) to propagate the "maximum good of the maximum number".

Judicial backlogs keep mounting even as special courts take 14 years to give judgements, X months to deliver them, and Y months to give copies to the accused. The CBI is still filing charge sheets in the securities scam cases. We are now going to have the Maintenance and Welfare of Parents and Senior Citizens Bill, 2007 (I have assured my children that they need not be worried; I would surely die before any case I may file comes up for hearing.) No wonder people are losing faith in the law and order machinery and are increasingly punishing the alleged culprits themselves. Vigilantism is manifesting a worrying rise.

The growing spread of extreme left violence, of religious terrorism and the refusal to face the issues squarely, let alone tackle them effectively.

It is also ironic that our central bank is busy encouraging the outflow of capital, even as the Planning Commission's best estimates suggest a huge shortfall in resources for badly needed investment in infrastructure.

On balance, are we getting carried away by the present numbers, blithely ignoring basic weaknesses and problems, hoping that they will go away? Chances are they may not. Think also of the positive side: if we can overcome some of these, where will the growth rate go?

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