Under the watch of the economic dream team led by Manmohan Singh, the UPA government has done the unthinkable by killing the Indian miracle
By Ashok Malik
IN WARNING it could downgrade India to below investment grade and was moving its long-term outlook on the economy from stable to negative, Standard and Poor’s (S&P), the rating agency, has made an announcement that was being anticipated as far back as autumn 2011. Every nightmare prediction of that period — that the government would do nothing to control its profligacy, that the fiscal deficit would outshoot its 4.6 percent target for 2011-12, that ratings agencies would downgrade India after the Budget — has come true. To quote businessman Anand Mahindra, the economy finds itself in “the perfect storm”.
What has S&P just told the UPA government? It has said it doesn’t believe the fiscal deficit for 2012-13 will be limited to the promised 5.1 percent, not after the previous year’s figure jumped to 5.9 percent, 1.3 percent over the target. It has indicted the government for overspending and under-reforming. No wonder the GDP grew at 6.9 percent in 2011-12, a massive 2.1 percent lower than the estimate at the beginning of the year. Such huge shortfalls are not aberrations caused by unforeseen triggers — they represent a deeper problem and a government in denial.
An indication of just how delusional India’s economic management has been can be had from the Union government’s subsidy bill. It was Rs 40,000 crore in 2003, the year before the UPA came to office. In 2011, it climbed to Rs 1,60,000 crore. However, the Indian economy did not grow four times, or even three times, in this eight-year period. The government has been living beyond India’s means.
Rating agency S&P has indicted the government for over-spending and under-reforming
An economy is not always about numbers and statistics, growth rates and declining indices. Ultimately, it is about hope and optimism. To Manmohan Singh’s eternal embarrassment, his years as prime minister have seen a systematic talking down of the economy. His party is not instinctively reformist. His government has presided over a flight of capital whereby Indian companies are now investing more abroad than foreign companies are investing in India — a damning pointer to regulatory and policy bottlenecks at home.
At the level of the individual, the atavistic hunger for gold — a defensive investment, a hedge in times of uncertainty — is telling. The two biggest factors behind India’s record trade deficit are oil prices in West Asia — something New Delhi has little leverage over — and enormous, unprecedented imports of gold: a direct vote of no-confidence in the government and the current mode of economic management.
Finance Minister Pranab Mukherjee’s recent visit to the United States was revelatory. From adulation to creeping discontent to, finally, utter frustration and anger: the mood UPA finance ministers have encountered on global platforms over the past eight years has run the gamut. This time, Mukherjee got only hard questions and criticism — for an ill-timed retroactive tax and an unpredictable tax policy; for giving up on reform, even reform that does not require parliamentary concurrence; for refusing to curb spending and letting the deficit reach the levels of a crisis.
Every week they have been in power, the UPA and its economic leadership — whether in South Block or Yojana Bhawan — have spoken of fiscal consolidation and targeted public spending, of India’s always about-to-begin manufacturing story and promoting FDI, of infrastructure and labour law reform. Two jamborees in Davos — in 2006 and 2011 — were devoted to iterating the same messages and same commitments. People are wondering about the action. It remains absent.
At the end of the day, what does this tell us of Manmohan Singh’s legacy? His meaningful interventions at G-20 summits — where he is reputedly the only head of government to analyse a macro-economic situation without briefing notes — and even his record as finance minister in the five years following 1991 can only take him that far. His prime ministry has seen the India miracle implode. Historians may be less polite than S&P.
Ashok Malik is a Contributing editor with Tehelka.