The RBI governor may have been a disaster during his 5 year
tenure. But can he alone be blamed for the rot ?
As RBI Governor D. Subbarao unveils today the first quarterly
policy review for the current financial year, one wonders if there is much for
him to show. Pummelled by a precipitous fall in the value of the rupee, which
touched a horrifying low of 61.20 to a dollar earlier this month, the Governor
and the Union Government have embarked on something like necromancy, or what
witch doctors do to make a corpse stand up.
Since last week, an asphyxiating squeeze on credit has come into
effect without any change in the policy rate. Instead the central bank has put
an array of quantitative restrictions on rates at which banks can access money
from it. As a result, the bank-to-bank borrowing cost has shot up to more than
10 per cent, against 7 per cent a while ago. The Finance Minister has said the
monetary control is temporary. Even the Prime Minister echoed similar
sentiments. But the RBI Governor is ominously silent till now. Continuation of
this credit squeeze is something akin to holding the price of chicken by
putting away all the birds in the coop. But controlling supply of currency has
its own risks. It may hurt growth for a long time—way beyond the 2014 election
where the calculation of everyone in authority tends to stop. It may be like
the bad surgeon’s classic post-operation utterance: “The operation is
successful but the patient is dead”.
Subbarao’s five year extended tenure is marred by down-turn in the economy and lack of any bold initiative. Though he alone can’t be blamed for it as political masters played their role too in the game. But top economists have opined that he lacks vision and happy only with himself. Therefore, expecting him to deliver at the fag end of his tenure is asking for the moon.
The UPA government seems caught in a cleft stick. To increase
liquidity right away, it must storm its way with a series of reforms, showing
the same determination it did in moving an ordinance on Food Security, despite
its high cost and high risks. It should now carry a similar weight in forcing
state governments to scrap their Agriculture Produce Marketing Committee laws
so that food growers can directly sell their produce to the buyer. Besides, it
must now change, again, by ordinance, if necessary, a provision in the
Industrial Disputes Act to make it possible for firms to shut down their
loss-making units without seeking government permission, as they must now do.
These two changes alone can open the floodgates of investment, with a
consequent sea-change in the economic environment. With the government taking
care of the 67% population , why can’t the economy be liberated.
Additionally, the government must also boost the spends that are
capable of spurring private investment. The Prime Minister is rightly targeting
two-dozen mega infrastructure projects including the Delhi-Mumbai Industrial
Corridor. Resumption of construction of the National Highway network is
another. The way Prime Minister Singh has decided to bat on the front foot in
recent weeks to bring the economy back on rails, only baffled me what was
holding him back for so long.
Dr Singh knows for sure that if India grows at 5 per cent on an
average, and population expands 1.5 per cent annually, real per capita growth
will be only 3.5 per cent. But if growth averages out 8 per cent, individual
income will rise 6.5 per cent every year. That should lead to his income
doubling over 10 years. Even that rate is not entirely satisfactory, but at a
poor real growth rate, it will take the average Ram, or Rahim, nearly a quarter
century to reach the level of, say, today’s Thailand.
But will the growth issue be settled in the 2014 electoral duel
between UPA and NDA, or rather, between Narendra Modi and Rahul Gandhi ?
Probably not. Gujarat under Modi has no doubt invested in roads, ports and
electricity, to the extent that businesses are happy to invest there. But, in
Gujarat, as everyone knows, it is Modi’s personal rule that prevails. India is
a different story. If Modi gets India under his charge, he has to deal with his
own party, the BJP, at first.
Is BJP a reformist/modernist party? Certainly not. Party
president Rajnath Singh hates those who prefer to speak in English, and laments
that today’s youth are unable to speak in Sanskrit—as if the youth in Rome or
Venice converse in Latin. Rajnath Singh recently went to the US where he
pleaded with senators and policy wonks to desist from prising open the Indian
retail market because that will “rob 50 million people of their livelihood”. It
has never occurred to him that the cost of keeping 50 million people happy who
did not even vote for the BJP in 2009 who sell products at a very high price to
500 million consumers, is at the root of inflation, and is therefore a ruinous
practice.
India is therefore caught in a No Exit situation. With the
economy getting from bad to worse, and growth of jobs and opportunities static
, UPA is going to the hustings with little to show to its credit. In
fact, it has to keep its fingers crossed for there may be new crises,
compounding its misfortune. Be it CBI, CAG or courts or some
whistleblower somewhere or some secret document surfacing in some world
capital, the UPA is at the receiving end. On the other hand, NDA spearheaded by
Modi is a baffling construct. There is no certainty what L K Advani and his
battery of supporters across the country will do. There is a genuine fear
amongst the non-RSS leaders and workers in the BJP what will happen to them
under Modi. The likes of Yashwant Sinhas, Shatrughan Sinhas or Ahluwalias
may not be able to swing an election. But they are certainly capable of
spoiling Modi’s party. Even Atal Behari Vajpayee and L K Advani struggled very
hard to capture the BJP after their rout in 1984 General Elections. Therefore,
in a democratic milieu where nobody’s word is the last word, Narendra Modi-Rajnath
Singh struggle has just begun.
There is a strong possibility, therefore, of 1996 being repeated
in 2014, with Congress may be forced to lend support to someone closure to 10
Janpath. But before 10 Janpath sets its sight on another H D Deve Gowda,
full blown war has been declared against poverty. The price of subsidized food
for 67% population is Rs 1.20 lakh crores March 31, 2014. Modi is only
giving “Hope” of a good governance while the Gandhis claim they have delivered
what they promised. Let economy take rest until 2014.
(The author is National Editor of Lokmat Group)
