Wednesday, May 02, 2012

Dream scenario becomes worst nightmare

Imagine that you have won a football match and are celebrating.
Suddenly, the match referee comes up and tells you that he has decided that the penalty shot you won by is cancelled, because he has decided that handling of the ball was no longer a foul.
Well that is what the United Progressive Alliance government seems to be doing with regard to some recent decisions.
Going back on taxation rules, the promise of Telangana, fighting corruption with, and then against, Ramdev and Anna, the United Progressive Alliance has a history of sorts of changing rules, some, retroactively. But, more often than not, they have led to self-goals. 


This is not the time when we afford too many of them. India is currently looking into the maw of a balance of payments disaster. Nothing as serious as the one it was hit with in 1991, but nevertheless bad.
In considerable measure the crisis has been brought on by India's tendency to run large current account and fiscal deficits. It has been depending on foreign institutional investors, rather than direct investment to make up the gap.
Surging oil bills and the cost of its massive gold imports are adding to the pain. To top it all, growth is slowing and inflation remains high. And at this very time, the country has been hit by a slow-motion political crisis that has paralysed decision-making in the government.
Unlike in 1991, the country does have $300 billion in reserves, but the demand for foreign exchange, too, has boomed and this could hemorrhage in no time.
This was supposed to be our decade of opportunity. India's dependency ratio- the ratio of the dependent population to the working age population-was going down-and would go down till the 2020s. This has been accompanied by a rising savings rate.
The one area we have yet to finesse is FDI rules. The three combined would give us a population of a productive people who would, in turn, jack up savings rates even higher and encourage even more FDI.
But this presupposed certain things, principally, a government which took the policy decisions which would, first, create the infrastructure in terms of schools, training institutions and universities which would turn our young into skilled professionals.
Then, second, create the infrastructure upon which would come up the physical assets in industry, agriculture and services on which would rest the foundations of our world status. It is now becoming clear that far from a demographic dividend, India may be headed for a demographic nightmare. Instead of an army of young, educated and productive people, we could end up with a mob of unemployable young people, who have been educated enough to know that they have been betrayed by their government, but not skilled enough to hold down a proper job.
Such persons are more likely to swell the ranks of the Maoist guerrillas who operate in a vast swathe of east-central India. It is increasingly beginning to look like the end of the Indian dream. The reason for this is not that the US economy is down and the European one is on the verge of a disaster. 

We are fully responsible for our own predicament. And the first prize for this achievement must go to the UPA government which has successfully snatched defeat from the jaws of victory.
Actually, their capacity to harm is not quite over and we will probably see more self-goals as the alliance heads for political catastrophe in 2014. The primary cause for the UPA's behaviour is something that goes back in human history-hubris. The Greek word typifies people and institutions whose overweening arrogance causes them to lose touch with reality and assume that their achievements are eternal and cannot be undone. In 2009, not only had the Sonia- Manmohan team steered the UPA-I  coalition to a successful conclusion, despite the desertion of the Left, they had also succeeded in persuading the voter to give them a second term.
The Congress party tally went up by an astonishing 61 seats, from 145 to 206. The voter seemed to be saying that do well in the next five years and we may actually give you the 272 seats you need for a majority of your own.


The problem is that almost immediately, the party began to function as though it already had 272 seats in the Lok Sabha. The reality, of course, was very different. These were the years, 2010-2011, that required considerable attention in terms of policy formulation.
Hubris declared that we had weathered the 2008 crisis without breaking into sweat, and so there was little need to get excited over what was happening in our own polity and economy.
So the roots of inflation-poor infrastructure constraining growth- could not be attacked. Illustrative of the problem are the issues with power generation and coal. We are blessed with abundant coal reserves, which are made available to industry at half the international prices and so they ought not have been affected by phenomena outside India.
But the problem at home could not be defeated-the coal mining policy has remained a mess. The result is that power plants across the country are starved of coal, which in turn has led to a disruption of industry.
And, since this is the way hubris works, all this has come at a time when the UPA has been struck by a slew of corruption charges that have left the Congress party ship dead in the water.
We, and above all our leaders, need to understand that all that history can give you is an assured opportunity, of the kind India had in the 2000-2007 period.
Beyond that your destiny lies in your own hands, dependent on the things you do, or don't do. Going back in history and changing rules, doesn't really work, except in science fiction. 
Mail Today April 13, 2012

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