Blasé Capital THE BIG LONG

Instead of the ‘Big Short,’ India needs to think in terms of the ‘Big Long.’ In other words, instead of opting for big things for the short term, the country must choose big things for the longer term. This implies that the forthcoming Union Budget needs to be proactive, rather than merely reactive, and pronounce a long-term vision and mission, rather than go for myopic announcements that look grand, but are rapidly changed within a year by the next Budget. This is the insight provided by Raghuram Rajan, the former central banker, in a recent interview. He feels that India needs to get out of its comfortable shell, which is based on the current high growth rates, being the fastest-growing major economy, low inflation, and on the verge of becoming the third-largest economy in the world, and step into the world with its own independent plan and agenda.

For example, the country must link the annual Budgets with long-term plans. This has been a problem with the annual exercise for decades. “I think it (forthcoming Budget) should be integrated with a longer-term vision. How do we become more resilient, more independent as an economy, but also fast growing, so that everybody else wants to be friends with India, that requires a fair amount of work, and I am hopeful that Finance Minister Nirmala Sitharaman’s next Budget will take us there,” he said. He added that although this regime has recently implemented reforms, ‘it is time to focus more on what it will take to add, maybe, a couple of percentage points to India’s economic growth.’ In the past, and present, the Budgets are seen as annual affairs, and the focus needs to change each year. The FMs feel that they need to present a new picture every 12 months.

According to Rajan, the global policy uncertainties created by the two current superpowers provide an opportunity for India to reinsert itself into the existing and future supply chains. At present, despite the attempts to become a manufacturing hub across sectors, India is not a serious logistics player because of its distance from most of the major economies, except China. Sadly, it has a love-hate relationship with China, and the trade surplus is in favour of the Red Dragon. The Elephant has the weight and might, but ambles along. If this Budget is visionary, it can provide a blueprint on how the country can diversify across the global supply chains that it has a foot in, and grow over the next 10 years to counter China, and become an alternate, safer, stable, and democratic supplier to the world. While this may restrict market control, it will provide volumes for future growth.

Hence, we need to move on from the annual fixations, and stop the Budgets from becoming instruments of immediate rectification and gratification, apart from being political tools to win state and central elections. Budgets are policy statements, and denote continuity, and stability, rather than continuous changes. Past regimes made these mistakes, and the current ones perpetuate them. The grand idea to clean up India finds rare and occasional mentions these days. So does the grander ‘Make-in-India’ scheme, or the productivity-linked one. Each year, the FMs provide new visions to keep the citizens excited. Each year, they have a set of new umbrella policies that will either propel manufacturing in one year, boost agriculture incomes the next, or enable innovations in the third. There are no constant goals to achieve over 10-15-20 years, as China does. It is a reality of a democracy, where regimes last for five years. But at least a five-year mission is possible, with each Budget adding to the previous one.

Thus, reforms are crucial. According to Rajan, the big-ticket reforms happened through the 1990s, and into the early 2000s. Then, they stalled and sputtered. Social inclusiveness ruled for a decade during the Congress-led regimes, which was replaced by incremental reforms, except in the recent past, which were driven by crises and disruptions, rather than deliberateness and choices. “I think it is time to start that (1990s-early 2000s) process again,” Rajan said in the interview. This implies that Sitharaman needs to think out of the box, and choose reforms that may be difficult, politically unpalatable, and easy to critique, but essential. With the national elections still four years away, the next two years can be used to push through major decisions, especially given the majority in the two houses of Parliament. If not now, then when? The Government must get out of the electoral mindset of winning state elections held each year and, for a change, look at what the country needs for the next 5-10 years.

Obviously, this does not imply that India follows the China growth model, or that of the Asian Tigers. It does not need to grow at a blistering pace of 8-9 per cent, or 10 per cent each year. Frenetic growth comes with its own set of long-term and long-lasting problems, as China knows now, and was forced to slow down the pace. What India needs is high, continuous, and stable growth of 6-8 per cent, without any dips, and lower plateaus. According to Rajan, the growth should not be “temporary, and not sustainable.”