Comparisons, apart from being inevitable, are instructive. But they can also be a problem. In all one-year-since-Lehman commentaries that concentrate on the Indian experience, growth comparisons with the rich world are both inevitable and instructive. But such comparisons are also a problem in that they can distract from India?s main economic job, which is to get back to 8-9% growth as soon as possible. It feels good to grow at 6%-plus when the World Bank had predicted a 4% growth rate for India and when much of the rich world is getting used to positive growth territory again. But if Indian policymakers decide at this point of time that this is satisfactory, the chances of a fall in trend growth, chances that are always there, can horribly brighten. One year after the crisis, with the Indian economy in recovery mode, is when policymakers should be getting ambitious again. China has already decided that 8% growth is feasible. So must India. This means strategic focus on domestic private investment. Everyone knows this is the key growth driver. But no one is sure what the policymaking establishment is doing to seriously engage it. There are two kinds of investment encouragement policymakers can provide. First, through mood change, and this has an important, but short-term effect. Second, through policy change, this has crucial longer-term impact. Factor in with this the need for timing the exit from fiscal and monetary policy stimuli. Fiscal policy stimuli in terms of high government spending and select indirect tax cuts should be exited sooner rather than later, if only because the fiscal correction path that was abandoned needs to be walked again. The next Budget must do this. The monetary question is much more complicated, as these columns have argued. The price and quantum of credit are not satisfactory and an early exit may severely affect investment. Indeed, the case still exists for doing more to bring down lending rates.
What about mood changers and policy changes? UPA-II can change the mood by being consistently serious about disinvestment, by passing the reformist Bills that have been in the system for years now and doing something really substantive about land acquisition. This means more than rescuing the land acquisition Bill from the clutches of the Trinamool Congress. This will require the Congress to take political ownership of the process, like it does for social welfare programmes. If the Congress?s DNA won?t let this happen, we are looking at a big investment constraint. As for policy changes, some good work is taking place in roads finally, but in power, coal, ports and mines, there?s virtual policy stasis. We need a few big ideas and then the implementation of those ideas. Otherwise, the new Hindu rate of growth will be 6.5%.
