Wednesday, September 18, 2013

FIVE DEFICITS : THE BANE OF INDIAN ECONOMY AND GROWTH STORY


The potential of Indian growth story and chance of India to become a global economic superpower has been a hot topic with the economists and analysts all over this globe. The forty year opportunity window is at India's doorsteps just waiting to be grabbed for fulfilling the dreams and aspirations of 1 billion plus Indians. This great opportunity window exists simply on the back of huge demographic advantage of cheap skilled manpower both in the technical and managerial cadres and the world economies looking for new economic order in the face of diminishing old order energy resources and global warming associated with them.
The demographic advantage of today will become a major disadvantage after a few decades when the bulk of the population becomes old. After all no sanity can deny the fact that ultimately for about 35-40 years of productive life, the same individual is going to be a burden on the national resources for next 25-30 years. The number of aged individuals and non productive years of these aged individuals will keep on increasing as a nation marches on road to prosperity. The problems of developed and industrialized economies mainly emanated from this crude reality of life. Whereas these countries fully utilized the opportunity window that came their way and grew old after becoming rich, it looks quite likely that India may grow old before becoming rich and prosperous unless and until some wisdom prevails on Indian polity and they start addressing the five deficits, the bane of Indian economy and growth story at the earliest in a sincere and earnest manner. If the polity keeps harping on their  vote bank politics with subsidies, doles and freebies  for another decade or so, India would have missed this golden opportunity and all because the nation could not produce leaders who could keep their baser instincts of lust for power and money away while serving/governing the nation.
No doubt India has complete wherewith all to make use of this god sent opportunity to erase poverty, become prosperous and be an economic superpower. But till such time the challenges before India, the potential economic superpower of 21st century are dealt with in an effective manner, nothing worthwhile is going to be achieved. Intelligentsia from all spheres like politics, economics technology etc. talks about the growth drivers of next generation, namely, the corruption mitigation and good governance, infrastructure and human resource development and Energy security but precious little has been done or achieved in any of them during the last decade or so. The following deficits are the biggest impediments to the growth of Indian economy.
  • CURRENT ACCOUNT DEFICIT :
  • FISCAL DEFICIT
  • COMMONSENSE DEFICIT
  • GOVERNANCE & POLICY DEFICIT
  • TRUST DEFICIT
The first two deficits namely the current account deficit and fiscal deficit are the sole measures of economic health of a nation. Let nobody forget that they are the manifestations of the governance and policy deficit, trust deficit and commonsense deficit which has engulfed Indian rulers. No amount of patchwork solutions through monetary policy and (Reserve Bank of India) RBI actions can provide lasting solutions and are in fact disastrous in the long run as seen in the case of trying to fight inflation through monetary policy. At best these actions can give the rulers some breathing time.
Commonsense Deficit is a crucial factor in marring the destiny of a nation and it has been proved time and again that redistribution of national wealth is not the answer to poverty among the masses of India. As no army can be effective and efficient with a low  tooth ( combat soldiers ) to tail ( support and supply manpower ) ratio, no economy can grow and prosper with a low productive to consumption fund ratio. The polity has to learn to control their baser instincts of vote bank politics and bring in austerity in spending on all subsidies, doles, freebies and government expenditure. The policies and directions of government spending have to concentrate on the force multiplier principle of compounding to reap the benefits for positive gains and not allow it to work for the detriment of economy. Oil pricing policies are a typical case in point. The Indian government decided not to increase the prices of petrol,diesel,cooking gas and kerosene for a very long period just to keep the vote banks happy, even though the international prices were soaring and the rupee was weakening at a fast pace.They even forgot that oil economics could be a thorn in Indian growth story and the resulting impact on fiscal deficit, current account deficit and the national economy is there for all to see. Similarly, the recent food security bill with constant prices to the beneficiary will make the exchequer poorer by Rs 15000 crores every year at an inflation of 10% and will have value reductive effect on the economy.
Governance and Policy Deficit: The Indian government has all these years harping upon the fact that compulsions of coalition government and global economies not being in good shape were responsible for bad state of economy, whereas the basic fact is that the country suffered badly as a result of governance and policy deficit prevailing in the country.It is sad that decisions that were supposed to be good for the country in the eyes of ruling polity were also kept pending  to realize there full impact on the vote bank politics during the ensuing elections in 2014. Now all of a sudden, after destroying the economy for a number of years, lot many legislations and policy measures are seeing the light of the day, the compulsions of coalition politics and tottering global economies not withstanding. In fact during the last month alone projects worth approximately 4.00 lakh crores in infrastructure sector alone have been cleared simply demonstrating 'where there is a will, there is a way'.
Trust Deficit: The biggest negative for the government of the day is the syndrome of trust deficit it has acquired by its actions, deeds and a non coherent approach so much so that the various state governments have no faith its intentions. No body seems to be willing to invest in India, be it the Indian or foreign entrepreneurs/investors. The government seems to be majorly banking on (Foreign Direct Investment) FDI and (Foreign Institutional Investors) FII's for all its economic woes including CAD and propping up economy but the naked truth about FDI is something not very comforting because of huge trust deficit it has built for itself over the years.