On The Spot
Tavleen Singh
In business circles in Mumbai there seemed to appear on Wednesday a small, tentative sliver of hope in the unrelenting gloom that currently prevails. It found reflection on Twitter with Anand Mahindra wishing the new Governor of the Reserve Bank well with this tweet, “Never before has a new Reserve Bank Governor’s every action & utterance been watched so closely. Good luck in the fish bowl, Raghu.” From my friends in business circles I have learned that Raghuram Rajan is seen as a man who could perhaps succeed in taking some steps to save the Indian economy from further collapse. At the recommendation of a friend I read his book ‘Fault Lines’ when it came out a couple of years ago and found it readable and not written in the usual jargon that economists favour when they write books. But, I know little else about this man whose celebrity is of such an order that even his good looks have caused comment in the financial newspapers.
My only conversation with the new Governor occurred one snowy afternoon in Davos when he was on his way to one session and I to another at the World Economic Forum’s annual meeting. He said he had read my column in India Today and I muttered something in return. Speaking of Davos reminds me of what I think of as the exact moment when India’s economic troubles began. It was in 2006 and India was so much the flavor of the season for international investors that the Indian business community had come up in Davos that year with a campaign called ‘India Everywhere’ to celebrate India’s arrival on the world stage as a possible new economic superpower. There was an India Soiree filled with raucous music, fashion shows and the smell of spicy kebabs. Bollywood songs drifted into the icy night out of the clubs on Davos high street and there were so many Indian ministers, journalists, businessmen and bureaucrats in that tiny snow-covered resort that it felt a little as if the whole of political Delhi had moved to the Alps.
It felt good to be Indian in Davos that year but the feeling did not last long because already talk had begun about ‘inclusive’ growth with the implicit suggestion that the incredible growth rate of the economy for two decades had benefited only a handful of rich Indians. Davos-wallahs, as the venerable Vinod Mehta, called them disparagingly last week when he wrote a paean of praise to his hero, Sonia Gandhi. The truth is very different but you can only see it if you do not wear ideological blinkers.
The truth is that whatever prosperity India has seen since it became an independent nation in 1947 has come as a result of these very ‘Davos-wallahs’ having done their bit to grow the economy after the license raj ended in 1991. The truth is that if there have been failures they have been entirely those of governance. If the Prime Minister had been able to continue the reforms that he started as Finance Minister in P.V. Narasimha Rao’s government then the reforms he should have carried out in the past decade would have been to do with public services. Sanitation, healthcare, education reforms should have been what he concentrated on along with serious administrative reform.
Instead, under orders from Sonia Gandhi he focused on investing all his time and money in exactly the sort of massive welfare programmes that kept India mired in poverty for forty ‘socialist’ years. These schemes sound good on paper but in reality serve mostly to keep our poorest citizens dependent on handouts as they wallow in horrendous poverty. Meanwhile, ministers of the Government of India discovered that they could make money beyond their wildest dreams by extorting money from big business through deals to hand out coal mines and big infrastructure contracts. This is exactly what has happened in the second term of the Sonia-Manmohan government and ironically the blame for this has been put on big business. Anna Hazare and his followers, who wear larger ideological blinkers than almost anyone else, built their movement against corruption on the premise that the country’s wealth was being ‘looted’ by corrupt businessmen with the collusion of corrupt politicians. Far too many middle class Indians were seduced by this idea without questioning why India remained such a poor country in the decades when it was officials who controlled all natural resources.
The truth is that governments do not have the money to invest in such areas as the mining of iron ore and coal, which is why private investment was allowed in the first place. But, on account of the former CAG (Comptroller & Auditor General) and his zeal to expose corruption the atmosphere became so filled with hysteria that Supreme Court judges started canceling major international contracts as if it was normal. One judgement resulted in the cancelation of 122 telecoms licenses and made foreign investors realize that their money was not safe in India.
Then came another judgement that closed all iron ore mines in Karnataka and caused more than 100,000 people to lose their jobs. The Government of India could have tried to persuade the judges that what they did had harmed the economy but this did not happen. Then, came the former Finance Minister’s decision to impose taxes with retrospective effect after the Supreme Court ruled in favour of Vodafone in a tax case. This made investors even more nervous because the decision indicated that the rule of the government in power was more important than the rule of law. The final blow has come in the form of Sonia Gandhi’s two favorite laws: the food security bill and the land acquisition bill. The message that goes out is that government will not cut public spending even if it leads to bankrupting India once more.
So in this bleak landscape will the new Governor of the Reserve Bank be able to make a difference? Will he be able to take measures that will strengthen the rupee and encourage investment? Will he be able to restore some of the optimism that was such a characteristic of the Indian economy for more than twenty years? The truth is that nobody knows. The truth is that times are so hard at the moment that the future looks bleak despite one of the most celebrated economists in the world taking charge at the RBI.
Follow our WhatsApp channel