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Business Commentary/Dilip Thakore

People may have to choose between democracy and prosperity

For the captains of Indian industry struggling to prevent their businesses from running aground, these are trying times. Even as they attempt to steer a prudent course in recessionary seas, storms driven by strong political winds are making life increasingly difficult for them.

Current economic indices make depressing reading. As inventories mount, industrial -- particularly manufacturing -- growth is flagging and unlikely to exceed the 7.2 per cent it registered last year. Which is bad news because last year (fiscal 1996-97) agriculture output increased by an unusual 5.7 per cent enabling the economy to register a GDP growth rate of almost 7 per cent. This year with agriculture production unlikely to grow by more than 3 per cent, there is a very real danger of GDP growth slipping below the 6 per cent plimsoll line.

Given the way equity prices are roller-coasting, the rupee is depreciating and investment is being held back, even this 6 per cent GDP growth forecast for the current fiscal year may prove to be optimistic. Though for fear of incurring the wrath of the mandarins of the economic ministries in New Delhi businessmen are loath to use the R-word when talking to the media, the truth is that the economy is experiencing the pains of a recession. Now the major preoccupation of the captains of industry is to steer a tight ship so as to avoid being dragged into the whirlpool of a depression.

If one listens to any of the preparations of the finance minister or bureaucrats of the economic ministries, the economy had never been in better shape. The annual rate of growth of inflation (on a point-to-point basis) has fallen to less than 3.5 per cent – the lowest in two decades; foreign exchange reserves at almost $30 billion are at an all time high; interest rates have tumbled and there is steady progress on economic liberalisation and deregulation as evidenced by the sustained flow of FDI foreign direct investment) into the Indian economy.

As Union Finance Minister P Chidambaram is wont to say, given half a chance, businessmen have nothing to fear but fear itself. But quite clearly, indigenous businessmen who operate at zero ground levels within the marketplace, have a better feel of the pulse of the economy than academics and bureaucrats determined to feel good about their half-hearted reforms which may have impressed foreign investors with sketchy knowledge and information about the dynamics of the Indian economy. Indian businessmen are painfully aware that even companies like TELCO are stuck with unprecedented inventories and that this bluechip company’s half-year net profit is 35 per cent less than in 1996-97.

The truth which government spokesman are reluctant to admit is that the fizz has gone out of the economy because the economic reforms programmes initiated in 1991 (and endorsed by the 14 party coalition government which is stumbling through the motions of governance in New Delhi) has run out of steam. It is certainly not a coincidence that the Indian economy registered its highest GDP growth rates ever of 7 per cent plus in the years 1994-96 when the economic reform initiatives of 1991 gathered momentum. It was the reality of the four decades old industrial licensing and monopolies legislation being thrown into the dustbin and doors being opened for foreign investment which precipitated industrial growth rates of 9-12 per cent during those years.

But since then, despite the United Front government’s Common Minimum Programme reiterating its commitment to economic liberalisation and deregulation, business illiterates within the government and Parliament egged on by incorrigibly beggar-thy-neighbour communists have virtually spiked the economic reforms programme. The opening up of the insurance sector which would have catalysed the heavy investment needed for infrastructure development has been stalled; endless negotiations have stopped the so-called fast-track power projects in their tracks and the scuttling of the Tata-Singapore Airlines joint venture and the Suzuki-Maruti imbroglio have sent out confusing signals to heavyweight foreign investors.

Worse, by caving in to the exaggerated wage hike demands of organised sector – particularly government – employees even while it remained committed to holding the fiscal deficit to the budgeted 4.5 per cent of GDP, the United Front government has resorted to sharply reducing its plan (that is, capital) expenditure. Therein lie the origins of the recession spectre which is haunting Indian industry.

It would indeed be hard to find any citizen with a modicum of knowledge and intelligence who would disagree with the proposition that is the astonishingly irresponsibility of the political class cutting across all parties, which has plunged Indian industry, and the economy as whole, into despair. The consistent refusal of uncouth and disruptive members of Parliament to pass enabling legislation, and of politicking cabinet ministers to take overdue decisions has created a crisis of confidence within Indian industry. In the circumstances, the response of industry to batten the hatches and wait for better weather is prudent and appropriate.

Quite obviously, politicians are unaware, but their irresponsible shenanigans may well force the citizenry (and the nation’s establishment in particular) to make a choice between democracy and economic development. In the past, to their great credit, despite being numbered among the poorest and most deprived inhabitants of the planet, the people of India have opted for freedom and democracy. But it is foolish to assume they won’t change their minds.

Dilip Thakore