Last month I had outlined the dismal economic legacy being bequeathed by 10 years of United Progressive Alliance (UPA) rule to whichever government assumes office after the national elections are completed in May (“UPA’s economic legacy: Good, bad or ugly?”, February 26). To recapitulate, in brief, this grim legacy includes:
- a mounting scarcity of decent jobs for the 10 million-plus new entrants to the workforce each year;
- an extraordinary collapse in overall growth momentum of the economy;
- high levels of consumer price inflation for the sixth year running;
- an unprecedented stagnation in industrial activity for two successive years;
- continued scarcity of good, efficient infrastructure;
- a growing problem of water stress in agriculture;
- a big overhang of incomplete and underutilised infrastructure projects, casting a massive burden of weak and non-performing loans on the nation’s banking sector;
- a legacy of ill-designed and expensive entitlement programmes and high subsidies, feeding large fiscal deficits and pre-empting resources from more productive public expenditure;
- still weak external sector finances, vulnerable to volatility in capital inflows and foreign trade; and
- a rudderless and demoralised public administrative structure.
Certainly, the projections in the present government’s interim Budget for fiscal 2014-15 look fancifully optimistic. Third, turning to infrastructure, yes, there is some scope for better performance through resolving current bottlenecks like grossly inadequate fuel supply linkages for power plants — even though it won’t be easy to increase production of coal and gas, as the present government has already found. Looking further ahead, who is going to undertake India’s massive infrastructure requirements in the next few years? The central government will be strapped for cash, unless the new rulers can drastically reduce the bloated bill for subsidies and hold pay increases in check. That doesn’t look very likely, given the BJP’s track record of legislative support for populist entitlement programmes and other measures such as the recent, new Land Acquisition Act. The last decade has shown that public-private partnerships are a mixed blessing at best, given their requirements for high governance standards and the unfortunate reality of “crony capitalism”. Besides, nearly all the major private infrastructure companies are saddled with massive debts and low market valuations and are in no position to seriously expand operations. Fourth, the viability of external finances cannot be taken for granted. It is true that the large current account deficit of last year has been successfully managed through tariff increases and restrictions on gold imports, some improvement in the underlying trade account because of currency depreciation and the economic slowdown and the expensive swap facilities deployed by the Reserve Bank of India last August. Much of this is temporary or non-repeatable. The recent pre-election surge in the stock market (and the rise in the rupee value) has been fed by large inflows of foreign portfolio investment. But all this is easily reversible if electoral expectations are belied or the new government’s economic policies disappoint. And who knows what the evolving crisis in Ukraine will do to oil prices, not to mention other uncertainties in the global arena. All things considered, the recovery in economic growth is unlikely to be strong, perhaps limited to five to six per cent in the coming fiscal year. And beyond that, it will depend obviously on the functioning of the new government and its actual economic policies. We have to wait and see. Finally, the massive problem of too few decent jobs for the millions of low-skilled, new entrants to the workforce will continue to grow and bedevil India’s economic and social progress, with real prospects of serious social distress, political turbulence and sharply rising crime. East Asian economic history shows the way to the only viable solution to the “youth bulge”, namely the sustained growth of low-skill, factory-based manufacturing. So far, India has missed that bus, thanks to its poor education system, weak infrastructure and ill-conceived labour regulations, which severely discourage fresh employment in organised manufacturing. The prospects for swift and effective improvement in these key policy dimensions are not promising.
The writer is honorary professor at Icrier and former chief economic adviser to the Government of India. These views are personal