A V Rajwade: How to kill growth

WORLD MONEY

It's not just the exchange rate and interest rate policy that's hurting growth.

Acknowledging that a combination of rising interest rates and an appreciating rupee had triggered a slowdown in the economy and negative impact on employment, Prime Minister Manmohan Singh is creating a high-powered group that will suggest immediate steps to reverse this decline." "" Mint, Jan 9.

The signs of slowdown are, of course, there: the index of industrial production grew just 5.3 per cent in November 2007, as compared to 15.8 per cent in the corresponding month the previous year. I had forecasted the merchandise trade deficit for the current year to reach $100 bn; the Economic Advisory Council has recently estimated it at $98 bn. While the causes of the slowdown have been correctly analysed, namely, "rising interest rates and an appreciating rupee", surely the monetary and exchange rate policy decisions were taken at the highest levels, and one should hardly be surprised that they are having the impact: both the prices of money are making Indian manufacturing uncompetitive. One hopes that a step towards correcting one of them, namely the interest rate, would be taken tomorrow.

But the price of money apart, I wonder what the group appointed by the Prime Minister would recommend. Most members are secretaries and are already full participants in framing policies. Entirely apart from the policies, however, I often wonder what signals we are sending to investors through our governance processes. Earlier this month, Jyoti Basu, the grand old man of the CPI(M), said that "we want capital, both foreign and domestic" for investment and for creating jobs. Even while appreciating how his Marxist heart must have bled while making the statement, one admires his honesty and candour which, once again, emphasise the difference between the Marxist leaders who rule, or have ruled, West Bengal, and their ideological masters in Delhi.

But what signals are we sending out to investors? Take some recent incidents reported in the media:

Early in the year, the Goa government which is of the same party as the one ruling at the centre, cancelled all SEZs, including those notified and under implementation, and on which private investors had spent hundreds of crores of rupees. The commerce secretary said that notified SEZs cannot be cancelled, only to see his minister contradicting him the very next day.

Private equity investment in Hyderabad's Eenadu newspaper group has been held up for more than a year (Hindustan Times, Jan 7), despite falling within the four corners of policy and regulations, because one ruling party MP is opposed to it.

The telecom regulator has accused the government of mis-informing the courts on the subject of spectrum allocation norms (Economic Times, Jan 16). Sunil Jain's article in this paper published on January 14 is a sad commentary on our telecom governance.

Jairam Ramesh, minister of state for commerce, has written to the finance minister that, "at the pace at which we have all worked collectively "" Department of Commerce, Planning Commission and the Finance Ministry "" 2007-08 has been a completely wasted year."

The CAG has reported many serious irregularities and weaknesses in the implementation of the NREGS. Will the experience make us introspect about the feasibility of implementing populist measures, too often overlapping and introduced without due preparation, with a modicum of efficiency and honesty?

The lack of a proper FDI policy is holding up investments and projects including in hydro-power, as the Committee of Secretaries chaired by the Cabinet Secretary acknowledged recently (Indian Express, Jan 16).

Many more similar examples about the sorry state of governance can be cited. But let me end with a comment from John Kay's "Why India cannot take economic growth for granted" (Financial Times, Jan 9): "It is attractive to believe that economic growth in India is inevitable given the potential of its vibrant society and the achievements of individual Indians. But the magnitude of the relative economic failure of both India and China across the 19th and 20th centuries demonstrates that nothing is inevitable. The capacity of politics to get in the way of economic growth has dominated most of the economic history of most of the world."

Tailpiece: There are, of course, some bright spots in the non-government economy. Tata's Nano could well establish India's "frugal engineering" prowess in the global markets "" exactly what Y2K did for our IT industry. But to perpetuate it would require cultivation and routinisation of a learning, innovative culture, something which a Volkswagen official manifested when saying "we need to learn from the Tatas how they created the low-cost car". (ET, Jan 11). I am waiting for our political masters to occasionally and publicly acknowledge their need to learn.

avrajwade@gmail.com