Prime minister Manmohan Singh has articulated a widely held belief in the government that India can clamber back on to a 9 per cent growth rate much before the world shakes off its latest recession. The logic behind this optimism is as follows: every four rupees invested in the Indian economy generate an extra rupee in income. Since Indians save, and invest, around 35 per cent of their income, 9 per cent growth is not a pie in the sky even today. The tricky bit is ensuring that what we save gets invested. Our propensity to take business risks has taken a knocking after the global credit market seized up, and this is where the government has picked up the slack.
Mr Singh’s reading of the economy as he steps into his second term is cautiously optimistic. The biggest economic tsunami since the Great Depression has managed to shave a couple of percentage points off India’s trend growth rate. The Prime Minister sees no reason to prime the pump inordinately if we are headed for a second year of 7 per cent growth. The fiscal rectitude of the economist Mr Singh prompts him to tell Parliament that “we cannot spend our way into prosperity”, while the politician in him admits “there is scope to increase allocations, particularly for infrastructure” and flagship social sector spending. Targeted fiscal expansion, especially if dovetailed to a populist plank, today seems to be good economics and good politics.
More so if money for bigger government spending is on tap from the sale of stakes in state-owned companies. Disinvestment, however, may not be the breeze it is being made out to be after the Left walked off the stage. Resistance to the sale of public sector undertakings is now more diffuse, but it certainly exists on the ground. Regional parties cannot afford a backlash in their bailiwicks and the Congress will have to be sensitive to their concerns. Unless it wants to repeat the debacle over land acquisition, the Centre will have to cherry-pick the companies it intends to put on the block. Consensus building over divestment will take time, but it will be worth the effort. Not merely economic revival, the Congress’s political fortunes are tied to a mature handling of the issue.