India has paid a heavy price between 1947 and 1992 in terms of forgone growth and development. It has borne massive opportunity losses of national and per capita income because of the serial follies perpetrated by the two founding members of that dynasty. Will it continue to pay that price for another few decades because economic illiteracy remains undiminished in present generations of the same dynasty? This is the $2-3 trillion question that India and UPA-2 face between now and 2014.
The agenda for continued deep and wide economic and financial reform remains a very large one. As just one example, UPA-2 has not yet fully understood that the main impediment to infrastructure development in India is the absence of meaningful financial reform?particularly of India?s debt/bond markets and pervasive state ownership of the financial system. India does not have a bond market at all. It has a rigged artifice in which only one player?GoI?operates on the buy and sell side. The GoI issues over 80% of the bonds in the market. State-owned banks and financial institutions buy them.
So UPA-2 keeps suggesting one public infrastructure fund after another, and creating government-owned infrastructure financing institutions one after another, only to fall further and further behind. So far, it has not done anything to lower the bureaucratic hurdles to project approvals at multiple levels of government. Nor has it done much to ensure that foreign capital?equity and debt, portfolio and direct, public and private?can play (to the fullest extent) the roles that it must in helping India reduce its gargantuan infrastructure deficit sooner rather than later. The gap between intent and accomplishment keeps growing, not diminishing. That is a hallmark of UPA-1 and 2. Rhetoric, not performance, is its speciality. Not appreciating the fact that infrastructure development depends so much on debt finance is a prime example of UPA-2?s ineptitude and a chronic failure on the part of its policymakers (who do not understand financial markets and systems) to comprehend and come to grips with the realities of interaction between India?s financial system and its real economy.
UPA-2 has four years left to start implementing a daunting reform agenda sensibly in the right sequence. If it starts now, it has a decent chance of perhaps achieving 20-25% of what needs to be done. UPA-1 lost five years. Will UPA-2?despite its recent awakening?waste another five?
But economic and financial reform are not the only challenges facing India at the present time. India?s inexorable emergence as one of the three great powers of the 21st century over the next 2-3 decades poses other strategic challenges as well. They concern food security, reducing India?s dependence on the monsoon; creating the physical and social infrastructure that India needs, establishing law and order and a better basis for the delivery of justice, dealing with growing threats to internal security, arresting the dissipation and erosion of India?s institutional capital, adapting to and dealing with the consequences of climate change, and dealing with major and growing geopolitical challenges in India?s neighbourhood and around the world in the manner a great power should.
Our neighbourhood is growing more hostile and unstable largely because of India?s inability to deal sensibly with the neighbourhood-watch challenges it confronts.
India has not yet evolved a proper idea of what a settlement with Pakistan should look like, except in pre-1947 terms. It has not thought through what its future relationship with China should be. It seems content to let China destabilise India through its ?string of pearls strategy? to encircle us with hostile neighbours and compete with India for access to Africa?s energy and commodity resources. China seems determined to monopolise all the global sources of energy and commodities , with India dragging its feet. It is leaving itself open to buying these two essentials from China or Chinese-owned companies instead. Nor does India seem to have got to grips with what its relationships should be with Europe, the US, Japan as well as with other emerging powers in Latin America. In all these areas, as well as the better definition of India?s strategic role in West/Central Asia, the Middle East, and in retaining naval and aerial command of the Indian Ocean and Arabian Sea, the challenges facing India seem beyond the ability of the UPA-2 government to comprehend fully the contours of, or to meet. India?s foreign policy and diplomatic establishment is woefully lacking in the necessary skills, experience and width/depth of capability to tackle the enormity of the tasks it faces. So is the Indian global economic policy establishment that is embedded in the finance ministry.
That may not be obvious to Indians living in India. It is embarrassingly obvious to those living abroad. They realise every day that the world takes China much more seriously than it does India. China is now seen in the US, Europe and Japan?and throughout the developing world not least in Africa?as the most important country in the world. Even though it is not yet in a position to challenge the US, its star is waxing; that of the US is waning. India is a second-division player. It does not yet feature in global consciousness except through patronisation and condescension as a poor country pretending to be rich and powerful, but incapable of taking care of its own poverty or very much else. It is perceived as incapable of cleaning itself up and liberating itself from the grime and slums of its cities or the abject poverty of its rural areas. It is seen as incapable of creating infrastructure in the same way as China has, or dealing with anything as seriously and purposefully as China does. The Indian private sector is respected and admired. Its public sector/government is seen as incompetent, inefficient and corrupt. And yet, for the future of a safer, better world India should be seen as offering more than China?more opportunity, more hope, more stability, more peace, more interest and more satisfaction.
To keep trust with its electorate, UPA-2 must conceptualise and implement a large-scale programme of capacity building in all the areas in which it confronts challenges it is unable to meet; unless something is happening that one cannot quite see. But what UPA-2 does is only part of the story. India as a maturing, evolving, young democracy must provide an example of growth and stability to the rest of the developing world. It must demonstrate convincingly that there is a credible alternative to the totalitarianism of China, which is becoming increasingly?and dangerously?seductive to less mature emerging nations. For that to happen, India needs not just a properly functioning UPA-2 government that pursues a transparent programme of sustained reform with resolve and purpose. It also needs a credible and effective Opposition.
Sadly, that is where things seem to be coming apart at the seams.
The Opposition to the UPA-2 government in Parliament is imploding and becoming a joke. If the public sees UPA-2 as Humpty Dumpty, it sees the Opposition as a shrieking, demented Shrek who has just had a lobotomy. Apart from a rag-tag of rump regional parties, the core of the Opposition?the BJP?is incoherent and inchoate. It represents a peculiar amalgam of bizarre elements embracing preachers of communalism, exclusion, neo-fascism and religious fundamentalism. It allies itself readily with parties that specialise in the politics of thuggery, dislocation, prejudice and destruction (like the two Senas) rather than in the politics of constructive engagement, intelligent debate and inclusion.
That is remarkable for a party that boasted such stalwarts as Atal Bihari Vajpayee, Jaswant Singh, Yashwant Sinha, Arun Jaitley and Arun Shourie. Not so long ago, the Indian electorate perceived the BJP as having a stronger line-up at the Cabinet level than the Congress and its UPA allies. Now that perception is in tatters. Unless the Opposition becomes more credible, India will suffer. It would be a good thing for the Indian democracy if the Opposition assumed government in 2014 and made a decent fist of it. The Congress dynasty believes it has a divine right to rule India. It should take a forced rest and grow up or morph into a meritocratic rather than dynastic role. Looking at the Opposition line-up now, it is impossible to perceive it assuming the role of a responsible and capable government. But four years can be a long time in politics. Much can change. For India?s sake let?s hope it does.
(Concluded)
The author is an economics and corporate finance expert