T N Ninan: Not the worst of times

As 2010 draws to a close, the opening lines of Dickens’ A Tale of Two Cities seem appropriate. What we see is an unusual combination of bad headlines and good economic data — not just in India but the world as a whole. The headlines talk of Europe being in a debt-cum-currency crisis, and President Obama battling slow growth and high unemployment. What the headlines don’t catch is that the International Monetary Fund has upped its global growth forecast for (calendar) 2010, from 4.2 per cent in April to 4.8 per cent in October. That is not very far from the average of about 5 per cent growth achieved in the three years from 2005 to 2007, before the Great Recession hit. Note also that all talk of a double-dip recession has evaporated.

This combination, of negative headlines masking good economic data, is evident in India too. The government is in crisis, corruption scandals rock the nation, and Parliament is non-functional. But the economy chugs along, with GDP growth in April-September at 8.9 per cent — higher than forecast. The full year could see a return to 9 per cent growth, buoyed by a bumper kharif harvest. Tax revenue is doing well, the foreign exchange reserves continue to climb, and the inflation curve is dipping. As Jack Nicholson might say, this is as good as it gets.

Till about June, you could discount the surge in numbers as reflecting the low base of the corresponding months of recession-hit 2009. But the world and India began to recover in the second half of 2009, and the growth now visible is on the back of good numbers a year earlier. To be sure, the industrial growth rate has slowed, but it is still very healthy. And while export growth of about 26 per cent in April-November is on the back of a 20 per cent fall in exports last year, this pick-up too mirrors the global picture: world trade shrank 6 per cent in 2009, and is headed for 9.5 per cent growth in 2010.

If the macro-economic numbers are so good, what explains the general sense of crisis? The answer in the West is that the problem is not growth per se, but its distribution. While India and China grow at 9-10 per cent, the developed economies are managing barely 2 per cent — not fast enough to reduce the unemployment numbers that surged during the recession of 2009. The bigger worry is that many of the rich economies, having piled up massive debt, fear a decade of slow growth as they pay off the debt; in other words, there will be no quick exit — not just for Greece and Ireland but also for Britain and others.

In India, the issues that dominate the headlines can be licked more easily, provided one decides that every crisis can be made into an opportunity. The Raja scandal can be used to clean up the telecom rules once and for all. The mining and land acquisition scandals have already provoked new Bills to clean up policy in these problem-ridden sectors. All that one needs then is for the government to decide that, if it is willing to have the Supreme Court oversee the investigation of the telecom scandal, it can live with a fully independent Central Bureau of Investigation. Manmohan Singh must see that it is not enough for him to be honest, his government must be honest too. The only way he can ensure that is by having an effective crime investigation agency that is immune to political influence.