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Business News/ Opinion / The age of Manmohanomics 2.0
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The age of Manmohanomics 2.0

Manmohanomics 2.0 is a way of economic policymaking that is in stark contrast with what Singh practised in his 1990s avatar

Illustration by Shyamal Banerjee/MintPremium
Illustration by Shyamal Banerjee/Mint

It was a rare moment in Parliament last week when Prime Minister Manmohan Singh lashed out at the leader of opposition in the Rajya Sabha. It revealed a lot about what has gone wrong with the Indian economy and the misdiagnosis that characterizes the Manmohan Singh government’s haphazard efforts to set things right.

In his testy words, Singh said frequent disruptions of Parliament were hurting investor confidence. These words were uttered on Friday just a day after the Lok Sabha cleared a new land acquisition law replacing the colonial era version. Earlier in the week, the same chamber had voted in favour of the national food security Bill. The day the latter legislation was cleared, key indices such as the BSE Sensex and the value of the rupee (against the dollar) tanked. Yields of 10-year bonds, too, inched up that day almost in unison.

It is interesting that these negative swings, which clearly express the fears of markets and investors about the direction of economic policymaking in India, escaped the Prime Minister’s attention. Singh did not address these concerns once in the course of sparring with the leader of opposition and in the statement on the economy that he issued in the Rajya Sabha. Surely, the Prime Minister knows that investment is dependent on a government’s stance towards investors and the cost of capital in a country?

In India, the climate for investment turned hostile years ago. Yet, Singh chose to blame parliamentary disruptions for loss of investor confidence.

This shows the government does not understand the mechanism behind India’s downward economic spiral.

This is one of the three spokes that characterizes Manmohanomics 2.0, a way of economic policymaking, in stark contrast with what Singh practised in his 1990s liberal avatar. The other two elements are political expediency as the driving force of economic policymaking and the belief that matters will sort themselves on their own. All three are linked.

In 1991, India faced a similar situation. At that time, the government quickly realized that there were no short cuts to solving India’s problem of a government-controlled economy. A series of steps, including the abolition of industrial licensing and liberalization of product and financial markets, were carried out quickly. Today, in contrast, the government wants to usher in socialism of a different kind and wants to follow it up with measures to boost market sentiment so that it can have sufficient revenues to do what it wants to do. In 1991, the direction was of liberalization as an end that would make India prosperous by involving the private sector in its economic future; in 2013, “massaging" of markets is being carried out to garner revenue for an economy increasingly in the grip of the government.

The year 1991 was very different in another respect: the government was decisive in doing what it felt was required to sort out the economic mess from years of profligacy. Today, there is scant appreciation of that fact except for disorderly and half-hearted attempts at reining expenditures. Behind all this is the belief that one can muddle one’s way through an economic crisis. Hence, the confused mix of policy choices ranging from massive curbs on import of gold, a socialist style “demand management" of fuel consumption without letting markets determine these prices even as government spending promises to touch new highs in the years ahead.

Manmohanomics 2.0 will be short-lived. Massive increases in government expenditure cannot go on forever unless the government wants to keep interests rates high permanently to ward off inflation. Similarly, the huge current account deficit, too, cannot be sustained without curbing the imports of goods such as underpriced fuels.

These are natural corrective mechanisms that are at work in any economy. They took a long time to pan out in India because of very special external economic circumstances—the cheap and easy availability of money globally. It is not surprising that a change in external conditions is one big reason behind the economic upheaval in India now.

What lies behind the United Progressive Alliance’s consistent record of mistakes? Tell us at views@livemint.com

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Published: 01 Sep 2013, 10:20 PM IST
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