The malaise within

The falling rupee

If the growth of the last two decades had been properly utilised, India’s GDP would have been several times more.

The Indian rupee has touched a record low of 56 per dollar and continues to go down. The interventions of the Reserve Bank of India have been of little avail and the finance ministry remains clueless as to how to reverse the trend. Two years ago the rupee-US dollar exchange rate was at around 44.00. Thus, there has been a fall of about 25 per cent during the last two years. Rupee has been on the decline consistently and is expected to fall further in the near future.

It is obvious that the fall in the value of the rupee is a cause of concern for the importers who have to pay more for the same dollar value of imports. For the Indian economy it means additional outflow of money for the same quantity of essential imports such as the petroleum crude and increasing burden on the already stretched national economy.
The balance of external trade affects the exchange rate.

For one, our exports are not doing well. Years of outsourcing of lower grade human services such as the various Business Process Outsourcing units and the so-called Knowledge Process Outsourcing units has made us complacent about continuous upgrading that is essential. Even our IT services have not moved forward in content to what might be expected of a business segment that has been in the limelight for the past two decades. Manufacturing industry has actually shown signs of giving up on qualitative and efficiency improvements.

In a business world that is highly competitive, India has failed to seize on its opportunities and build on its strengths. Mexico is fast picking up on manufacturing business. Philippines and other developing nations are fast catching up on BPO business. Countries like Ireland are consolidating on various outsourcing opportunities. We not only need to capture a sizable share of the available outsourced business, but also need to find new ways of offering goods and services internationally.

The above needs a resolute action by the government to provide conducive atmosphere for the Indian industry. It needs to enhance and improve the infrastructure of power, ports, airports, roads, railways, special zones and the like. We need rapid improvement in the quality of our manpower. Quality education at the school level is a vital ingredient to quality and productivity of work. We have not yet truly realised that it has long term ramifications. Lack of it will boomerangs someday. It appears that it is already doing so.
The other structural problem – a huge one – is that of the quality of people interactions, of business practices, of government bureaucracy and of politics in the country.

Corruption is not a superficial ailment. It corrodes the body of the nation from deep within. In India, corruption is rampant in politics, administration and in most walks of life. The rapid, if terribly skewed, economic growth of the past decade and a half has brought out the base qualities in the people who have changed to a ‘get rich quick’ mode. People are in a hurry to grab as much of whatever they can and in whichever way.

No rational reason

There is no rational reason, other than utter lack of concern, for a waste of the nation’s food grains in the government warehouses for years on end when one-third of India is going hungry. There is no reason, other than private profit, for people in power conniving to divert precious water in Vidarbha region of Maharashtra to private power projects when the small farmers have been deprived of water for their farms and are pushed into desperation to commit suicide. There is no rationale for utter lack of basic healthcare in the entire country where primary health centres are present in a few places only in name. The list is endless.

Whatever benefits the country might have derived from the so-called ‘economic growth’, have been squandered quickly with little left to build upon. First of all the growth is lop-sided. Additionally, very little of that supposed growth gets conserved. Actually, if the growth of the last two decades had been properly utilised, the GDP of India would have been several times more than what it is now. We never have sufficient funds for any public project, because there are heavy leakages. China was as backward economically – perhaps worse – three decades ago as India is. But, they could build massive infrastructure in almost all spheres of their economy. Democracy cannot be given as an excuse for bad governance.

Lack of encouraging atmosphere and basic infrastructural strengths have been driving the investors away. This is what is happening in the case of foreign investors in India. Foreign institutional investment is fleeing the country; and foreign direct investment is sluggish. NRIs will also be wary next. India is caught in a vicious cycle.

Weak rupee causes a rise in oil import bill. This badly affects its fiscal and current account deficits. FDIs are hard to come by during times of global risk aversion. All this further dents the rupee. How much action can one agency - the RBI - take? It cannot indefinitely pump dollars into the market from foreign exchange reserves.

People have begun to have doubts regarding India’s growth story. India, with its lack of governance and its society’s lack of will to clean up the system of productivity-choking corruption, is getting to be less and less attractive for investment. International credit rating agencies Standard & Poor and Fitch both have downgraded India to BBB-, which is just one notch above ‘junk’ rating. Tough times are ahead. Generally, a stitch in time saves nine. But if the fabric is giving way at several places, will stitches save it?

(The writer if a former professor at IIM, Bangalore)