The Hindu Business Line : Indians haul India to the `junk' yard

It is not surprising that India's international reputation for economic mis-management has attracted the attention of S&P. A country that has bowed to corrupt leaders, and outdated swadeshi principles, deserves to be reduced to a credit rating that is something below junk status, for sheer inept policy-making. India is its own enemy.

IN THE last few weeks, India's international reputation for economic management (to the extent there was one to defend) has suffered a few blows. A country led by a combination of out-of-sync septuagenarians and misled by misguided organisations, deserves to be reduced to a credit rating that is something below junk status, for sheer inept policy-making. Therefore, it is not a surprise that we attracted the attention of Standard and Poors for the wrong reasons.

Indians can rant and rave about the downgrade; Japan did too, when they found themselves in single-A category. Credit rating agencies are paid by their clients to apprise them of risks in investing in corporations and countries. They do not have time for jingoism. In any case, in the past, their weakness was that they were too late. Now, they wish to make amends. Surely, India is at the top of the list.

Swadeshi types, having tasted success by halting disinvestment, now wish to perpetuate and enlarge the regime of subsidies. Some agitations are on the way in October. They point to the recent record of the US. Sure, the US practises hypocrisy. It protects its own steel manufacturers with tariff and pays cash to farmers. We should be allowed to do the same too. Why not? But the US also allows giant organisations, such as Enron and WorldCom, to go under and in an economic downturn; companies lay off millions and rehire them when boom conditions return. The US, thus, generates far more employment than India.

Do we allow that to happen here? We are still debating whether we have to amend the Industrial Disputes Act to allow companies the right to lay off workers. Heresy, is it not? So, first, dismiss the idea of aping or accusing the US. We need not emulate or discard something merely because the US practises or disowns. We have our own Swadeshi logic of self-destruction.

Farmers should be provided price support for their produce. Farmers should be supplied free water and power. Farmers should be subsidised for the fertilisers they buy. Farmers should be exempt from agricultural tax. We subsidise their inputs, we augment their revenues and we exempt their incomes from tax. Farming must be booming in this country. It is not. Why?

Subsidised fertilisers lead to imbalanced application of fertilisers. Soil fertility and nutrient content are lost. Price support for wheat and rice leads farmers to cultivate the same crop year after year. These crops are water intensive. When rain fails, farmers commit suicide because their crops fail. Farmers have no incentive and no price signal to switch to other crops that the country needs and spends money importing.

Farm productivity remains well below that of China's. Agricultural production has remained stagnant around 200 million tonnes for more than a decade. Given all these subsidies and pampering, is the farming community held accountable for yield, soil preservation? Not by a long mile. They are not educated nor are they informed. Is there any time limit for these supports? No. Is there any income limit for these supports? No. The rich, educated and connected farmers benefit. The poor ones commit suicide or migrate to cities to work as daily wage labourers.

Sure, with the government's role confined to ensuring subsidies of all kinds for agriculture, does any one have money or interest to invest in agriculture? The government cannot, for the government's subsidies do not stop with producers. They extend to consumers too. Consumers have to be distributed agricultural commodities at subsidised prices. Who benefits? The middle-class, that not only purchases its quota but also lives off the quotas given to its servants and domestic help. People who are genuinely poor, perhaps, do not even know how to register themselves for BPL (below poverty-line) schemes. Some one has to help them and they probably fleece them for doing so. The purpose is defeated. But then our interest is the rhetoric and not reality.

If the government subsidises power to farmers, why not to urban households? That continues as well. Who pays? Industrial consumers, of course. No surprise then that industrial production remains stagnant for years, to raise its head once in a while, briefly flicker, and then fade away thereafter.

Bad loans cannot be recalled for defaulters would read like a roster of Who's Who in industry. Industrial associations that clamour for reforms shut up when it comes to disposal of non-performing loans.

In theory, any government could continue with subsidies — as long as they work and deliver the intended results and, importantly, if the government can afford it. The country can afford some of the other anomalies above too as long as it is rich enough to afford it. India is not. Then, how does the government find the money?

