Even as 2011 winds to a close, the customary joyous mood to welcome the New Year seems to be missing. Challenging economic and political events have come in quick succession to threaten the India growth story. Most serious conversations on economy and politics today are raising more questions than answers, further deepening the sense of uncertainty that has been building up over the last few months. Unlike 2008, when the country was shaken by a destabilising global slowdown, the crisis today is not merely economic but a general lack of political consensus.
First, let us focus on the challenges besetting the economy, which holds the key to a turnaround in today’s mood of despondency. Continued high inflation, slowing economic growth, a rapidly depreciating currency and to top it all, a fast deteriorating global economic environment — thanks to the massive sovereign debt crisis in the Euro Zone — have all combined to create an extremely difficult environment.
Despite the apparent differences in the nature of the crisis in 2008 and the one today, the signs are not quite healthy, given the contagious nature of all global economic problems. There is a clear need to tread with caution to insulate the economy from the crisis, much the way we did it in 2008 when the slowdown happened to originate from the US. My personal belief is that our economy’s robust financial regulatory system, limited international exposure of our banking system and domestic demand led growth pattern will stand us in good stead against the unfolding crisis.
Inflationary pressures on the economy appear to be easing. Though fuel inflation still rules high, food inflation has gone down considerably in recent weeks, reaching a low of 1.8% in December. One hopes the overall headline inflation will head southwards in the coming weeks as well, thus enabling the RBI to reverse its monetary tightening sooner than expected.
Successive interest rate hikes over the last 20 months have clearly affected the growth momentum. Nothing can be more conclusive than the 5.1% contraction of industrial production in October. Now, the focus needs to decisively shift to growth. Easing of interest rates will be critical to give a fillip to borrowings in the economy — both by the industry and consumers.
We need to promote a new investment cycle and bring the reforms agenda back on track quickly, going ahead with key pending matters such as the GST, Direct Tax Code, manufacturing policy and FDI liberalisation. The general impression of policy logjam also needs to be dispelled through decisive action.
One thing that worked in our favour during the 2008 crisis was the extraordinary political consensus that backed government initiatives. The lack of such consensus in the recent past has impacted the decision-making process. The need of the hour today is to work together, with consensus among various factions, and behave as a society with a common vision and purpose, that allows government to play its mandated role.
While the Opposition has a legitimate right to oppose the government whenever it slips, it is not expected to lose sight of the overall macro picture, especially in light of the challenges facing the nation. We can no longer afford to let parliament sessions go unproductive when dozens of important bills are awaiting consideration. I sincerely believe a new spirit of co-operation will prevail in the coming Budget Session to drive forward legislative action in the New Year.
A quick succession of negative events — global as well as domestic — in the recent past has created a feeling of uncertainty. Except for sustained inflationary pressure on the economy over the last couple of years, most of the bad news has actually come in the last few months giving a false impression of a substantive problem in the economy. Since investment and growth depend heavily on the expectations of investors and mood in the economy, I strongly believe things can easily change with the first sprout of good news. A few resolute actions will bring back investor confidence while uplifting the general mood.
A case in point could be the telecom sector. Despite being the poster boy of liberalisation, the sector is today facing some serious growth challenges. The New Telecom Policy (NTP), currently under the government’s consideration, can become a timely booster for the sector, ushering in the next phase of the telecom revolution.
The key today lies in not being overwhelmed by the plethora of ailments, but having a simple and clear vision to look for the first opportunity to turn the tide. We have experienced much worse situations earlier and turned them around successfully to carve a great growth story. At 7% per annum, we still have one of the highest growth rates in the world. There is no reason why the economy cannot once again recapture its earlier momentum. A brave government, a cooperative opposition and a positive mindset among entrepreneurs can make all the difference.
Sunil Bharti Mittal is the chairman and group CEO, Bharti Enterprises.