It is an enduring mystery as to how necessity—for desperate measures—is converted and presented as a virtue in India. In every democracy, the political leadership conducts a regular dialogue with the people. Every week President Obama speaks on the radio. Heads of government step on the plate and explain cause and consequences of decisions. In India, the political leadership dreads and ducks even a monologue. And when they do speak, it is frequently an exercise to explain indecision. On Friday, India notched a new niche. The Prime Minister addressed the nation. He presented the consequences of indecision as a crisis. The good doctor’s spin doctors dressed up the measures to contain the crisis as virtuous reforms.
There was, however, no explanation on why the economy was in a crisis. The Prime Minister says an “unsustainable increase in government expenditure vis-a-vis government income” would lead to “steep rise in prices and loss of confidence in our economy” as indeed had happened in 1991. The question is did this happen overnight? How did we get here? And who let this happen? Was the writing on the wall in Greek?
And don’t expect the Opposition to ask the hard questions. The political lexicon in India is an ever-evolving one. Conventional definition of support means agreement. In current day politics, support can also mean disagreement. So the Samajwadi Party (SP) can say that it disagrees with all the measures that the government took in mid-September and can yet say we support the government. Take the opposition to FDI in retail. Walmart is already procuring and selling in Madhya Pradesh, Uttar Pradesh and Punjab—states ruled by BJP, SP and Akali Dal. Every horror prophesised should have visited these states. Has it? Ideology is not what you stand for but what or which party you stand against. Try and recall a session where the government was cornered for brazen populism and profligacy.
Since the UPA came to power, the government has institutionalised fiscal profligacy. Any enterprise—and that includes the government—has to run on a sustainable model. It must be able to pay for what it spends and if it is borrowing to spend, it must be for assets that will deliver incomes tomorrow. Between 2004 and 2012, the income of the government has increased three times while borrowings have shot up over seven times from `80,000 crore to `5.9 lakh crore. In 2008-09, government was borrowing about `750 crore a day. This year, it will borrow `1,560 crore every day of which more than half will be used for paying interest and debt service.
The Prime Minister says “money does not grow on trees” but apparently government bonds to fund fiscal deficit do grow on trees. You could argue that the money can be borrowed to create productive assets. Well, consider this: revenue expenditure accounts for 86 per cent of total expenditure whereas capital expenditure accounts for barely 13 per cent. Very simply 86 paise of every rupee the government spends is used on the running of the behemoth while barely 13 paise is available to create roads, bridges etc. Just one figure illustrates profligacy most eloquently. The revenue expenditure budgeted for this year is over `12.8 lakh crore while total borrowings is budgeted at `5.69 lakh crore or nearly half the expenditure of running the government is met through borrowings.
Reflecting on the crisis in the low-growth high-entitlement economy of Europe, the Prime Minister says, “The world is not kind to those who do not tackle their own problems. Many European countries are in this position today. They cannot pay their bills and are looking to others for help.” What about the government of India? Why is there no movement on cutting government expenditure? There is no dearth of committees and commissions who have studied this and submitted their recommendations. The Second Administrative Reforms Commission has submitted 15 reports—the last one in April 2009. It is an official secret as to how many of them have been implemented.
Recalling the 1991 crisis, the Prime Minister says India came out of it by taking strong and resolute steps and that “we must act before people lose confidence in our economy”. The question is who is “we”? The UPA presided over the decimation of the India Story as GDP growth declined from 8-plus per cent in September 2010 to 5.5 per cent in June 2012. Last week, the government revealed that between 2007 and 2012, it could build only 17,571 km of the targeted 48,479 km of roads. So who should we hold responsible? The illusionists in government would like us to believe that now the government is now Pardonnez-moi! Cutting subsidies on cooking gas is not reforms. Raising prices of diesel is not reforms. Neither is opening up of retail to FDI a growth steroid. It will address sentiments but what is more critical is addressing the sloth investments are trapped in.
The truth is there is no constituency for reforms or growth. The debate on reforms is stranded in the ghetto of politics, in opportunism and hypocrisy. You oppose exactly that which you would have done in power. The Congress disowned reforms and change as early as in 1994 after the debacle in the Assembly polls. The official obituary was written by the Antony Committee which studied whether reforms were anti-poor. The BJP, which pioneered many changes, dumped reforms after the defeat in 2004.
The Prime Minister says “we need to say “No” to the easy option and say “Yes” to the more difficult one”. True. The tragedy though is that this choice is dictated by crisis, not good sense.
Shankkar.aiyar@gmail.com
Shankkar Aiyar is a senior journalist who specialises in the politics of economics