Asked to comment on India and the meltdown, Amartya Sen said there were two important questions. The first was how and to what extent the meltdown would affect India. The second: would India give some global leadership to the meltdown affecting millions in the poor world as it was a country looked upon on account of its past and size.
On the first question we need some serious acceptance of the problem rather than grandstanding on decoupling and so on. The official policy stand has to create a non-trivial structure of data and facts within which the different actors?the treasury, the commerce ministry and the Planning Commission for fiscal policy, the central bank for monetary policy, the corporate sector and labour organisations for action on the organised structure and the agriculture and small industry groups for the larger economy?can see a role and participate. When prices have risen, interest rate and exchange rate policies need adjustments and output and employment is below the potential levels, then coordinated and harmonised policies are required. This in turn, means that the government has to give a believable analysis of what would happen without a suitable policy structure in the short run, say this year and the next and demonstrate the difference that policy can make.
We have growth forecasts ranging from 8-3% for the next year. It is appropriate to say that there is genuine uncertainty but government has information which if put in an analytical frame would considerably narrow the range. It is unfortunate that nobody is giving a transparent picture of the business as usual consequences of the global meltdown on Indian GDP and employment. To keep on insisting that our growth rate is positive is begging the question.
Four months ago, I had argued with an industrialist friend in a relatively open context that the real crunch on the Indian Economy would come next year and not this year. In early November, we had in an invited talk in USAID after the presidential election argued that with the decline in exports and investments, it was obvious that growth this year would still be around 7%, but the business as usual projection next year would be around 5-5.5%. There are standard ways of making these projections and any experienced hand can do it. Government can do it better. Instead of irresponsible remarks on decoupling, 8% growth this year and 8-9% next year, a framework of believable numbers is needed. International financial institutions have projected a growth rate around 6% next year and banks worse scenarios. The forecast we had made in the USAID meeting after the presidential election of 5% growth next year, while considered pessimistic then, is the reference forecast now.
There are many possibilities of action. The deputy chairman of the Planning Commission has been talking of the larger increase in infrastructure investments. Action in the stimulus on public-private partnerships and releasing the constraints at the state and local level for spending on buses is good, but more can be done on power, water and rural economic and social infrastructure. The rural financial monetary mechanism is showing great vitality. There are very creative proposals emerging from banking experience of newer financial products, securitisation and collateral mechanisms and the like, which would take some of the slack. V Krishnamurthy has given a road map for a manufacturing policy which would be WTO friendly and a report we had written on an agricultural price policy which would be reform friendly has been advocated by economists working in Krishi Bhawan.
To say that around an average growth rate some industries will suffer and others will benefit, which is a stance some policy makers have taken, is nonchalance to the extreme, particularly if efficient industries like diamond polishing and textiles suffer very large job losses on account of policy infirmities. Finally at the highest level, there was a statement that growth next year will be lower. Accepting reality is a good beginning but a lot more needs to be done. Elections are not won by avoiding recognition of real problems.
The author is a former Union minister