Political paralysis led economic crisis

India’s Growth story can be compared to the Bharatyanatyam dance, a popular dance form in South India; for every two step the dancer takes, she retreats two steps backwards and is in the maiden point. India is suggested as one of the growing economies of the world which is expected to hit the top by 2030. 2011-12 was a year of economic upheavals and surprises. The growth rate plummeted. Manufacturing growth touched negative growth during Oct 2011. Import between April-Nov 2011 was $ 309.53 bn(Rs 14,35,304.79 Cr) against $ 231.66 bn(Rs 10,85,780 Cr), an increase of 30.24%(in $ terms) and 32.19%(in Rupee terms) Year-on-Year. Similarly, Exports during the same period touched $ 192.69 bn (Rs 8, 93,094.16 Cr) against $ 144.66 bn(Rs 661,055.88 Cr) in the same period2010, with a growth Year-on-Year at 33.21(dollar terms) & 35.10 %(in Rupee terms). The world growth was perhaps obstreperous. Political paralysis seen in United States and Europe as governments are at an inflection point. Shaky Europe tries to muddle thro’ uncertain of which path to take, and takes the uncertain path. Government in Greece, Italy, and Spain have collapsed or voted out. In Russia and France, problems persist. Tea Party movement in United States, occupy Wall Street (especially Manhatten Zucasthi Park civil disobedience programme), Arab Spring, Tahir Sq protests, fall of dictatorship in Libya, Egypt and other countries, Greece and Ireland trying to get emergency loans, show popular expression of breakdown of Trust. Growing wealth inequality, protest against greed, lukewarm legal recourse against closed banks and bankers for their demure and financial mess, have created a deficit trust and political gridlock. Niall Ferguson, a prominent Economic historian at Harvard felt that ‘for the better part of 500 years, it was the western in both sides of the Atlantic who could say they had the best economic system, best political organizational structure, and so forth. These claims have increasingly become hallow.’ John Maynard Keynes must be laughing in his grave. Everywhere, cutting spending during slump worsens the slump. Spending cuts saw further erosion in consumer business confidence, increased unemployment, and reduced growth. Like Indian political elite, obsessed over short term deficits, considered it as an actual problem, and in trying to ease the process, created the real problem- a depressed economy, mass unemployment and lower economic growth. In India, regulatory crisis, policy paralysis, divided coalition of parties, both in the Ruling and opposition political parties, ambitious regional satraps who want to carve a place for themselves, uncontested competition between states. Prime Minister calls an ally Chief Minister who refuses to come. After voting with the Government, opposing the same Bill in the other house, what Policy reform is possible. It only causes erosion of Prime Minister’s powers. The Prime Minister of India cannot act like Aristotle in Lyceum! India develops on their critical manpower talents- the service sector. That is the economic potential that needs to be managed to create capital. Pressure for Reforms arise when capital moves or labour moves. In India, both Capital and labour move. The credibility of Political system looks compromised, because of Coalition politics. Will parties become disciplined; otherwise, lawmaking Politics and contagion will drive the underperforming economy to the oblivion.

Governance paralysis adds to Economic woes

When the whole world is fighting abnormal Economic upheaval and finding fast remedies so that it becomes equilibrium. However, in India we are seized of various issues for which undue focus has been forced upon, with the result that there is a leak in our vessel of economic woes. The governance of the country is not with the executive, but with others who see no reason to indulge in removing the litters that the economy has left behind. Alas, we are at discomfort with the reality. Government’s dithering and hesitation to act because of coalition’s compulsions left a void in economic recovery. We are not even at the cross roads. Every planning prophecy made need alteration. Growth has gone dismal. Industrial production has trespassed to negative territory. The Rupee continues its slide with venom. Interest rates remain prohibitive. GDP growth during 11th Five Year Plan was expected to garner an 11% growth. This year’s growth if it achieves 6.5%, it would be remarkable. These show negativism in the Economy. They do not show a positive sentiment for the economic growth. But no alarm bells rung. We should be worried, and alarmed at the state of affairs to declare a financial emergency. But we accept difference in every idea, that in every action all the political parties agree to dissent. True, we should not concern only in growth figures, but look at lackadaisical industrial and economic climate, scams vitiating pro investor policies, focus on corruption, and only on corruption, negative monetary prescriptions like interest rate increase 13 times in 18 months, hikes in petroleum products periodically making planning inconsistent, roll back on FDI on retail sectors which has sent a wrong signal to foreign investors. This has put a halt to FDI and FII and repatriation of investment which has created the dollar crisis. Rupee devaluation has hit the roof with as much as 20% slide against the greenback at a time the Dollar is vacillating. This increases input costs, import cost of capital goods, prices of petroleum products. RBI says the crisis has been caused by Euro crisis, instability of the American dollar, intense buying of dollar within the country, repatriation by FII, FDI, re-payment by Corporates of their External Credit Borrowing, higher import costs of Petroleum products. RBI has been clearly in the wrong with its monetary policy. Raising interest rates caused narrowing in the Spread between the interest on what banks pay to its customers and what interest they get from the corporate debtors. As per RBI, In Table 6.4 of Statistics, in 2011(Nov 14, 2011), the Banks had provided additional advance to 24.11 lakhs accounts (including direct and indirect agricultural advances) @ Rs 42,414 Cr. The total advances to agriculture and indirect agriculture is estimated as 339.32 lakh accounts with a Credit of Rs 4, 14,990 Cr. This poor advance to the agricultural sector has been responsible for agricultural growth failing to achieve a modest 4% growth envisaged under the 11th Plan. The Banks should give a new boast of fuel to that leg of the priority sector. Credit growth, best predictor of financial crisis, said an eminent Economist. Debt inflows could pick up only if differential monetary policy stance is adopted by the Central Banks in developing Economics against advance economics. Our central Bank inaction is the only action taken so far. Coal Sector, Kundankulam Nuclear Power project, crisis at Mullaperiyar, infrastructure deficit, country’s export related problems, including inflated country’s export by $ 9 billion (April-Oct) by DGCI&S, poor investor confidence, policy paralysis, needs exemplary solutions. Fundamentals are strong, says Finance Minister. Where are our fundamentals?