Spending the last nine days in India visiting five cities in the summer heat left one with mixed feelings. That is no surprise. The macro picture remains cheerless, the politics both clueless and rudderless. The micro picture, however, is exciting and hopeful. Whether or not India is a country of million mutinies, it is a country of million experiments. In that sense, it remains a great laboratory for concocting solutions to world’s economic and social problems. Right now, however, the micro positives fall well short of offsetting the macro drag.
India’s economic growth has stalled, but inflation worries have not disappeared. Declining economic growth will not lead to a noticeable decline in inflation since India’s supply bottlenecks are bigger drivers of its high cost of living. Growth rate of production in six infrastructure industries was at 5.2% in April. Barring a few months, the post-global crisis growth rate in production in the infrastructure industries has been below the pre-crisis level.
Power production is hampered by lack of coal of acceptable quality. Whatever power is produced is not efficiently distributed because independent power producers are wary of selling it to unreformed state electricity boards (SEB). These SEBs do a poor job of collecting the tariff they levy on the power sold. Further, metering work has barely kicked off and they face resistance from the educated and the prosperous, particularly in the nation’s capital.
Also Read V Anantha Nageswaran’s earlier columns
If my memory serves me right, one of the first acts of the United Progressive Alliance (UPA) government, when it came into office in 2004, was to undo the good work done by the minister of power in the National Democratic Alliance (NDA) government. Suresh Prabhu had built painstaking consensus behind the Electricity Act of 2003 so that distribution of free power was stopped and normal user charges recovered in return for quality and uninterrupted power supply. The UPA government restored populism in the sector and the result is that India loses around 1.2% of gross domestic product growth per year from shortages that hit small and medium enterprises.
Although the Electricity Act of 2003 mandated that state governments must pay explicit subsidies to the SEBs if they wanted to subsidize power for specific users, failing which the prices fixed by the regulator would be charged. The reality is that the regulators are overruled and that subsidies are not paid to the SEBs, leaving them with poor credit and financial standing. Suresh Prabhu (it must be said that he did not last the full-term under the NDA administration) had prepared a common declaration to be signed by all political parties stating that they would not indulge in populism. The declaration was discussed with many parties, but before it could become a formal agreement, he was replaced! (India Today, 19 September 2005).
Such painstaking consensus building is required in crucial areas of the economy. For the near-term, the Prime Minister’s chief economic adviser C. Rangarajan zeroed in on two key areas: the farm sector and the power sector. Both are interlinked. All inefficiencies in the power sector are allowed to remain in the name of the farmer. At the same time, we refuse to allow farmers to export to take advantage of international prices.
For the long term, education is an important challenge. With the government wanting to pass a Bill to allow foreign universities into the country, the submission by the National Students’ Union of India (NSUI)—a student body affiliated to the ruling Congress party— should worry all those who are interested in the health of higher education in the country. The NSUI has petitioned the parliamentary standing committee on human resource development and has asked for a common entrance test for foreign universities, cap on the fees that they would charge and quotas for SC, ST and other backward class students (the Hindustan Times, 2 June 2011). Student bodies affiliated to other political parties have raised their own objections.
These are not objections raised with a view to improving the legislation, but to kill it entirely. Students in India have a choice to go to Indian universities and colleges if the foreign universities charge a higher fee and each university has its own standard and rules of admission. Why would they submit to these whimsical conditions? If they do not, whose loss is greater—theirs or India’s?
While the Union government gives every impression that it has neither the will nor the ability to govern, citizens should do a lot more than march to Jantar Mantar in the Capital. In this regard, the open letter written by many economists to the chairperson of the National Advisory Council is to be lauded (http://www.livemint.com/2011/05/31213536/Open-letter-on-National-Food-S.html). More such initiatives are needed in other areas. Inept polity and ill-directed electorate are a lethal combination that puts the nation at risk of facing a lost decade as it did between 1993 and 2002, and between 1973 and 1982.
V. Anantha Nageswaran is chief investment officer for an international wealth manager. These are his personal views. Your comments are welcome at email@example.com