Until just a few years ago, the Indian economy was on a robust and active economic growth trajectory. Consumer confidence was at its highest, Investor confidence unshakable and employment generation at its peak. India’s government borrowings were at its lowest. In late 2009 in fact, India – the world’s largest Gold consumer, bought 200 metric tons of Gold bullion from the International Monetary Fund (IMF) for a whopping $6.7 billion!
The transaction, equivalent to 8 percent of world annual mine production, was the IMF’s first such sale in nine years and propels India to the ninth-biggest government owner globally, according to figures from London-based research company GFMS Ltd. The country previously held 358 tons, the data shows. The news was a “surprise because everybody was talking about China being the buyer” according to every news anchor at that time! Compare this to the dark times after 1990′s Oil spike caused by the first Gulf War, when India had to mortgage its Gold reserves to manage its imploding Current Account Reserve (CAD).
As per data released by the planning commission, average agricultural sector growth in India hovered around a decent 4+ % and that India was adding an average of about 19 Kilometers of highways ‘each’ day! But those were the glorious days of the pre-recession period.
Today, the gloomy days of the 1990′s are back. Investor confidence is at a record low in decades. Consumer confidence is so low that major business enterprises are actually postponing new acquisitions and product launches. Compare this with the glorious days just a few years ago when the TATA group acquired Jaguar – Land Rover and ‘Corus.’ Foreign institutional Investment (FII) into India has dried out. Foreign Direct investment (FDI) into India is now confined to a few select sectors based on intermediate growth prospects.
What’s even more appalling is when the government actually tries to dupe us all into believing that the reason for all of India’s current malaise is due to ‘external’ factors such as the US & European economies and so on. That maybe a valid enough reason for an export-oriented economy like China, but for domestic-demand driven economy like ours, the reason is different. And we have to look within, rather than without.
FDI will not solve India’s CAD issues. Not in the long term. The services sector may bring revenues, but not the employment levels that are the virtue of an industrialized economy. An industrialized economy with strong labour laws will thrust enough liquidity into the Indian economy that the services sector has failed to achieve on a uniform basis. What the services sector has done is, is to hike wages across a very narrow spectrum of employees, driving up retail inflation to sky high levels – artificially. Which is why there is a substantial annual growth in sales in high end cars like Mercedes, Audi, BMW, Land Rover etc., whereas the economy class car makers like Maruti’s and TATA’s are seeing a significant dip in growth.
A slump in the agricultural sector has been ignored. Instead of forgiving farmers’ loans that run into thousands of Crores, thereby weakening India’s fiscal strength, the government could’ve insured their crops! But electoral politics has played spoil sports again. The steep drop in expansion of highway projects and creation of new ones due to bureaucratic red tape, absence of ministerial foresight and land acquisition problems has resulted in a severe strain on the infrastructure sector. Whatever farm produce that does get out of the fields is lost in transit due to poor storage and poor transportation. As per the UN’s assessment, India is losing a third of its annual agricultural produce by just letting it rot due to want of efficiency!
Also, lack of capacity addition in the power sector resulting in prolonged power cuts in several parts of the country is affecting the MSME (Micro, Small & Medium Enterprises) grossly. This has put many of them out of business. Many districts in Maharashtra, including the infamous Vidharba region are down with 16to 18 hours of power cuts every day! Politicians never miss a chance to meet these aggrieved farmers and provide them with cash compensation. But these people don’t need cash. They need electricity to run their pumps to irrigate their fields. They need help from agricultural institutes in adopting modern methods of agriculture and more efficient farming. They need infrastructure to store and transport their produce. Finally, they deserve justice so that there are no middle men to decide their fate! Without doing these and merely talking about providing compensation to these farmers would only make them “dependents’ for life.
Next, let’s take the case of the aviation sector. The revolution it ushered in, through the form of “budget airlines” starting with the now defunct ‘Air Deccan’ which advertised air fares as low as Rs. 500, making hundreds of thousands of Indians fly for the first time in their lives is now in perils. Today, plagued by high ATF (Aviation Turbine Fuel) prices, caused by a disproportionate taxing system and mismanagement of airports; a lack of a clear cut aviation policy, coupled with the lack of an efficient regulator has resulted in almost every airline running heavy losses until recently. And only the grounding of Kingfisher airlines, which reduced seat availability, has improved their fortunes –temporarily. Opening up the sector to FDI 100% will NOT fix this cancer within.
Therefore the problem lies not in opening up the Indian economy to foreign conglomerates or business houses in the form of 100% FDI’s, but rather in ground level reforms that actually deal with the cancer at every level. It is only then can we revisit the golden days of 9% GDP growth. It is only then will economic growth be truly inclusive!