Column Ta-Ta economic miracle

I have been impressed by such articles and thinktanks (which I seriously feel is dearth in India). The colletive good is something missing in India, for obvious reasons of sociological and historical reasons. We have long lost the collective good after years of politicking and slavery or may be a non-posessive attitude that let us down on ourselves. Read on....
Source: Expressindia.com

With inflation at around 12.5% , it costs Rs 180 crore per annum just to keep the value of Rs 1,500 crore in tact. Forget about making profits. Thus, half a crore a day is what Mamata Banerjee was costing Ratan Tata at the minimum. The total cost of the gherao of Singur will not be known till the entire fracas is over, and till one figures out the costs of relocating the plant and the personnel and the delay in delivering the product. It will perhaps be in the range of at least around Rs 400-Rs 500 crore.

That is the cost of dysfunctional politics in just one instance. It is democracy and we value it and political rivalry is part of the game. But since 1989, the fragmentation of party politics has meant that the costs of politics have been mounting up. It did not matter because just as single party dominance ended in India, the economic growth rate took off. India could afford its quarrelsome, populist distributional games because the private sector had been freed to make money by open competition and liberal reforms. Indeed, the growth rate went up as coalitions became more fragile. Except during the 1996-98 Left Unity period, there has been no dent in the acceleration of growth though thanks to Chidambaram, who was then finance minister, the damage was contained.

There was a division of labour in politics. States could do what they liked and compete for investment or display their economic ignorance. The Centre held its reins tight and did what was necessary to allow the private sector room for growth. But now there is a sea change in attitude and the economic miracle is about to halt.

Worldwide trends are for a slowdown. In the UK and the EU, there are serious signs of a slowdown if not a recession. The fall in the price of oil has not made much difference there because the oil content of GDP has been falling. The credit crunch and the financial market meltdown continue and one does not know when they will impact even more severely on the real economy. The benevolent macroeconomic climate of 1992-2007 is now gone and may not return for a while.

If the commodity price boom is spent and the Western equity markets are not picking up yet, where is the money going to go for decent rates of return? India could be a destination, for portfolio investment as well as for FDI. But that is exactly where the signals will be flashing red. After Singur, money will hesitate to come to India. After all, if Ratan Tata, as home-grown as one could be, after having followed all the rules and regulations and with the High Court stamp of approval on West Bengal government’s land acquisition cannot carry on business, what chance is there for anyone else? Who can any longer believe the promises of chief ministers whatever their majority in state legislatures? There is, always out there, some group with some caste or religious label or a linguistic identity who can throw a spanner in the works.

The most remarkable thing in this episode has been deafening silence from Team Manmohan, the guardians of the economic miracle. The PM may be more concerned with the indoor gherao at the NSG but even so the hands off attitude without even a word of disapproval about the senseless trashing of India’s most prestigious innovative product tells me that the UPA government is paralysed till the next election whose outcome it cannot predict.

This paralysis started in August 2007 when CPM threw a tantrum about the Indo-US nuke deal. But even after the July 21 vote, there has been stasis. None of the reform proposals we are all waiting for—on labour laws , on retail FDI, on foreign universities , even the Right to Education—have moved at all. The Singur dispute is, after all, due to the dreadful state of land laws which are a thicket and through which none can see his or her way. Where are the reform proposals which will take us away from a 1892 land acquisition law and deliver clarity?

India has now run out of the energy to pursue growth. Perhaps, in six months time, there will be elections. Then, in another six to nine months time, there may be an active policy removing the obstacles to growth. Or, perhaps not, if the coalition includes any of the Third Force parties. Each day that goes by costs crores of rupees, but then who cares? How many vote banks depend on businessmen?

—The author is a prominent economist and Labour peer