The knave of bad times

They destroyed the paddle. Schitt creek* is coming up

Growth in industrial production fell to 3%, the lowest in six years, indicating that bad times might be ahead. There’s worse. As Niranjan Rajadhyaksha demonstrates, the UPA government has frittered away the opportunity to put the economy on the footing to handle the coming problems. In the “misery index” he constructs, among emerging market economies, only Pakistan and Egypt fare worse than India.

But there is little doubt that the economic fundamentals are deteriorating. The hole in the government’s finances is getting bigger. It could now be close to 1991 levels, if measured correctly. The current account deficit, too, is growing and could conceivably touch 1991 levels by the end of this year. The foreign exchange market has already picked up these worrying signs. The rupee has been slipping against most major currencies over the past few weeks. Somewhere in some tax haven, a few hedge funds must be seeing these trends and sharpening their claws.

It is unfortunate and inexcusable that India is now at a point when it seems far more vulnerable than most other emerging market economies. The government should have used the splendid five-year economic boom and soaring tax collections to slash its deficit and prepare the economy for an economic downturn. It did not.

History will not judge the United Progressive Alliance government too kindly on this score. It is distressing that some of the same people who helped pull India out of trouble in 1991 have done so little to prepare for the next round of economic turmoil. One expected more from a team led by Manmohan Singh.[Mint]

Mr Rajadhyaksha is being charitable to Dr Singh and the UPA government. Not only did this crew fail to prepare for the coming storm, but actually damaged the boat. It’s a sin of commission. [Also see Swaminathan Aiyar’s piece on fiscal deficit]

* Thanks to Chidanand Rajghatta for revealing the decorous use of that euphonious euphemism

4 thoughts on “The knave of bad times”

  1. >>One expected more from a team led by Manmohan Singh

    Why do people continue to smoke whatever they are smoking? Signs that MMS was hellbent on dragging India back into the socialist hellhole it once was were visible right from 2004, when he put a halt to economic reforms, and okayed the scam called NREGS.

    There alomst seems a conpsiracy afoot to perpetuate the myth that MMS was the “architect” of 1991 reforms.

  2. I would like to highlight one slightly unrelated point here – the unsuitability of most non-politico (so-called) technocrats to hold high public offices. The media (and the aam junta, to some extent) goes ga-ga whenever one of these “highly-educated” technocrat is made a minister. Much is made up of their so-called personal integrity and what not. But, these technocrats get lost in fine print and don’t look at the big picture. In my opinion, Jaswant Singh was the best finance minister India had in recent times despite his seeming reluctance for the job. He seemed to a big picture man and genuinely wanted to make life simpler for taxpayers and companies. In contrast, Mr Chidambaram seems to enjoy making things more complex and opaque. Notice the many new and bizarre taxes he has introduced. So, give me a Lalu Prasad over a Chidambaram or a Manmohan. Anyday. At least, Lalu would have extracted his pound of flesh from Karunanidhi for the loot carried out by the Rajas, the Balus and the Ramadosses. What did Manmohan extract from Karunanidhi? Nothing!

  3. What Mr Rajadhyaksha is saying right now was known to most of the people in ahmedabad I met after january bear market and chidu’s budget. I dont know but street fighters know more about politico-economic dynamics then this scholars who pick up things zillion years later.

  4. India is digging itself deeper and deeper into an entitlement black hole with its ill advised communal planning, casteist education system, and muddle-headed programs for promoting “growth with justice”. Such populist policies put the cart before the horse – wealth distribution before wealth creation. The results cannot be anything but fiscal deficit and inflation at the macro level, and a dangerous erosion of incentives at the micro level.

    To make matters worse, the communists have a virtual stranglehold on India’s foreign policy, throwing to the winds the nation’s future energy security, and therefore, its ability forestall oil prices crowding out investment in infrastructure and other vital sectors.

    In an insightful article forewarning a liquidity crisis in India following the the Left’s scuttling of the nuclear agreement with the US, Andy Mukherjee wrote in Bloomberg,

    … One such important ally, Muthuvel Karunanidhi of Tamil Nadu, went ahead and congratulated the prime minister for “gladdening the hearts of people” by patching up with the left-wing parties.

    “Frankly, the deal is not important,” he told the NDTV news channel. “The government is important.”

    That, in a couple of lines, sums up the fate of “We the people”, when the State is given extraordinary powers to decide the either or question of survival and prosperity!

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