Sunday, April 01, 2007

Limits of India Story?

It is not just the loss of Indian Team in Cricket World Cup 2007, but many other negative developments in last few weeks that are kind of drawing attention to possible limits on ‘positive India coverage’ in the global press.

At the heart of the problem is inflation in Indian economy. Ever since Economist published a cover story with the picture of a tiger with its tail on fire; slowly it is dawning on India’s powers be that indeed inflation is eating the lunch. Electoral losses of ruling party Congress on the ostensible basis of inflation do not clear this suspicion too. Relaxing supply side is never an easy option in India where myriad vested interests are at play and remnants of License Permit Raj are still making havocs. The sadder part is the ruling Congress party is drawing wrong lessons from these challenges – instead of rationalizing tax policies and bringing efficiency in Government expenditure; the current Indian Government is adopting the age old disastrous policy – milk the economy by way of all sorts of taxes assuming that higher growth of last few years would sustain these irrational taxes. The government headed by the original author of Reform Policies is probably one of the worst anti-reform governments in recent times. Further there are no other positive, political achievements to show off – likes of Indo-Pak relations or peace with Maoists. The ham handed way this government went about ‘special export processing zones’ is reflective of its incompetence.

Turnabout story of Indian Railways is one positive aspect. But it is questionable that how much that turnabout is due the booming economy and how much due to the managerial excellence. It does not matter how many times Lalu lectures MIT or Harward; his managerial abilities and competence are questionable.

The other high point of Dr. Singh’s rule – Indo-USA Nuclear Agreement - is yet to clear off some final hurdles. With the American diplomat (Burns) saying USA is done with its part, it seems there is some hard internal adjustment, some kind of internal sorting, to be done on India’s part. Snapping two Indian traders while importing high temperature resistant DRAMs for a weapons program lab in India is putting strains in clinching this agreement. All in all these developments do not look very positive.

On social policy front, reservations for OBC in higher education is one clear example of poor political vision. Indian Political Parties do not have any appetite for doing what is right – to channel enough state resources towards needy people directly so that affirmative policy becomes redundant; or at least implement the reservation policy on the basis of up to date scientific data about the contemporary Indian demography. This government is not immune from such failures and in the process is likely to taste the negative consequences of such a misguided policy.

So the core question is, with all this turmoil, will India be able to sustain the higher economic growth; essentially the single most reason why rest of the world is all gaga over India? As political survival demands inflation control (which is a valid requirement and which should be the foremost focus in any modern day economy); usual inability to remove supply side constrains is haunting back. Tighter money supply in order to curb inflation will take away the growth stimulus and meanwhile Indian system does not have an ability to remove the distortions on supply side. The first causality of these inflation measures will be the economic growth. Prognosis does not look promising at this stage.

Umesh Patil
Cupertino, CA 95014
April 1, 2007.

1 comment:

Anonymous said...

waiting for your analysis of Indian team's WC exit and the aftereffects..