A Painful Comparison

For me, today's joke of the day was this: our esteemed Finance Minister thinks all is hunky dory with the Indian economy, and we will grow at 9% next year. This very same gentleman was, till a few days ago, parrotting the phrase that Indian GDP will grow at 8%+ in FY09. And we all know just how unlikely that is.

The small matter that his boss, the Prime Minister, publicly keeps saying that growth would be in the range of 7%-7.5% in FY09 did not deter him in the least. Nor the fact that industrial growth in the 1st half of FY09 has been HALF that of last year. Or that exports have actually DECLINED year on year in October, and this trend is not likely to change anytime soon. Or that tax collections have DIPPED from last year in October. Someone should explain to the esteemed Finance Minister of India that talking does not equal doing. Or that wasted opportunities / regressive policies DO come back to haunt the nation (but who cares - its the next government's problem, I can hear the FM smirk!!)

I cannot help but compare the painfully slow response of our policymakers to worldwide recession to that of US policymakers. The US Fed had been easing liquidity long before the current liquidity crunch, they had approved a fiscal stimulus before recession became a reality (the point is not that these measures were not enough - the point is that someone was trying to be ahead of the curve and trying to keep on top of things). Contrast that with our country where the FM behaves like an ostrich and the government takes action (or takes NO action) after the fact. Or compare this with China where policymakers used good times to build a vast treasure chest of cash, which they will now deploy for building more infrastructure (they are already much ahead of India in this aspect, and it certainly looks like they will get even further ahead).

Our government has frittered away strong tax collections of the last 5 years to a) increase wasteful subsidies - the farm loan waiver? b) increase wasteful expenditure - the Employment Guarantee Scheme? c) Implement regressive policies - administered pricing of petrol / cement / steel / etc etc. As a result, we are running a fiscal deficit close to 8% of GDP, and have been caught out when the times are turning bad. Our central bank actually INCREASED interest rates as recently as July, saying that growth is a given, and inflation must be contained.

Looks like our policymakers are indulging in rear-view driving. Painful!!