For students anxiously searching for a subject for a PhD thesis, there is one I would like to suggest: Why does India produce the best economists and yet make such a hash of its economyIJ
The question came to mind in the aftermath of Chief Economic Adviser Raghuram Rajan’s astonishing remark that the Rupee was not in a shambles and that the Government had enough instruments in hand to retrieve the situation. This same argument was repeated by the Finance Minister the very next day.
Now, Rajan is an economist with an awesome international reputation and should, ideally, know what he is talking about. Yet, and maybe because we are all collectively ignorant, why isn’t India reassured that the steep slide in the international value of the Indian Rupee is a minor hiccup that a glass of water will set rightIJ Why do Rajan’s words of comfort sound eerily like a suggestion that the Government allowed the wanton ecological degradation of hill States like Uttarakhand because it knew that the country had an enviable record of disaster managementIJ
Arguably, Rajan shouldn’t have been coerced by his employers into making the statement. Finance Minister P Chidambaram, who spent a fortnight or so overseas trying to talk up the Indian economy, should have been the only one to answer questions about the bottom falling off the Rupee, the choppiness of the stock markets and the latest employment figures that suggest India is a land of shrinking opportunities.
However, we know that when it comes to facing up to harsh realities, politicians love to be as evasive as possible. Rajan, it would seem, is on the cusp of becoming the latest fall guy, just as his equally distinguished predecessor Kaushik Basu was in the aftermath of Pranab Mukherjee’s final Budget.
That India is teetering on the brink of an economic crisis which, if a former Chief Economic Adviser is to be believed, could well resemble the fiscal earthquake of 1990-91, is something that can no longer be credibly contested. From the current account deficit to the loss of investor confidence, India’s economic performance seems inversely linked to the standing of the national cricket team in the Champion’s Trophy tournament being played in England and Wales. For too long the Government has been living beyond its means, making businesses uncompetitive, shrinking opportunities and, yet, pretending — as the Prime Minister apparently does — that the cure lies in an intensive eight-week chemotherapy.
Ironically, we heard the same story about the magical effects of Government purposefulness when Pulok Chatterjee was appointed Principal Secretary in the Prime Minister’s Office and when Chidambaram was reinstalled as Finance Minister.
Initially, the investing classes even believed the yarn and the Sensex rose and lots of people made good money on speculation. There was also some hope when the Finance Minister also announced that the Government was on course to meet the fiscal deficit reduction target. Now, once again hope is on the verge of evaporating again.
What will transform concern into a state of absolute panic is any confirmation that the UPA is going to press ahead with its plan to enact the Food Security Bill. The rights and wrongs of entrusting a leaky and inept body such as the public sector Food Corporation of India to oversee the distribution of ridiculously subsidised food grain to some 70 per cent of the population is of some concern.
What constitutes a greater worry is the fact that this piece of uber welfarism will impose such a burden on the exchequer that it may be a generation or two before
India regains its fiscal composure. By then the lady Bountiful will be history, the great Amartya Sen antiquity and the beautiful people in the National Advisory Council, footnotes.
In the 1950s and 1960s, the likes of PC Mahalanobis went out of their way to kill Indian entrepreneurship. The Planning Commissions under Jawaharlal Nehru and Indira Gandhi crippled India but then they were ‘great economists’ who had the courage of their own obsolescence.
For ten years, the UPA systematically dampened the spirit of enterprise that had begun to flower as a consequence of the dismantling of the licence-permit-quota raj to the point where local entrepreneurs now find it more worthwhile to invest overseas than at home. Now, for the sake of winning an election, it is on the verge of unleashing a populist scheme that will devastate India, kill initiative and promote dishonesty.
It was the East India Company’s private trade that made corruption a way of life in both India and Britain. The ill-conceived Food Security Bill will have exactly the same effect: it will bankrupt the exchequer, kill the desire for self-improvement and enshrine corruption. But who cares about the future when the real objective is to somehow win (or at least deny someone else a victory) in the general electionIJ
Actually, the future of India hinges on the outcome of the general election. If short-term populism prevails, India may well turn out to be a great place to get out of. At least that will become the most viable option for those who are impatient to get ahead and better the life their parents and their grandparents experienced.
For the entrenched elite, however, what will matter is whether they can retain their clout and their special privileges. They were, after all, born to rule and what has the state of the country got to do with clinging on to the divine right to party abroad. Who cares if the economy mirrors the ground realities of UttarakhandIJ