Govt?s lack of a robust defence of growth and investment as beneficial to the masses is most puzzling

The latest figures for GDP growth should not come as surprise to anyone. It was clear at the time of the Budget that political compulsions on the UPA were preoccupying the FM?s mind. He said so himself. Crucial decisions were postponed. The hike in diesel prices was not explicitly pencilled in but spoken of off the Budget speech. The deficit numbers were in consequence not credible. The GDP growth rate was never going to be what the Budget predicted, not for the year previous nor for the coming year. Indeed, it was predictable at Budget time that the growth rate would head down to 6% if not lower. It was so predicted.

In politics it is enough to take a purely domestic view. If criticised by the Opposition, the Government can and has said that BJP/NDA was worse. That may be so or not. Yet while it may stave off the domestic problem, no one is fooled by it. If you put politics in command and neglect economics, the consequence is that you may buy a day of parliamentary peace but you earn a long period of global loss of confidence in India. The government does not like being criticised for paralysis of policy. But if so, it is its responsibility to show that the critics are wrong.

The consequences of the paralysis are now openly visible. The rupee?s slide is not just due to the eurozone turmoil. It is three quarters self-inflicted. If inflation is not under control and indeed no urgency is being shown to bring it under control, why should the rupee not slide? If FDI is not likely to be attracted by the policy proposed, why should the rupee not slide? If the deficit is not under control and nothing is being done to bring it under control by confessing that the government does not have the parliamentary numbers to implement any tough measures, why should the rupee not slide? If the belated hike in petrol price stays, there will be some consolation. But I doubt whether the nerves will hold out.

If the Index of Industrial Production lurches up and down, but mainly down month on month, why should GDP growth not go down? The household savings rate has collapsed to just above 31% from its previous higher than 35% levels while the public dis-savings rate has risen. The government seems to be either unaware of this or sanguine. Despite knowing that there is inadequate storage capacity for foodgrains, yet again we have rotting stocks and no plans to build godowns to protect the food stocks. FDI in retail could be the key here and yet no one wants to defend it from the farmers? point of view; only kirana stores matter.

The puzzle is that a highly talented economics team at the top which has delivered miracles seems helpless. Take the 2G issue. It is consistent with the best economic theory that giving away spectrum licences on a first-come-first-served basis allowed the mobile telephones to be cheap and affordable. Welfare economics advocates pricing of public infrastructure on a marginal cost basis. Mobile telephones may be privately provided but they form a vital part of inter-personal communication infrastructure. Rather like bridges and roads. India has 900 million mobile phones and the numbers are rising. This is a revolutionary outcome for mobility and ending the rural-urban divide. Yet no one has claimed credit for this.

Instead, the entire UPA has been frozen in inaction as a result of allegations of scam. It may be that A Raja allowed some companies to jump the queue when spectrum was allocated on a first-come-first-serve basis?a sound principle for queuing. But the Raja case should not have distracted the government from the positive outcome of the 2G allocation. The R1.76 trillion loss was notional. No one balanced against that the notional consumer surplus of having cheap mobiles. For 900 million mobiles it would take less than R2,000 per user as consumer surplus to exceed the CAG estimated ?loss?. If the 2G spectrum allocations are priced now as Trai wants, we shall see rapid loss of this consumer surplus and return of the mobile phone as a privileged toy rather like lal batti cars or Lutyens houses.

It is this lack of a robust defence of growth and investment as beneficial to the masses that is most puzzling. The benefits of FDI for the millions of farmers and millions of consumers are not defended while the interests of few lakhs of kirana shopowners and their employees are made paramount. The retrogressive subsidies on petrol (hopefully gone forever) and diesel and fertiliser and water and power are defended without conceding that they benefit a small percentage of people in the higher income categories.

It is time to put economics back in command.

The author is a prominent economist and Labour peer