It has taken considerable mismanagement to bring economic growth down to 6.1 per cent. Sustained inflation averaging over 10 per cent in the last three years is not happenstance.
That is what Baretalk labelled ‘Mission Accomplished’
Neelkant Mishra says it well in his interview to Outlook:
Let me give you the framework. When India’s economic policy was set in the early ’90s, the assumption was that we could sustain a current account deficit. The assumption was that on the public side the fiscal deficit or surplus would be insignificant and on the private side, we will invest more than we save. It’s like if I have to build my house only when I have enough savings for myself, then I may build my house in my 50s. But if a bank can give me a loan, I can do it now and become more productive. At the same time, it was decided to open up the capital account as we needed foreign money to come in. Initially, the policy makers were averse to foreign debt, so they opened up the equity route. As a result, we saw more equity flows that were reasonably sticky till 2007. But from 2008 onwards, with an eye on the elections, the government waived farm loans, went ahead with the Sixth Pay Commission proposals and also hiked minimum support prices (MSPs) for crops. Naturally, the fiscal deficit turned out to be much higher. The financial crisis compounded matters as the government had to further cut duties, among other things. Thus, instead of the public side being insignificant, as was the plan, we saw larger deficits; government expenditure on the consumption side ended up being higher, while capital expenditure started falling. So, while the government vacated the infrastructure development space for the private sector, at the same time it began crowding it out and slowed down reforms. Though foreign investors, as a whole, aren’t saying that they will not put money into India because it is the fiscal deficit that they are funding, it is being reflected in individual decisions. [Full interview here]
I heartily endorse the warning issued by Ms. Dilma Rouseff, President of Brazil, on the monetary tsunami unleashed by the Western world. Bravo! Hint, hint, Mr. Obama. Oil prices are not rising because of the secular rise in demand from India and China (that is a trend story) but because of money printing by the friendly Federal Reserve Chairman and his counterpart in Europe who is trying to outdo him and many others who are helplessly following the two. That is the marginal cause. Heads of Government should distinguish between trend and marginal factors.