Can it tax the vast majority of self-income earners — accountants, lawyers, doctors, etc., — no. Traders and the middle-class are the favoured constituencies of the BJP. Can it make ministries and government departments redundant and close them down? No. The government has a social obligation to provide employment. We will implement the Fifth Pay Commission's recommendations but we will leave it to our children and grand-children to pick up the tab. After all, are not we earning for them? Can the government invite foreigners to invest, if it does not have the money to invest? No. Do we not remember we were occupied for 250 years by letting a foreign company enter our soil? Can the government sell loss-making public sector enterprises? No. They incur losses because the government has not provided enough funds. Can the governments sell profit-making enterprises so that it would realise better prices? They make profits. Why should we sell them?

Can we privatise our airports and airlines? No way. How will our MPs, wives, ministers' relatives, bureaucrats and others visit the rest of the world and broaden their perspectives? Admittedly, some readers would already be tiring of this thinly veiled sarcasm. Imagine how tiresome it must be for well-meaning Indians in the government and outside, to have to live through this kind of opposition that passes off for alternative economic thought.

Here is a country that, even with the most conservative (or, generous) estimate, has more than 300 million people living in poverty without the basic necessities that consign their lives to one of endless indignity. Yet, the government is told that it cannot raise resources in any form that would even remotely ameliorate their suffering while the pampered narrow minority would continue to be pampered. This is neither democratic socialism nor democratic capitalism. Dictionary has a better word for it — kleptocracy.

Asia-phile Patrick Smith wrote recently in a column that the postponement of disinvestment decision in India is not a big setback and that it might even be enriched by an enlightened debate on what, when and how to privatise. Fat chance. In India, reforms are pursued apologetically and with stealth and when confronted, are presented as matters of no choice. Reforms are opposed volubly and in public. Enlightened voices are muted while the ignorant and ill informed occupy the limelight. The failure here is that of reformers. They have consistently failed to articulate a meaningful case, based on Indian needs and priorities, on economic reforms to the larger public. Masses remain either mostly ignorant or suspicious of needed initiatives. The void is filled by narrow and shameless self-interest masquerading as self-reliance and Swadeshi.

What we have heard from anti-globalisers is shrill opposition and no well-articulated and feasible (that is the key) alternative plan that addresses various policy constraints and priorities in India. The government's job is to propose and their job is to oppose until the government stops proposing anything. That is what has happened in the last few weeks and the world is beginning to take notice, with embarrassing consequences.

India has no dearth of issues for campaigners to take note of. For the supposed pro-poor, such issues ought to rank higher than economic reforms in the order of priority. The country is perennially dependent on monsoons so much that the residents of two neighbouring States are bitterly fighting for river water. No one, among the perennial dissidents of reforms, articulates the need for a national river water policy.

In the name of protecting official secrets, elected ministers and appointed officials in government get away with corruption and prosecution, when apprehended, by stonewalling release of information or its destruction.

States have paid lip service to the concept and stopped there. Public are not informed of their rights under the Act. Officials who refuse to release information under the Act are not punished. The country finds no champions for a Freedom of Information Act that would be true to its meaning in spirit and content.

The litany of ills and injustices that clamour for attention and beg for eradication is endless. In the meantime, in the name of Swadeshi and self-reliance, protesters end up destroying whatever little prospect there is, of addressing poverty sooner.

In doing so, they end up helping the cause several militant organisations whose avowed aim is to bleed India by a thousand cuts. We can do it much better and faster, ourselves, thank you.

(The author is the Regional Head of Investment Consulting in Credit Suisse, Asia-Pacific. The views expressed are personal. Please address any feedback to nageswar@singnet.com.sg)

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Don't tax the investors

Indians haul India to the `junk' yard

Bridging the Marx-market gulf

In defence of the Indian auditor

ASB is bass

Another blow to body politic

A terror attack that was waiting to happen

Wheat vs chaff

Reliable ratings?