India Not Shining
It seems that India is no longer “shining”. In a way, it stopped shining in 2004, when the Indian electorate did not approve of the then NDA government’s “Shining India” campaign. The Congress under the leadership of Sonia Gandhi convinced more Indians than any other party that things were bad, with the fruits of development not percolating down. Though she appointed Manmohan Singh Prime Minister, arguably “the father of Indian reforms” for his role as India’s Finance Minister in early 1990s, Sonia, over the last eight years, has ensured that “distributive” component of the Indian economy dominated the “growth” component. That is why we see more and more subsidies. And then there is the flagship programme of Rural Employment Guarantee Programme, “the biggest achievement” of Sonia-led National Advisory Council, which, now it seems, has resulted in such an unintended situation that there are not enough farm- workers during the harvesting seasons. That is why Agriculture Minister Sharad Pawar has reportedly talked to his cabinet colleagues to suspend the programme for two months every year. It now seems that it is again because of Pawar’s reservations, another Sonia-proposed legislation on “Food Security” has been withheld, temporarily though.
Though it will be an exaggeration to say that Indian economy is in great distress, the fact is that it looks disappointing. The rupee has lost more than 15 per cent of its value this year, making it the worst performer among major Asian currencies. According to economist Pravakar Sahoo of Institute of Economic Growth, depreciation of rupee means that for a net-importing country like India, it increases the price of inputs, which in turn affects the manufacturing sector. The increased cost of inputs such as petroleum products, steel and rubber adds to the cost of production. In some industries such as automobiles, electronics and computer hardware, the increased costs will be passed onto consumers, contributing to further price increases. More importantly, the rising costs of production reduce profit margins and overall investment activity.
Sahoo argues that the present scenario does not bode well for India’s external sector and fiscal deficits. Given the price increases on imports, and the extremely limited benefits this will bring to exports, the trade deficit is likely to go up. In addition, the drop in capital inflows is likely to increase the current account deficit. The prospect of a higher current account deficit, and higher budget deficit due to increases in subsidies and slowing growth, will make investors in general—and foreign investors in particular—more skeptical about the Indian economy. Indeed, the pink papers have been regularly reporting how the foreign investors in India are withdrawing their money. As far as Asia is concerned, more and more FDI is now going to China, Thailand, Singapore, Vietnam and Indonesia. There are already whispers in policy circles and among academics about the difficulty of achieving the fiscal deficit target of 4.6 per cent of India’s GDP, and that the target for the current fiscal year is likely to be more than 5.5 per cent.
All this, in turn, is accounting for the growing inflation, which is already running at 9-10 per cent. The official mid-year economic review has said that the economy is expected to grow by about 7.5 per cent this financial year, sharply lower than the original estimate of 9 per cent. However, the most recent figures show economic growth has dipped below 7 per cent. So much so that many are speculating whether India could return to the “Hindu rate of growth”—a derogatory expression used to describe the country’s pedestrian growth rates (around 3.5 per cent) before the early 1990s reforms.
I am not an economist, but my common sense says that you will distribute when you have something to distribute. For sustaining subsidies and populist vote-catching programmes like Rural Employment Generation Scheme and Food Security Measure, you really require substantial growth of the economy. But Indian politicians, whether they belong to the Right, Left or the Centre, all weigh politics above economics, most recently evident on the opposition to the FDI in retail sector. They refuse to learn that that FDI helps both the producers (farmers or workers) and minimises the role of the middle-men (in our case the traders) in escalating the costs of the products and services. Obviously, the investors will make profits, but then they will facilitate the generation of assets and wealth in the country. But our politicians, including those in the BJP, are all in the outdated socialist mould (after all, the BJP believes in “Gandhian Socialism”). For them, poverty is more important as it generates votes.
It is against this background that I would like to reproduce a “lesson” that is being passed on from person to person in the ‘social media” circuits. It goes like this: An economics professor at a local college made a statement that he had never failed a single student earlier, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on Obama’s plan”. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars—something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy.
When the third test rolled around, the average was an F.
As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
Could not be any simpler than that.
These are possibly the five best sentences you’ll ever read and all applicable to this experiment:
- You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.
- What one person receives without working for, another person must work for without receiving.
- The government cannot give to anybody anything that the government does not first take from somebody else.
- You cannot multiply wealth by dividing it!
- When half of the people get the idea that they do not have to work because the other half is going to take care of them, and
when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.
I think the above “lesson” will not make any sense for the communists, jholawallahs and the NGOs. And that is understandable. But it should be appreciated by Sonia Gandhi and, more importantly, the BJP leaders. They should think ahead, not look back, if India is to emerge as a powerful and prosperous nation in this century. They must bring the economic reforms, now derailed, back on track.
By Prakash Nanda