Guiding the Indian economy

When Manmohan Singh steps aside, someone new must take charge of what is a serious problem that needs a fresh approach

How will India’s high growth continue? Its run as the world’s second fastest growing economy has already ended, and chances of it returning to that position don’t seem good.

The Congress, under Manmohan Singh, has failed to deliver consistently high growth and the numbers are now clear.

In the last nine years, Singh’s team and their policies made India grow nine per cent-plus in four years and eight per cent-plus in two years. But last year, growth was 6.2 per cent, and it is slowing down further. This year, it is expected to be five per cent, the lowest since the BJP-led alliance left power in 2004.

At about two trillion dollars, India’s economy was the tenth largest in the world last year, and it will become the eighth largest this year, ahead of Russia and Italy. But this rise in the rankings is not by itself significant.

The important aspect about India’s economy is, of course, that per capita GDP is very low.

It is only $1,500 per Indian or thereabouts, which is one-thirtieth of what it is in developed nations. We are not a middle-income nation, are a long way from becoming one and the majority of Indians are, in fact, very poor and will remain very poor for decades.

But even on this low base, our growth collapses from nine per cent to five per cent when the global economy softens. Why? It was the easy money coming in from the West, economists like Ruchir Sharma say, that lifted the Indian economy for many years of the last decade. When this dried up, we immediately sank to six per cent growth, first in 2008, and now for two consecutive years. This is remarkable and it shows that the internal thrust for high growth is missing, for the most part, in India.

So, what should be done to bring high growth back? Singh says some reforms will help but it isn’t clear to me whether the next Lok Sabha will be more capable than this one in passing reform. Also, it doesn’t seem to me that just some more reform will by itself add the missing four percentage points of growth. Some new thinking and a new strategy may be needed that addresses the lack of internal economic dynamism rather than only attracting easy money, which by most accounts isn’t coming back any time soon.

Who is going to guide the Indian economy out of these doldrums of stagnant growth?

Singh has said that he cannot rule it in or out that he will again be the Congress candidate for prime minister in 2014. I think there’s little chance that he will offer himself for the job (he will be 82 next year). He has left it ambiguous out of maturity, purely to ensure that the focus would not immediately move to Rahul Gandhi.

And there’s little chance also that the Congress will consider Singh even if he were willing.

The fact is that though he has had a reasonably good innings so far, his credibility on the economy is currently low. He has kept saying in the past couple of years that high growth will return but he has been wrong and he doesn’t seem to know when or how it will return.

We need someone who can tell us what the internal issues are and how to revive what Singh has called the “animal spirits” of entrepreneurship.

To my mind, and this is to be fair to whoever runs the economy, this is not a political or legislative problem, but a broader social and cultural one. However, it is essential that political solutions are thrown at it to see whether there is a reasonably quick fix to bring us back into high growth trajectory.

Singh has had his chance and done as well as might be expected given his handicaps. Now, it’s time for him to wind down. After 2014, when he steps aside, someone new must take charge of what is a serious problem that needs a fresh approach.

Published in The Express Tribune, April 21^st, 2013.