The warnings issued by Standard and Poor's and Moody's Analytica about the state of the economy caused the mildest of ripples in India. This was not because their arguments were erroneous. The response was mild because their basic criticism - that the Indian economy was in the doldrums because of a lack of political leadership - is common knowledge throughout the country. The Sensex is as down from its earlier highs as most consumer and business confidence indices almost solely because of the sense of a government at drift at the head and paralysed from the body. The investment that has driven the economy to 9% growth and more for five years has petered out because the private sector is waiting for New Delhi to move. The once rampant Indian consumer is increasingly squirreling his money under his bed. The Reserve Bank of India has repeatedly warned that it cannot be expected to reduce interest rates further if the Centre doesn't get its own financial house in order. All roads to recovery lead, ultimately, to Prime Minister Manmohan Singh and his government.
No one should be surprised that a country at the stage of development that India is has economic hiccups and migraines. The real problem, as many Indian commentators and economic analysts have been pointing out for months, is the sense that there is scant evidence that the country's leadership is even attempting to come to grips with these problems. The Singh government's few responses have been haphazard, short-sighted and even contradictory. It has been unable to make a decision on raising prices for all fossil fuels as a result of which blackouts now dominate the Indian landscape even as thousands of megawatts of power stations sit idle. The economic and political consequences of this power crisis far outweigh the cost of rising fuel prices. India has seen its current account deficit slowly begin to spiral into the danger zone, jumping from 2.9% of GDP to 4.3% this past year. The government is less to blame for this than rising oil prices, but its questionable move to impose retroactive corporate taxes on foreign investors runs a high risk of aggravating the current account deficit even more.
The real tragedy of all this is that it would take only a few administrative acts and political deals to not only get the economy moving again but even take it back to the higher path that it once strode. But these are all actions that require leadership and such leadership requires political acumen. Both of which are, more than even coal and pulses, in genuine short supply in India.