The job's still left undone
The Congress' stock-taking exercise on the economy stopped short of the full story.india Updated: Jun 06, 2012 00:18 IST
The Congress, in seeking answers from the government about the state of the economy, does not seem to be in the market for candour. The spectre of the recent petrol price hike over this week's meeting of the Congress Working Committee (CWC) bears this out. The party's welfare ambitions, which include subsidising fuel, are magnifying the feedback loop on slowdown, inflation and currency devaluation. If the party wants the government to take some hard decisions to shore up real incomes, tame prices and bring the rupee on an even keel, the job would have to start with the subsidy bill. Unless finance minister Pranab Mukherjee manages to contain subsidies, which ballooned 26% in 2011-12, at 1.9% of the gross domestic product (GDP) this year, the forces that have led to the current economic situation will not abate.
The government, on its part, is also economising with the truth when it claims that the situation is not as critical as 1991. Technically, it is correct. But the pressures that were on display in the run-up to 1991 are again at play. The fiscal deficit is widening. Inflation is persistent. The trade gap is yawning. The public debt is mounting, subsidies are ballooning, and the nation's credit rating is on watch. Add to this a fresh set of issues this time around of capital flight and a falling rupee. Mr Mukherjee, in his address, exaggerates the impact of the eurozone: unlike 2008, India has not begun to significantly import Europe's financial crisis. Trade data is still robust, it's just that high oil prices are opening the gap between imports and exports. Our pile of foreign exchange reserves can only deliver some cold comfort. It's dwindling, India's need to burn fossil fuels isn't.
The spectacle of the Congress introspecting over the economy 21 years after it set the nation on a course to reform is disheartening. This party, among all others, must know how much of the job is left undone. The central bank has consistently been warning the government about sticky inflation. Free fuel prices can tease suppressed inflation out of the system. Fixing everyday bottlenecks in agriculture and infrastructure, likewise, can ease structural inflation. Fiscal consolidation can free up resources for investment in more productive areas of the economy. The government could have used the CWC to make these arguments more forcefully. The Congress must be convinced about the need for firm action before it can work on allies within the ruling coalition. It's a pity the party's stock-taking exercise stopped well short of the unpalatable truth. Populism is pushing the Indian economy towards its next crisis, and the only institution that can avert it is the Congress.