How India lost its way

Once dubbed the 'Darling of Davos' with its near double-digit growth, India is now barely staying afloat. Last year was India's worst time in a decade as economic growth decelerated to 4.9 per cent. It may reach the projected 5.35 per cent in 2014, if an excellent agricultural production is achieved. It's a big if. Even if it does happen, still a 6.0 per cent GDP (gross domestic product) growth rate will be unimpressive for the once indomitable Asian powerhouse.
To be fair, signs of India's economic distress were evident early in the global recession period. Inflation had been on the rise since then and everyone had been affected. Failure to control food prices and the mismanagement of enormous current account deficits have brought the economy to its knees. Add to this the shrinking foreign investment and the ever-growing political uncertainty and the economic stagnancy will be somewhat predictable.
Prime Minister Manmohan Singh, who has been in office since 2004, has been reiterating that the worst is over. Maybe, it is so. The situation improved in the past few months, but nobody feels assured. Marred by unbridled corruption, the Singh administration has been less than effective and often believed to be in a political paralysis. One corruption scandal after another has tainted the image of his party, even his own saintly image has been impaired. Once the very self-congratulatory Indian media now believes their nation had taken the most serious hit among the BRICS (Brazil, Russia, India, China and South Africa) nations in the last few years.
Analysts have been arguing for some time that the lack of confidence in the market is one of the prime reasons of this decline. Investors believe the investment and consumer demand scenario will not take a turn for the good until a new government is installed. These arguments cannot be ruled out as the government has a fair share of the blame for stalling the much-needed reforms. Dr. Singh, often called the architect of Indian economy due to his mass liberalisation policies in the nineties, is facing the cruellest irony as he is also overseeing the sharpest decline in the nation's history.     
Indian economic outlooks grew darker year after year. The downward trend has been observed in every sphere of the economy-from mining to manufacturing and the currency markets. Court orders to limit the mining of iron ores citing environmental reasons hurt the economy. Also the depreciating value of the rupee made imports more expensive than ever, as India imports a large portion of their oil required for meeting the domestic demand. There has been no policy coordination for addressing these issues. But the government spending and trade deficits were always on the rise. Instead of mending the economy, the Congress government raised the spending on projects that might draw voters in the upcoming elections. Populist measures quite often do not draw votes, even when they work. So, the outcome of such callous spending instead of fiscal consolidation would not be desirable.
India had been on the right track in the past, because for a large number of years the government knew what it needed to do. For greater price stability and sustainable growth, a tighter monetary policy needs to be maintained. Billions of rupees in fuel and food subsidies were doing more harm than good. India needs more in savings than in consumption. As foreign investments dry up, they need to aid their own development. The well-educated and reasonably large middle class and the entrepreneurs' class are India's main strength. And they have a clear understanding of this. The government does not, or maybe, it chooses not to do it. Domestic sectors are awaiting resurgence, but there is no political will to facilitate it. A quite fitting quote about Indian politicians comes from Dr. Raghuram Rajan, Governor of the Reserve Bank of India (RBI): "India's politicians engage in point-scoring rather than institution-building." The single-most positive trend in India's recent performance sheet is RBI's liberalisation of the banking sector. As acquiring loans will get easier and bureaucratic red tapes will be reduced, the financial sector will brace itself for a big turnaround.
What India is today is not what it could have been. As the country is awaiting national election, the question of good governance is resurfacing once again. The crisis-hit Congress-led UPA (United Progressive Alliance) government had little space to manoeuvre in the last few years because of their lack of public support. This became a hindrance to bringing necessary changes for economic revival. The risk of a political backfire kept them on their toes. The Congress may have to pay dearly for their failure. They steered the country the wrong way for the wrong causes. They realised it too late.
The writer studies Civil Engineering at the Bangladesh University of Engineering & Technology (BUET). masaqif@rocketmail.com