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Indian politics divorced from economic reality

Not only is one-third of the country’s 1.2 billion poor (with states like Bihar reporting one in two people as poor), there is growing inequality of income and opportunity, drinking water is still a dream in many areas and the education network exists more on paper than in reality. Photo: Mint (Mint)Premium
Not only is one-third of the country’s 1.2 billion poor (with states like Bihar reporting one in two people as poor), there is growing inequality of income and opportunity, drinking water is still a dream in many areas and the education network exists more on paper than in reality. Photo: Mint
(Mint)

While debate on secularism is welcome, priority should be on fact that India is close to a potential economic crisis

If you were not familiar with the curious ways of Indian politics, you could have mistaken the ongoing political pantomime as the Indian version of the US presidential primaries, where candidates jockey for support as their party’s presidential candidate. But the parallel ends with the viciousness with which candidates seek to discredit each other.

The Indian version of democracy is based on the British model and, hence, requires political parties to first win a mandate to govern and then for the elected legislators to choose the prime minister. Of course, this is the principle and not the rule. Keeping this in mind, it is rather curious that even before the next general election (it is due next May) has been called, or even before the voters have cast their votes, politicians have begun to fight over the presumptive choice of the next prime minister.

It’s bizarre because there are other more pressing priorities. While a debate on secularism is welcome, the priority should be the fact that the country is poised on the precipice of a potential economic crisis. One nudge and the downward spiral will commence. Given the size of the economy, the pain would be so much more widespread. Indeed, the global economic environment has turned hostile, but to a large extent the present problems are the outcome of a series of self goals by the Congress-led United Progressive Alliance (UPA). No doubt, the logjam in Parliament has not helped either, and of course, as of yesterday, the fate of the most marquee piece of tax reform—the single goods and services tax—has come under a cloud.

There is no quick fix, unlike what some of the UPA’s spin doctors may claim, to the problems at hand. India’s policy wonks just did not anticipate the pace and extent of growth that occurred in the last decade. The inability of the social and economic infrastructure to cope with the new economy is at the core of the country’s structural crisis: lack of infrastructure, skill deficit, lack of jobs, fiscal crisis and an out-of-date policy machinery.

The country’s addiction to fiscal largesse is well established, but what surprised many was that in good times no effort was made to look for a structural fix, like it did with the fuel prices once the gun was held to its head by international rating agencies. Similarly, the failure to generate jobs—the country adds one million to the workforce every month, but absorbs only 200,000 in an entire year—has been ignored.

If creating jobs is an issue, then equally vexing is employability, which is why the country’s top information technology companies have actually turned into mini universities by creating campuses to train the engineering graduates and make them job-ready.

The social circumstances are equally scary. Not only is one-third of the country’s 1.2 billion poor (with states like Bihar reporting one in two people as poor), there is growing inequality of income and opportunity, drinking water is still a dream in many areas and the education network exists more on paper than in reality.

What is more worrying is that some of the politicians at the helm have a mindset inherited from the 1970s, when the economy was a mere shadow of what it is today—India’s gross domestic product is estimated at $1.8 trillion, and one in which the private sector is a dominant player. So the rules are defined by market forces as opposed to the previous era when the government controlled the economy like a puppet on strings.

Last week, when the rupee plunged to a record low against the US dollar, I accidentally bumped into one of the policy wonks who recently stepped down from government. The person’s conclusion was that the chalta hai attitude of the Indian polity was a cardinal sin. It is common sense (even ants practice it) that we store up in good times for the bad times to come. Instead, we splurged in the good times and now when the bad times are here, not only do we not have ballast at hand, we have no clever ideas either. “The (economic) pain," the person rightly concluded, “will be so much more."

Contrast this with the young demography of this country and their aspirations. It can only mean frustration. With a general election due in the next 11 months, it will be interesting to see how India votes: will they elect a government they deserve?

Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com

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