Fiscal mismanagement: What's Manmohan's excuse?

By Sanjiv Shankaran

Prime Minister Manmohan Singh speaks during the meeting of the 57th National Development Council (NDC) in New Delhi …

What's his excuse? Manmohan Singh is India's third longest serving prime minister after Jawaharlal Nehru and Indira Gandhi. Unlike them, Singh, an economist by training, did not inherit a wobbly economy. In 2004, Singh assumed office with the economy growing at 8.1 per cent, the fastest in 14 years. In 2012/13, on the eve of his government's last full Budget before general elections, the economy is forecast to grow at five per cent, the slowest in a decade.

Only four times since Singh presented his landmark Budget as finance minister in June 1991 has the economy grown slower than five per cent a year. Now, he sometimes contextualises policy decisions by using 1991 as a reference point. Back then, Reserve Bank of India (RBI) had to pledge the country's gold abroad to deal with a crisis.

"The last time we faced this problem was in 1991," Singh said last September, during an address to the nation, justifying a diesel price increase. "We are not in that situation today, but we must act before people lose confidence in our economy," he added.

But the dramatic loss of momentum is hard to ignore. In 2010/11, the economy grew 9.3 per cent - the fourth fastest growth rate in the last 60 years - according to reworked government data released in January 2013. Analysts' gloom suddenly seemed misplaced, but not for long. Later in January, the central bank announced that India could, at best, grow seven per cent without triggering another debilitating round of inflation.

The anxiety increasingly articulated in key economic ministries keeps getting framed in the same chilling context: every year, at least 10 million young Indians enter the workforce, probably the largest in the world. With so many hunting for jobs, society can ill afford an economy running out of steam.

The disquiet, not expressed publicly, centres on how long it will be before things look up again. It could be a pretty long haul. D.K. Srivastava, chief of policy at Ernst & Young and former Finance Commission member, says: "It will take six to seven years to restore growth." And what kind of growth? "Potential growth of 8.5 per cent," he says.

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Singapore-based Manoj Vohra, Director, Asia Pacific Economist Intelligence Unit (EIU), says: "The Budget is largely an exercise of putting together numbers to give an overall sense of direction."

Over nine years of the United Progressive Alliance (UPA), that direction has largely been South, partly because of mismanagement and partly because of the global economic slowdown.

According to the International Monetary Fund (IMF), India's problems are largely of its own making. The slowdown is "mainly led by falling infrastructure and corporate investment," the Fund concluded in its assessment of the economy, published this month.

IMF's conclusion echoes complaints from Indian industry about the glacial pace of decision-making. In December 2012, Ratan Tata, the outgoing chairman of Tata Group told the Financial Times that problems in India made other countries seem more attractive destinations. Tata's views reflect the incongruity of India's economic policy. The following month, Finance Minister P. Chidambaram stepped away from his Budget-making duties to travel abroad, hardselling India as an investment destination.

Continued on next page...


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