A slowing economy is the price of dysfunctional politics
The political class mocked rapid economic growth in the days when it was 9.5 per cent annually. The rest of the world celebrated the fact that India had become the second-fastest growing economy (it is now down to fourth or fifth), but no one mentioned it at the Youth Congress jamboree in New Delhi earlier this week. Government ministers stopped trying long ago to create a climate in which reform could enjoy traction. Instead, what the political class offered was ceaseless criticism; that rapid growth benefited only a few, that it increased inequalities, that nothing was changing in the countryside, that growth had not reduced poverty which still afflicted three-quarters of the population, and the numbers of the poor were growing instead of coming down. So now that quarterly economic growth (for July-September) has dropped to 6.9 per cent, the slowest after UPA-II got under way, perhaps the political class is happy. Inequality will not grow, and the rich will not get richer; one hopes no one will claim that the poor will also stop getting poorer, or that more jobs will be created. If growth slows even further in the coming quarters, the UPA’s goal of inclusive growth will finally come unstuck — there might well be some inclusion, but also much less growth. And when there is less growth, there will be lower tax revenues and therefore no money with which to pay for inclusion.
Why blame the political class for the slowdown? Because it is the direct result of dysfunctional politics and, one might add, an “NGO view” of the world. Companies are sitting on piles of cash, as this newspaper reported yesterday, because land cannot be acquired. Construction has slowed down, partly for the same reason. Potential investors are unwilling to commit money in an uncertain environment, when they don’t know what quixotic decision will hit them tomorrow. Mining leases also wait for a new law, while many existing mines have been ordered shut — first there was corruption, then an attempt to undo it. The result is that mining output has fallen (and coal imports have gone up!). Project after project has been hanging fire for years, or been stopped midstream. Tax reform is stuck in Centre-state parleys, while every politician wants more and yet more subsidies. Once definitional changes are accounted for, the fiscal deficit this year will be no lower than when the now-all-but-dead reforms process began 20 years ago. The only change is for the worse: capital investment financed through the Budget has fallen. Meanwhile, contentious tax orders have created new uncertainties for international businesses looking at or operating in India, even as Indian businessmen seek to escape a trying domestic environment and look overseas; no one will say it, but some cases of outbound investment look suspiciously like a flight of capital.
The nine per cent growth rate targeted for the 12th Five-Year Plan, which starts in April, hangs in the air as an embarrassing case of wishful thinking. What was the Prime Minister thinking when, a year ago, he promised 10 per cent growth in 2011? Has the UPA government done anything to accelerate growth in a deteriorating global environment? This is not how serious policy makers function. Nor is this how serious economies handle their affairs. The only question now is how low growth must fall before the political class acknowledges that both growth and what enables it are important.
Operating margins down 230 basis points q-o-q on higher employee costs and other expenses
Analysts expect volume pressure to continue; profit growth likely to be intact