Global Standing and Credibility


India’s global standing as an economic power and its credibility as a nation are under threat, to put it mildly.

Anyone who follows the India story would have detected the signs quite some time ago. The financial analysts and credit rating institutions have closely tracked the Indian economy and government policies, and so are clearly best positioned to highlight the issues (though their recommended solutions may not always work).

The business class and the middle class are now seriously worried. The Indian economy is on a free fall, having hit a big drop to just 5.3% GDP growth rate in Q4 (Jan, Feb, Mar of 2012), which is the lowest growth rate in nearly a decade of growth and development.

We will not go into economic theory and principles here in this post. What needs to be understood by the people who govern this country is that growth is THE only solution for pulling India out of poverty. There is no other solution – if economy does not grow at a minimum of 8% for the next 25 years, India would still be far below the world’s leading economies in terms of GDP per Capita and poverty levels.

Nothing else matters more. All the economic reforms should be directed at creating growth, employment and new consumption. Exports should reach USD 1T (yes, that is a trillion dollars) in the next 5 years from the USD 300B now. The trade deficit should become a surplus. The current account deficit should be contained at 3% by removing subsidies. 

It is not that the Indian Government is unaware or incapable of finding solutions to the ills of the economy. It full well understands what needs to be done. The whole spoiler today is the political compulsion – first from the main party of the UPA (United Progressive Alliance) Coalition and the second (and most vociferous) from the constituent parties of the alliance.

But what is needed now for the country is clearly economic leadership, notwithstanding political costs and equations. If the UPA Government wastes the next 2 years in power preceding the elections in costly political maneuvering, then it would have squandered its legacy of building an economic success story from 2004 to 2010 ; even when the world was hit by the Lehman crisis in 2008, India was doing pretty well.

So, the immediate leadership question that is being asked of the Government – “are you capable of pulling India out of its serious and apparently intractable economic problems that have engulfed its people, with all the parameters heading south ?”. If the Government does not act immediately with a clear-minded strategy, then India is done for. Unfortunately, notwithstanding the fact that the Indian business successes are due to the entrepreneurship of its business-oriented professionals, the terrain is still dominated by the enabling government policies and recovery actions. The Indian Government plays a huge role in the Indian economy and business – it even controls entire sectors of business by its own companies (the “public sector” companies).

All in all, the time is very short and the Government needs to act very fast. Otherwise a huge opportunity would have been squandered and the current party would leave the Government with a negative legacy. It should formulate strong policy actions (irrespective of protests from any quarter) and implement quickly. There will be temporary pains for all sections of the society, but that is to be expected. India cannot be the only country with a protected economy and less pain for its people.

In a nutshell, courage and dynamism are badly required now. Let us see what the Government does………not much time left though.

Cheers,

Vijay Srinivasan

2nd June 2012

Mumbai

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3 comments

  1. gold price

    No one doubts that India’s economy will keep getting bigger. But the angle of its economic trajectory has dropped. Growth slowed to 6.1% in the past quarter. Even if, as the government hopes, it bounces back, plenty of people worry that trend growth is now unlikely to be much above 7%.

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