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Economy Aug 23, 2013

Defenders of UPA’s policies are running out of ammo

By R Jagannathan

If critics of the UPA's economic policies are mushrooming in the monsoon rain, it is not without reason: they know that the current crisis - of which the rupee's fall is only a symptom - is largely home-grown even though the global financial crisis (GFC) of 2008 may have made life tougher for us.

Having made a hash of economic management over the last nine years, it might suit the UPA politically to claim that the current problems are due almost entirely to the global recession, or the US Fed's decision to taper down its quantitative easing. It is fine for Congress spokespersons, who are put on the mat in TV shows, to keep mouthing the same denials. But it makes no sense for neutral watchers to start pandering to this illogic.

Unfortunately, some writers try hard. A case in point is Mihir Sharma's column in Business Standard today (August 23). According to him, all of the UPA's economic critics are wrong, and the Indian economy is a mere victim of global factors. As proof he points to similar problems being faced by five other emerging economies - Indonesia, Thailand, South Africa, Brazil and Turkey.

Reuters

Reuters

Carried away by his own eloquent defence of the UPA economy, he writes: "Never in the appalling annals of political-economic punditry in India have so many people been so wrong simultaneously. And the worst part is that this comprehensive error is born out of willing ignorance, and an inability to look beyond our shores for even a moment."

Quite apart from the fact that this is simply not true - with everyone from Manmohan Singh to P Chidambaram to every UPA defender making the same point to deflect blame for the last four years now - Sharma uses the simple tactic of dismissing all the arguments that go against him in one paragraph and then expanding the case studies of the five countries he talks about to show that India is mere roadkill in a global economic downturn. The UPA's foolishness, for him, had little to do with it.

One simple fact is that the five countries mentioned are more globalised than India, and hence had more cause to fall with the rest of the world. But we has fallen further.

If Sharma had merely bothered to look out of his window to check who is looking "beyond our shores" he would have discovered not only foreigners stampeding for the exits but hordes of Indian businessmen either joining them or sitting at home refusing to invest. Even ordinary Indians are psychologically investing abroad by buying gold - their own form of capital outflow.

As this writer noted before: "Kumar Mangalam Birla wants to invest in the US, not much in India. Apollo Tyres wants to invest in Europe, not India. Cipla's boss Yusuf Hamied even went to the extent of saying earlier this year that 'the time has now come for us to say goodbye to India.' If the world is in greater trouble, should Indian business be heading there or staying back for growth? This is what Kumar Birla had to say: "We are in 36 countries around the world. We haven't seen such uncertainty and lack of transparency in policy anywhere."

In fact, in a rare moment of candour in an interview to Mihir Sharma's paper some time ago, Chidambaram indirectly admitted that the fault lay as much with his government as the global crisis. He said: "We have delayed taking decisions. We've paid a price for it." Chidambaram indirectly said much the same thing in Thursday's press conference - that the government was dealing with problems it should have tackled earlier.

Sharma's defence of the UPA is thus more loyal than the king.

If you don't have a good argument, you can also question the qualifications of your detractors. Thus, while pointing out that the recent fall in the rupee, bond and stock markets had a lot to do with the US Fed's proposed withdrawal of QE, Sharma can't resist taking potshots at the "professional critics of the United Progressive Alliance (UPA) - India's only growth industry, with easy returns and no qualifications whatsoever for entry...".

One presumes the defence of the UPA needs people with better qualifications, but the only people who can be called "professional critics" of the UPA are its political opponents. Would Sharma call his newspaper's former editor the same?

Read what he had to say about the UPA's policies here and here.

Or Ruchir Sharma, the widely-acclaimed head of Morgan Stanley emerging markets, who recently appeared on an NDTV show to explain "The rise and fall of India's economy." Watch here, or read here.

Here's more from people who are more interested in making money in India, but are saddened by the UPA's colossal economic missteps. They have no axe to grind, and have only turned critics due to the government's monumental blunders.

Jim Rogers, the commodity investor, said in a recent interview to The Economic Times: "I have been shorting India due to many reasons. I am very concerned about the fiscal deficit and the current account deficit situation. The measures taken by the government are hopeless, they are making things worse. ...The Indian government just doesn't just understand economics." (Italics ours)

And this about a government whose Prime Minister is a serious economist.

Hear what Marc Faber had to say about India, again to ET: "I am not very optimistic about India on the macroeconomic front, and it has to do with the government policies. The economic policies of the government are by and large a disaster; the government could have done more. The government in India, through its incredible bureaucracy, has retarded economic growth in the last 20-30 years by at least 3 percent per annum in real terms. It's a miracle that the Indian economy has performed well, considering the quality of its government." (Italics ours)

Or listen to Shankar Acharya, former Chief Economic Advisor to the finance ministry, and a Business Standard columnist like Mihir Sharma:

"In the six years to 2007-08, the combined (Centre and states) fiscal deficit had been brought down from nearly 10 percent of GDP to four per cent. This remarkable fiscal consolidation was squandered in the single, pre-election of year of 2008-09 when the combined deficit (inclusive of off-Budget items) leapt to over 10 percent of GDP. The central government budget deficit target of 2.5 percent of GDP, presented by the current finance minister in February 2008, was massively overshot in the course of the year to yield an outcome of 8.2 percent of GDP (including off-budget items), easily the biggest overshooting in India's history. Although later rationalised as 'fiscal stimulus' to counteract the global crisis, in fact, the great bulk of the overshooting occurred before the Lehman crisis of September 2008, mainly in the form of pay increases, subsidy hikes and NREGA rollout." (Italics ours)

What Acharya is saying is this: the roots of our economic problems predated the global financial crisis - which disproves Sharma's idea that somehow India is a helpless victim of the same crisis about which we can do nothing.

UPA's defenders need better ammo if they want to be taken seriously. Using the foreign hand theory to remain in denial about our follies is an idea borrowed from Indira Gandhi's time. Isn't it time to move on?

by R Jagannathan

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