NO sooner did Standard & Poor announce last week that India’s economy was in such bad shape that it could become the first ‘fallen angel’ out of BRICS than hysteria broke out in the ranks of the Congress Party. Party spokesman, Manish Tewari, sneered at the credibility of the rating agency and that ultra-sycophantic, ultra-servile Gandhi family loyalist, Mani Shankar Aiyer, started spitting venom as only he can do.
Why should we worry about Standard & Poor, he pronounced on NDTV when it did not worry about the ‘standard of the poor’ in India. The Indian economy, he added, was in terrific shape except for a few ‘fat cat’ Indians nobody was being affected by the slowdown and we should stop caring what the ‘right wing’ said because all that mattered to people like him (on the Left) was employment.
He appeared not to have noticed that the slowdown is predicted to create 30 million less jobs but then since he views all economic matters through the limited vision that ideological blinkers provide he almost never gets it right. But, because economic reforms have been brought in by stealth he, and leftist ideologues like him, get away with the ludicrous lies that the reforms benefited only rich Indians. They get away with pretending not to have noticed that the high growth rates that came with the end of the licence raj brought more people out of poverty than four decades of socialism did.
The acronym BRICS stands for Brazil, India, China and South Africa and was devised by Goldman Sachs some years ago when it looked as if emerging economies were going to become the engine of the world economy. There has been a slowdown in most economies but of the BRICS nobody is in worse shape than India. In the past two years bad economic policies, corruption scandals, a rogue environment minister (Jairam Ramesh) and an absence of political leadership have been responsible for ending the boom. It started with the Environment Minister turning his ministry into an instrument for a new licence raj. But, instead of denying licence he used it to stop major projects (Vedanta, Posco, Lavasa) after thousands of crore rupees had already been invested.
And, he brought coal mining to a virtual halt by insisting that forests were more important. They are and all over the world, where mining takes place, there are strict mining policies that ensure that environmental damage is repaired by the mining companies themselves. In India environmental guidelines are so vague that a rogue Environment Minister can interfere in almost every project and Mr. Ramesh did despite major industrialists going to him, and the Prime Minister, and pointing out that the investment climate was being ruined. The Prime Minister finally removed him from the ministry but by then the damage had been done.
Then came the turn of the Finance Minister to continue the damage. First he dawdled over economic reforms promising businessmen who went to see him that he would bring great changes with his Budget. Until then, he said, there were political constraints such as elections in West Bengal and Uttar Pradesh. But, when the Budget came it was not only reviled by experts as the second worst budget in Indian history (Indira Gandhi’s budget that brought 97% taxes being the worst) but it brought in a tax law that allowed government to change the rules halfway through the game. This absurd and dangerous retrospective tax law was brought in only because Vodafone won its tax case in the Supreme Court.
The Finance Minister believed Vodafone was liable to pay capital gains tax because it bought an Indian telephone company from a Chinese billionaire in Hong Kong. Vodafone went to court and won its case. The matter should have ended there but Pranab Mukherji was advised to bring in a new tax law and give it retrospective powers going back fifty years and more. This caused businessman in Mumbai to make jokes about how we could go back further and tax the East India Company but nobody in Delhi was listening.
De facto PM
Then there is the additional problem that nobody is quite sure who they should be speaking to in Delhi. There is the Prime Minister who became famous internationally as the architect of India’s economic reforms but since he is appointed and not elected he is bound to take instructions from the woman who appointed him. Our de facto prime minister, Shrimati Sonia Gandhi, who publicly does not interfere in governance but uses her National Advisory Council to interfere in serious economic matters.
Her kitchen cabinet is made up of old style socialist do-gooders who believe that it is possible to spend vast sums on welfare schemes for the poor and nobody can stop them because they are done with the best intentions and for the supposed benefit of India’s poorest citizens. Not even non-Congress state governments have the courage to refuse to implement a scheme like MNREGA because the cost at election time could be incalculable. So on the instructions of Sonia’s NAC the government has spent thousands of crore rupees without worrying about where the money is going to come from.
It came from an economy that was growing at nearly 9% for twenty years. It will not come from an economy that has now dropped below 6%. So last week in Delhi high officials in the Prime Minister’s office and the Finance Ministry consulted with businessmen and bankers from Mumbai to try and repair the damage. According to businessmen I talked to later, the officials ‘really listened’ to what they had to say but can the Indian economy be pulled back from the brink? Is it already too late? The Economist, in a leader last week, made the gloomy prediction that “India’s feeble politics are now ushering in several years of feebler economic growth.”
It is the price that India is paying for the Congress Party’s decision to bring economic reforms by stealth instead of daring to admit that the economic policies followed in the first four decades of Independence failed and that it was this that forced a change of direction in 1991. Perhaps change will now come only when ordinary Indians realise that their jobs, their cell phones, their higher living standards came because the economy grew faster as a result of the licence raj ending.
For the moment the gloomy conclusion that most international commentators have arrived at is that the Indian story is over and that the ‘I’ in BRICS could well be Indonesia.