JOIN USParliament has not passed most of the pending legislation before it this session. Instead it has, at least perfunctorily, discussed the Lokpal Bill because of the determined crusade of one old man demanding a strong legislation to identify, investigate, prosecute and punish corrupt elements at all levels of government.
There will be more legislation to come: dealing with judicial accountability, non government organisations, land acquisition and the nuclear bill. In all this excitement about democracy, the so-called supremacy of parliament (actually restricted to passing legislation), the role of mass movements in compelling government to legislative action, the attention has drifted from the perilous state of the economy.
The GDP growth dipped sharply last quarter (and may be worse once final figures become available after a year). Inflation, especially of pulses and vegetables, has again become quite high. Demand for many consumer products is declining. High interest rates meant to control inflation has slowed investments in infrastructure and will soon hit housing purchases and construction.
Banks are showing rising non-performing assets. After many years, labour unrest is raising its head and may spread as inflation grows and declining production leads to layoffs. Corporate profits are showing declines, stock markets are down. Capital investment will fall. Banks are reluctant to lend to many infrastructure enterprises, even those that are part of government, like state electricity boards.
State electricity regulatory commissions have ensured by holding back legitimate tariff increases, that state government are spending rising portions of revenues on meeting losses of their SEBs.
Road projects are witnessing ambitious quotations by private companies who will certainly not be able to execute the projects, especially as banks are showing reluctance to lend against such projects, especially when bidders have offered to pay government instead of asking for viability gap funding. Sharp slowing of infrastructure spending is likely, hitting investment, demand and employment.
The American and European economies are showing distress, while Japan never recovered from years of stagnation, and from its recent disastrous tsunami and earthquake. Their interest rates are low, and Indian companies have taken full advantage in borrowing from them. But the big question is whether lenders and investors will consider it safe to invest in India, with its uncertain economic situation, declining corporate profits and wide-spread corruption.
The anti-corruption movement is also at long last compelling government to examine closing the windows for Indian money leaking to foreign shores via Mauritius (free of capital gains when invested in and repatriated from India), and on participatory notes.
Problems across economies
Since these two mechanisms were also major contributors for foreign financial investment in India, that also would get affected adversely. For some time we have felt that Indian markets are growing and a recession in developed countries might not hurt us much; and also that the emerging markets of China, Brazil, Russia, South Africa and others could make up for much of the slackness in overseas demand. But all of them are going through similar problems as we are in their economies.
The one bright spot is the good monsoon which will mean good harvests. But we have to hope that government will change policies and implementation in procurement, storage, pricing and distribution so that farmers get remunerative prices, and the theft of PDS grains and other items does not deprive the poor of the protection from inflation. Another gain from the global economic decline is the fall in crude oil and hence also of gas and coal. We must tie up supplies at lower prices and reduce the retail prices in India while raising power and other tariffs that have been held back.
The solutions are clear but governments may be too lazy and timid to implement them. Waste and theft must be plugged by harsh measures against culprits. This is what Anna Hazare is asking for, but no political party appears willing to undertake them. Efficiency in government and industry must improve.
This requires a system of performance evaluation and accountability, again areas that governments have shown little interest in implementing. Even though there is concern about inflation, tariffs for power should reflect costs and adequate margins to enterprises in generation, transmission and distribution.
The environmental constraints on mining coal must be removed with a strict replanting programme. Coal itself must be at least partially denationalised so that there is a domestic market.
Deficits of all governments must be reduced by a programme of economy and tax collection. The problems of having allies like Maata Banerjee, the chief minister of West Bengal, is a millstone at this time, since she will not countenance raising taxes and tariffs. A way must be found to get them in line.
The actions required call for ministries at Centre and states working in coordination. It demands a clear programme of action from the prime minster. Experience of the last few years suggests they will not be forthcoming. We are in for worse times. It is a pity because they are eminently avoidable.