If you feel a sense of déjà vu, you are not alone. There are lots of Indians who might be forgiven for thinking they are back in the 1990s. Internet, invariably is the first to reflect the popular mood. A satirical message that has gone viral on the web reads:
GDP back at five percent; Dalmiya back in BCCI; Murthy back in Infosys; Nawaz Sharif back in Pakistan; Madhuri back in Bollywood; Sanjay Dutt back in jail.
Yeah, the clock seems to have been moved back, what with the rupee sinking and the foreign exchange reserves again looking vulnerable.
A vital part of the remedy for the 1990s’ crisis that was pressed on Narasimha Rao by the IMF-World Bank combine was to appoint a professional as Finance Minister. IG Patel said no. Manmohan Singh said yes. Much water — one may add dirty despite hundreds of crores spent by Shiela Dixit — has flown down the Yamuna bridge since those days when India had to pledge its gold with the Bank of England to tide over the forex crisis.
Rao is no longer around and the Congress leadership seems hellbent on obliterating his memory. Singh has since become Prime Minister, albeit a nominated one. Ironically, what he had managed to achieve in the 1990s under the stewardship of Rao, Singh has failed to achieve a fraction of that success under the aegis of his boss Sonia Gandhi. Blaming global factors for the economic woes is an old ploy but it fools no one. The economic mess is largely of the UPA’s own making.
Though this column is not about the state of the economy, but nonetheless, a few facts ought to alert readers about the gravity of the situation. Rupee was 45 to a dollar in early 2004. This past week it touched 60 to a dollar. That is progress for UPA. Forex reserves are about $290 billion alright, but much of it is short-term debt which can be recalled at short notice. And the trade deficit is a whopping 5.1 per cent of the GDP thanks to policy inaction and wrong-headedness on the export front. The outright ban by the Apex Court on iron ore exports following large-scale illegal mining added to the current account woes.
Admittedly, the latest run on the currency was triggered by the US Fed which is tamping down on quantity easing. But, surely, it cannot be anyone’s case that the Americans should continue to pour liquidity into the global markets so that the Indian currency does not come under pressure. The Fed took that decision following the slow but certain revival of the American economy.
On the other hand, the rupee has been depreciating long before the Fed announcement. And the reason is the gross neglect and mismanagement of the economy. A number of economic pundits, in fact, argue that the rupee is even now overvalued and should depreciate at least seven to eight per cent more. In other words, the intrinsic value of the rupee is about 65 to a dollar. And you know what will be the fall-out of the depreciated rupee? More hardships for the aam admi. Petrol, diesel, vegetables et al will become costlier.
Yet, all that the Government does is field its policy wonks before the media to deny the seriousness of the crisis. From P Chidambaram to his chief economic adviser, Raghuram Rajan, and that compulsive publicity hog, Montek Singh Ahluwalia, everyone seems to be engaged in talking up the rupee. If only it was so easy! Markets are a better judge of the health of the economy. When the Sensex falls more than five hundred points in a single day, it constitutes a huge vote of no-confidence in the Government’s ability to set things right.
BJP upset by forecast of poor growth of economy
With less than a year left before the next Parliamentary poll, the Government is hardly in a position to take tough decisions. Even if it musters the numbers in the Lok Sabha, no single legislative measure is likely to reverse the economic slide. Political drift and policy paralysis these past five years has taken a huge toll on the economy. Only a new Government with an assured majority can put the economy back on the growth path.
Till then, the rupee would remain under pressure, the share markets would move in a narrow band, and the aam admi will have to suffer double-digit consumer inflation. The truth is the economist Manmohan Singh as PM is no patch on the economist Manmohan Singh as Finance Minister. But then you don’t have to be a leader in your own right to be a successful FM.