As businessmen and stock market participants prepare for the traditional Lakshmi Poojan this week, they are surely in a sombre mood. The stock market is down 50 per cent, corporate profitability numbers for Q2 manifest squeezing of margins, and the state of the global economy does not support an optimistic growth picture in the current, or perhaps even in the next, fiscal year. Liquidity remains an issue and while the RBI Governor has assured, in his semi-annual review last Friday, that the central bank would “closely and continuously monitor the situation and respond swiftly and effectively to developments, employing both conventional and unconventional measures,” it remains to be seen whether it would keep its nerve till the job is fully completed. One positive feature: the authorities are showing far greater responsiveness to the needs of the real economy than they did at the time of the last liquidity crunch in 1995-96.
To be sure, there are other positive signs. Oil prices have dropped to $60; other commodity prices have also softened, both auguring well for the inflation outlook. Even the rain god has been generally kind. Our banking system is much sounder than in many other countries and the exchange rate change means that the cost of production of domestic industry is now much more competitive in global terms.
In the normal course, and assuming that the authorities would provide the needed liquidity, one would have been more bullish on the prospects of growth than the August IIP increase of just 1.3 per cent, released a couple of weeks back, would suggest. If one is not so even on the auspicious occasion of Diwali, it is because of a series of non-financial factors which would be coming increasingly to the fore, and may well deter investments. Some of the major constraints one worries about:
Are we on the brink of a major class and communal conflagration? The terrorist attacks and series of incidents in Delhi, Assam, Karnataka, Maharashtra and many other places are indeed worrying — and the political leadership seems unable to do much more than keep mouthing tired, “secularist” cliches. Orissa manifests a more complex dimension with what was diagnosed as a Naxalite murder of a Hindu priest, escalating into Hindu-Christian communal violence.
Equally worrying is the anti-industry agitations in so many places — Singur, Nandigram, very large projects in Orissa and Chattisgarh, and other places. In my home state, Maharashtra, a referendum was held whether an approved SEZ should be allowed to come up, which, needless to say, went against the SEZ. The political leadership in Maharashtra preferred not to take any stand on the subject. Surely, the anti-industrialisation mood needs to be defeated politically? Surely, it needs to be explained to the people that so long as 60 per cent of India’s population dependent on agriculture, produces only 18 per cent of GDP, rural lives will not improve; and that manufacturing jobs on a vast scale would therefore need to be created. Sadly, the fact is that the political leadership, whether in Delhi or at the state level, is unwilling to take a stand, preferring to let issues drift rather than doing anything which would cost them a few votes. If the ruling parties at various places — and they include the entire spectrum — prefer to take the line of least resistance, the same parties, when in opposition, are only true willing to take populist, anti-industrialisation stances.
The quotas, which now cover even households with income up to Rs 450,000 (if they are to be considered deprived, we must be a rich country!), are proving a divisive force aimed at perpetuating the caste and communal divide. They are also stimulating a race to bottom as the Gujjar agitation in Rajasthan proved; now the Marathas, who have ruled Maharashtra for 50 years, want to be treated as backwards!
More From This Section
The growing income disparities would surely lead to social instability — we have the world’s second highest number of dollar billionaires (per trillion dollar of GDP), next only to Russia.
There are no signs of any political will to cut subsidies to the non-poor. The Prime Minister who has said on umpteen occasions that the subsidies are unsustainable, seems powerless to do anything about them (he has equally failed in improving governance which was the first item in his agenda when he assumed power). On the contrary, as elections approach, we will see even more ‘free’doms.
But coming back to the lack of political leadership on the issue of industrialization, there are two exceptions to the general apathy: Mr Bhattacharya on the left and Mr Modi on the right. There is an equally strange alliance of the Left and the Right in opposing the Indo-US nuclear treaty. Both the RSS and Mr Raja believe that the purpose of the treaty is merely to help the US out of its economic problems. It would indeed be an economic miracle if $15-20 bn of orders spread over four-five years could revive a $14 trillion economy!