Growth: Over to politics - ET
HOW can India sustain its spectacular growth in the wake of financial and economic tumult around the world? The textbook answer categorises possible responses into monetary policy and fiscal policy measures. Even more important, however, is a third source of growth. And that is politics. There isn't much leeway in monetary policy. Liquidity growth is well above what an economy growing at a nominal rate of around 13% requires. Blame unabsorbed capital inflows from abroad, to a large part. Inflation is a potent threat this year, given the global shortage of commodities — industrial as well as food — thanks to the materialintensive growth in China, India, Russia, Brazil and other emerging economies that collectively contribute the bulk of global growth right now. Politics puts primacy on controlling inflation. That leaves fiscal policy. The budget has been expansionary. It offers tax cuts and a massive loan waiver that leave more spending power in the hands of consumers. The budget provides for a high level of government borrowing: close to 4.5% of GDP, if we factor in, over and above the stated fiscal deficit of 2.5% of GDP, the bonds the government will issue to finance that part of the subsidy on food, fertiliser and petroleum products for which there is no explicit provision in the budget. An expansionary fiscal policy is indeed what the doctor orders when the economy catches a cold. But is this all that the political leadership can do to sustain growth? Quite to the contrary. It is politics that can accelerate India's growth even further. There is great variety to growthboosting politics. At a macro level, good governance at the central, state and local levels can push up the overall growth rate. Imagine that Bihar brings its law and order situation to what normal people would like to call normal, becomes home to at least half the country's sugar production and, in the process, jacks up its growth rate to at least the average growth rate for all states. That alone would add nearly two percentage points to India's growth rate. Then, there is the politics of structural change. The vast agrarian population (61% of the workforce, according to the last Census) produces less than 18% of India's economic output. Raising agricultural productivity is a challenge. However, an even bigger challenge is facilitating movement of people outside agriculture. Urbanisation and industrialisation are integral parts of this process. Right now, there is no structured policy in place that converts people who lose land to urbanisation (special economic zones are nothing but tiny towns made of steel, concrete and tax breaks) or to industrialisation to become stakeholders in the towns/industry that come up on their alienated land. So those who lose their land become victims of the very same development process in which lies their emancipation. Politics must intervene to make them stakeholders, not victims, of development. Right now, all politics does is to push people into the hands of Maoists, Mamata Banerjee and other forces inimical to industrialisation. We need to stamp out power theft, so that power becomes a sector that draws investment on purely commercial grounds. Right now, only with the help of government guarantees can anyone dare invest in the sector where nearly half the output is lost, essentially, to theft. If India is to sustain fast industrial growth and draw in newly skilled migrants from the agrarian sector, large quantities of quality power are an absolute must. The government spends at least 2% of GDP as subsidy for the farm sector. If, at least, half this could be spent as investment, rather than subsidy, that would boost yields outside northwest India where the yield per hectare is one-third the level in the green revolution areas. Moving rural folk from a regime of subsidies to a regime of investment is a Herculean political talk, for which our leaders have shown little stomach so far. Andhra Pradesh, under its present government, has markedly stepped up investment in irrigation. This needs to be replicated all over. Lesser order political courage will also show enormous results. Such as allowing our public sector enterprises (the best of them no longer deserve to be 'undertaken') greater autonomy in investment decisions. India needs many new rigs to carry out deep-water exploration. Thanks to the ongoing global scramble for oil, rigs are in short supply. The sensible long-term solution is for ONGC to use its enormous reserves to set up a rig manufacturing joint venture. But then, ONGC can only dream about such entrepreneurship — after all, this is not part of the common minimum programme of the ruling dispensation. The short point is that there is much that politics can do to boost growth, absorb foreign capital in projects that take off fast, land acquisition and mining leases being dependant on transparent policy rather than hostage to political patronage.
• An expansionary fiscal policy is indeed what the doctor orders when the economy catches a cold
• But it is politics that can accelerate India's growth even further
• At a macro level, good governance at the central, state and local levels can push up the overall growth rate
