Column : Response to the global chill

Written by Yoginder K Alagh | Updated: Feb 11 2012, 07:25am hrs
The news that the finance ministry has decided that the budgeted expenditure next year should not necessarily be in the framework of the annual plan was distressing. The finance ministry reportedly wants expenditure to be decided not in the annual plan but as per the Rangarajan Committee, which has decided to abolish the concept of resources for the plan and plan expenditure to facilitate their concept of rationalisation of public expenditure and investment. GoI seems to have decided to send these signals as the economy descends below the 7% growth figure and as aggregate investment and manufacturing growth rates fall. The plea that I made in my last piece in this paper for incentive mechanisms, technology policies, skill training, strategic plans and tariff tweaking for 29 industry groups where in their (National Competitiveness Commission) opinion we are at or near the global best (http://www.financialexpress.com/news/gearing-up-in-2012/900785/0) is not the kind Delhi is heeding.

Interestingly, my plea seems to have had resonance elsewhere and the emerging global literature on the forthcoming BRICS Summit in Delhi in March this year outlines that, for strategic emerging industries, Chinas current Twelfth Five Year Plan has, at the industry level, specific targets and details of policies on taxation, tariffs and domestic procurement. The approach paper to the Twelfth Plan in our case, on the other hand, sagely suggests for the manufacturing sector that (in the years of global slowdown) we should develop international networks and consultative processes.

There was, however, hope in the reviews the PMO was doing of investments and roadblocks in relation to infrastructure, agricultural policies and strategies of successful PSUs. We also need to follow through on ideas emerging from the global economic debates, for the approach paper is right in suggesting that global aspects can only be neglected at peril. It is valid to argue that, given the global slowdown, Indian growth at around 7% is not to be scoffed at. But the context here is, can the economy do better Unfortunately, the buzz from visiting experts and businessmen is pushed by their own agendas and one of the lessons of the meltdown from 2008 is that transparent arm's length relationships between corporate, financial and consultancy entities are, more often than not, missing. Unfortunately, the press in India generally tends to downplay the comments of serious independent scholars and economists. As Stiglitz never tires to tell us, the FFI types are normally not the best students and this is as true today as it was when we were studying and teaching in the Ivy schools.

What are the lessons here First, domestic recognition of the points our negotiators have been making for some timemost certainly at the Seoul meetings of the G8/G20that the kind of space emerging economies need to grow is possible only if the global economy proceeds in a reasonably stable trajectory. The 4% CAD rule, for example, and the Mutual Assessment Process are no longer luxuries. Within BRICS, India is extremely well-placed to pursue this agenda. This is both on account of its macro-performance and long macro-policy experience. The second is to gain the globally accepted need for transparency in financial assessments. Again, the role our central bankers have played in this context in the G20 from the days of Y Venugopal Reddy needs to be understood and counted upon for the future.

All of this needs a more articulate and assertive policy community in global debates, in India. It is not that Indias voice will not be heard. Given the size and growth of its economy and its policy experience, it will be. But domestically we get, instead, a lot of noise generated by sectional interest groups, more often than not very thinly disguised, but very effective in using communication channels for their own purpose. A more open, effective and informed policy debate will help both India and the world. I have watched this influence grow from the days a decade ago when I wrote the India piece in the L20 volume, which, for the first time, argued that India must, with China, be a part of the G8. At that stage, even our leadership, very comfortably placed with then US President Bush, was not too keen. But as Juha Jokela has argued in his April 2011 Chaillot Paper published by the European Unions Institute of Security Studies, a review of the L20 volume 10 years later shows the foresight we showed then in arguing that India perceives the restructuring of the G20 must build on the potential of the developing economies for the future of the world.

The author is a former Union minister