Growth Drivers: Equity, Expectations and Reforms

By Prabhakar Timble
17 September 2013 06:12 IST

economic growth will automatically reduce poverty and inequality. Deliberate attempts by the government to siphon income and provide access to primary human needs to the lower classes through public investment and public welfare schemes have been received with skepticism. In fact, they are considered as populist and dubbed as bad fiscal management guided by political considerations. However, inclusive development and greater equity rather than growing inequity would be the future growth driver needs to be underlined and understood. The growing economic divide and denial of opportunities to over 60% of India’s population act as a drag on achieving a higher rate of economic growth. Future growth of around 9% p.a. could eventually come only through greater equity. Otherwise, we would be caught up within the 5% trap despite economic reforms.

Hidden potential

The Indian economy today, runs on the market expectations fuelled by the middle class and the microscopic affluent society.  The dormant market potential of India is tremendous. If activated by pumping the purchasing power in the majority which stands poor and marginalized, India would emerge as the fastest growing economies in the world. At present, the growth figures are unimpressive with China doing better than the rest. What is needed is the investment in this potential human resource by generating greater access to education, health, housing and gainful employment.  

1991 was a turning point for the Indian economy. Expectations matter in market economies. Finance Minister Dr. Manmohan Singh along with his team was instrumental in creating the environment of market optimism and enunciating investor friendly structural reforms. The immediate period was one of high rate of growth, tolerable fiscal deficits, falling debt and rising foreign exchange reserves. As a contrast, the last couple of years have set in pessimism of abundant degree due to a complete policy paralysis. Prime Minister Dr. Manmohan Singh has chosen the luxury of silence as well as inaction. Political compulsions due to the coalition tug-of-war do not inspire investor and industry confidence. It is not that public operations and government functioning was clean and corruption-free earlier. In the last three years, negativism and indecision has set in the system and perhaps the only booming market is of corruption exposures in media and related trials in the higher judiciary. Another issue of significance is of the growing assertion of rights to land, shelter, life and livelihood by the dispossessed and marginalized accompanied by violent protests since political answers are not found to ameliorate their problems. This is also unnerving the corporate investors. Instead of addressing the issues of the “excluded”, there are creepy attempts to install bully political leadership and their growth models.  

Falling Rupee

The Indian rupee has been falling from the first official devaluation in 1966. The depreciation of the rupee is neither a sign of economic weakness nor the appreciation can be considered as an indicator of economic strength. Market variations in currency should not be evaluated in the context of national shame or pride. Such rhetoric quenches political thirst.  The growth of the economy is conditioned by investment climate, infrastructure and profitability of investment as opposed to the movements in currency. 

 

The recent fall was too sharp within a short span, though it seems to be on the track to recovery. This was precipitated due to growing current account deficits and the sudden redemption of foreign institutional investment in India and flight of capital due to the revival of the US economy. Depreciation results in gains to exporters, particularly the pharmaceutical and I.T. sectors. NRIs too stand to gain from their remittances. The importers are the losers and the budgets of investors go haywire due to rise in project costs. The worst hit has been Telecom, power, electronics, oil and gas sectors, automobiles and airlines. With the cost of debt servicing going up, the foreign indebtedness increases.  The government budget goes out of gear with bloating subsidies and uncontrollable deficits further proving inflationary.  

The key to precipitate a further fall is by monitoring the current account deficit through economy measures in the use of petroleum products, reducing the subsidy on such inelastic imports and also negotiating for trading in local currency.  Despite having coal and ore reserves including exportable surpluses, we are forced to import due to stoppage of mining operations and non-grant of licenses/approvals. These operations need to commence without any further delay. It is for the government to put the monitoring mechanism in place to ensure compliance to the laws related to the mining activity.

Spirit of optimism

Of late, the Parliament has enacted the Food Security Act. Though this means a further burden of subsidies, it is something unavoidable. The argument that the economy would be weakened is an exaggerated statement. There was no other recourse once the Supreme Court has ruled that right to food is an integral part of right to life and livelihood. The new Land Acquisition Act has attempted to provide better justice to those who are dispossessed of their ownership. This would mean a rise in the cost of investment projects but was needed on grounds of equity. What the economy needs even more is fiscal reforms as incentive and administrative reforms to ensure speedy approvals, transparency and accountability. The climate of optimism could be multiplied if policies and strategies of “inclusive” growth are put in operation with the same business-like approach as adopted to attract the domestic and foreign private corporate sector.

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Prabhakar Timble

Mr Prabhakar Timble is an educationist and a legal expert. He has served several educational institutions, especially as the Principal of Government College at Quepem, Kare College of Law in Madgao as well as couple of Management Institutes. He was also the State Election Commissioner of Goa.

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