Anxieties on policy cohesion and action

There is an interesting change in the past year and a half in the economic dailies. The newspapers are much more concerned with corporate news and results and much less with government policies and decisions. Perhaps the buoyancy of the markets, the opportunities of economic liberalisation and the sheer excitement of all the business happenings have moved government news away from their focus. Or, perhaps, there is nothing much to report from government, anyway. Better, then, to get on with the business that is available than worry about reforms that could have happened, but did not.

But even for these businesses, the mutual funds and the stock brokers, the predictors of a 16,000 Sensex, it is necessary to take stock of positives and negatives. The rains have been satisfactory and, barring pockets in central and eastern India, output from agriculture would be normal or more. At a micro level, a rural debt crisis is unlikely in Andhra, Karnataka and Punjab, and the consumption demand from the rural sector would be strong. Services continue to grow, led by strong demand for IT. New areas like entertainment, health and bio-technology are opening to international attention.

In selected manufacturing sectors? textiles, auto components, light engineering, pharmaceuticals, petrochemicals, etc, there is healthy growth. For the third month in succession, exports have crossed $7 bn and imports have been flat at around $10 bn. If this continues, we could even see exports crossing the magic $100 bn mark this year. There is considerable activity in power, and Bhel has order books for four and half years. Financial markets have reached international standards and there is credibility and trust in the transactions. Commodity markets are emerging as yet another opportunity.

On the flip side, there are several concerns, most importantly in manufacturing. The textile sector is already getting squeezed. Yarn prices have become soft and costs of power are going up. Free power in Punjab for farmers has meant nearly twoday power cuts in a week for industry, now depending more than ever on captive generation, while fuel oil costs skyrocket. As the bountiful cotton crop comes in from this month, mills would not be able to pay reasonable returns to the farmer. So, there?s danger of the farmer getting squeezed out, unless there is export of cotton.

Rubber prices have softened and are likely to remain so for some time. Steel stocks in China are high and the profits of last year no longer available. Growth in automobiles, trucks and components is lower than last year and cement is not growing. Petrochemicals are nearing the start of the business cycle?s downward slope. It is interesting that the corporate sector is sitting on so much liquidity, but prefers to play the stock market with its surplus funds, rather than invest in capital. The RBI governor has already indicated that capital formation this year would be lower than expected.

Infrastructure is not happening. The concession agreements for the Delhi and Mumbai airports have been cooking for over 10 months. Hardly 200 km of road works have been tendered out in the national highways programme and 28 coal projects expected to produce coal in the 10th Plan have not even commenced work. The irrigation and urban renewal projects, talked so much in the Budget, are nowhere near start. It is only in the power sector that some stirrings are seen. Fiscal control will possibly come out of non-implementation of projects this year, with cess collections for roads and primary education swel-ling the Consolidated Fund of India, rather than being utilised for projects.

Oil prices are high and likely to rise further. Gas projects, even those of ONGC, are very much behind schedule. The customer in India is already paying much more than international prices for petroleum products. Any further increase would affect consumption and growth and contribute to inflationary pressures. The country would be paying close to $37 bn this year for oil, a heavy drain. A cohesive energy policy is yet to be articulated.

Resort to the Employment Guarantee Scheme indicates there is no growth of jobs in the economy, except in IT and related service sectors. Disaffected youth are already a threat to law and order in several states and there is only a police approach to tackling this, not a development approach. The concept of ?inclusive growth?, articulated by the government all the time, does not seem to cover the demands of disaffected militant groups.

The concept of ?moral interventionism? in liberal democracies is often articulated as a coherent strategy. But coherence itself is the important requirement for intervention and state building. If civil responses are characterised by ad hoc action and unpreparedness, then the perception that state building is not a science, but an absorbing hobby, emerges. The lack of intellectual rigour in tackling brutal practical problems and the inability to convert ideas into mitigating action would seriously fall under the classification of ?muddling through.?

For all this, growth rates of around 7% are likely this year and perhaps for part of next year, too. There is excitement about India in the world and, increasingly, businesses are talking about India and China, not either. This is an opportunity for economic strength as never before and we have to get certain things right ? energy, manufacturing and infrastructure. Dur-ing his recent visit, the World Bank president noted there are great opportunities ahead for India (and hoped we would not blow it). Taking advantage of these require coherent government policies and action. I wait eagerly for the days when business papers would be full of news about these.

The writer is a former finance secretary and economic advisor to the PM