Close on the heels of Dr. Arvind Pangariya’s piece in ET on the scorched earth that the outgoing UPA government is leaving behind, former Economic Advisor to the GoI has written a piece in BS on the very daunting challenges that the new government would face. Oh, boy! ‘Daunting’ does no justice at all to the mess that is being left behind.
This is his list:
To recapitulate, in brief, this grim legacy includes:
- a mounting scarcity of decent jobs for the 10 million-plus new entrants to the workforce each year;
- an extraordinary collapse in overall growth momentum of the economy;
- high levels of consumer price inflation for the sixth year running;
- an unprecedented stagnation in industrial activity for two successive years;
- continued scarcity of good, efficient infrastructure;
- a growing problem of water stress in agriculture;
- a big overhang of incomplete and underutilised infrastructure projects, casting a massive burden of weak and non-performing loans on the nation’s banking sector;
- a legacy of ill-designed and expensive entitlement programmes and high subsidies, feeding large fiscal deficits and pre-empting resources from more productive public expenditure;
- still weak external sector finances, vulnerable to volatility in capital inflows and foreign trade; and
- a rudderless and demoralised public administrative structure.
He is right that the BJP voted for all the populist schemes of the UPA government. Never did it make the effort to make an alternative case for entitlement spending. It is not going to be easy to extricate oneself out of the implicit commitment that the party has made in voting along with the government for the Land Acquisition Act, the Right to Education Bill or the Food Security Bill, etc. I have no idea as to what exactly were they thinking and the motivation behind their lack of principled opposition to government’s criminally irresponsible populist schemes. Being an accessory to a crime is as bad as, if not more than, committing the crime oneself.
I was struck by the similarity of his views on the second-half revival of animal spirits with what I wrote in MINT on Feb. 11, 2014.
This is what he wrote:
… even the initial, confidence-inspired boost to investment and consumption may stoke inflationary pressures more than it does growth, if the supply constraints on the latter are not loosened quickly.
This is what I wrote on Feb. 11, 2014:
A stable and decisive National Democratic Alliance government, post-elections, led by Narendra Modi can quickly get the economy moving. Incrementally, some investment activity will revive quickly. In that case, the growth rate of 5.6% for 2014-15 might be eminently achievable. Also, the Indian stock market will perform better than many of its emerging market peers. …….. If anything, animal spirits might revive so wildly that RBI might have to deploy its macroprudential tools to prevent a quick reheating of the Indian economy. [LINK]
We have not yet had a clear enunciation of what Mr. Modi thinks on the Land Acquisition Bill and the Food Security Bill in their present forms. In Gujarat, they have tweaked the ‘Right to Education’ bill to make it less onerous on private schools. But, the structure of the Central government legislation remains flawed.
India literally has not even a nano-second to lose. That is why a stable government is a necessary condition. I know it is not a sufficient condition. It has to be followed up by good governance. For that, good people – people who mean well for India and who know well – have to be in office. They have to be allowed to function. I doubt if the enormity of the challenge is appreciated by the public. One cannot blame them.
That is why I had to write the Op.-Ed. in MINT on the need for unity and dharma in the conduct of BJP Delhi leadership. It has elicited several comments on the site and personally in emails to me. Of course, several of them are critical. That stems, I think, from their perception of the underlying situation as opposed to mine.
In my view, India has been brought to the doorstep of a permanent (or, semi-permanent) economic an social grave by UPA. Hyperbolic? Yes. But, even long-term optimists on India like Arvind Panagariya are conceding the enormity of the mess that is being left behind.