The biggest news of today was not the spat between Modi and Nitish or what ICC had to say about the match fixing Bimbo, but about S&P threatening to downgrade India to – the worst possible nightmare – Junk grade. This “warning” comes on the back of slowing growth, declining IIP, a falling currency and the inability of the government to clear the roadblocks in the path of growth. This happens to a nation which was bragging about the great ease with which it managed to tide over the Economic meltdown of 2008 and the successive world-wide slowdown. What has suddenly started ailing the India story? Are we the first to fall among the much hyped BRIC economies?
With this warning, India seems to have come a full circle between the Balance of Payment crisis of 1991 and now. Those who remember 1991 can recall how India was on the brink of bankruptcy and the government shipped gold from its treasury to secure a loan from the World Bank. In those days India was too closed an? economy to be even looked upon by S&P. The warning of today comes as a grim reminder of the harsh realities we had brushed under the carpet.
If there is one common factor between 1991 and 2012, it’s a bespectacled Sikh who never speaks, and is yet credited for scripting the economic turn around of India in the 1990s. However, contrary to what the government would want us to belive, the opening of India to the world was not a result of the extraordinary economic wisdom of the then Finance Minster Mr. Manmohan Singh. When the World Bank gave a loan to bail out the falling economy of India, they kept it as a pre-condition that economic reforms are started in this country and the markets are opened to the world. What the government did was actually an act borne out of compulsion than an example of political will to reform the economy. If we are able to rightly appreciate the role of World Bank, we would know that there is actually nothing that Manmohan Singh lacks now and had then, he has been like this forever.
It is true that since those days in 1991, India has come a long way in terms of economic progress. But it must be noted that India has progressed not because of the government, but in spite of the government. Business in an anarchy might have a better chance to prosper than in the perpetual noose called the Indian Democracy.
In spite of the inadvertent push by the World Bank, PV Narasimha Rao, also as counted among the champions of global India, almost pushed the nation back in the days of the infamous Hindu rate of growth in 1996; when he forced C Rangarajan, the then governor of RBI to hike the bank rates to control the rising prices – because elections were coming.? As a result, the economy which had started growing at the rate of 8% per annum came to a screeching halt. India could not recover from this selfishness of Narasimha Rao for the next 5 years.
Fast forward to 2012, what do we have now? What S&P politely calls the inability of the government to push reforms is actually a total policy paralysis. Amidst worldwide economic slowdown, the government has been dragging its feet on reforms and lost no time in undoing all the tactical advantage we had at the end of 2008. Rising prices remain out of control which Industrial production continues to go Southwards. The Fiscal deficit is dangerously high and even a minor shock can lead to a fatal downward spiral of the economy.? And what is the government doing? – Nothing ! This government seems to have resigned to its fate and has started believing that taking no decision is the best decision. Political leadership is non-existent during times which call for strong measures. But Manmohan Singh seems to be so engrossed playing the Coalition Dharma that he has no time left to revise the economics he learnt in his college days.
And I have not even started talking about the scams yet …