Perils of political economy

The Chief Economic Adviser to the Union Finance Ministry, Prof Kaushik Basu, has done it again, and the nation should thank him for speaking out his mind as clearly as he has done.

Essentially, he has called a spade a spade, which is all to the good because what a large number of politicians have been doing in recent months is to brush the truth under the carpet and give false hopes to the common man about the state of the economy.

In a nutshell, the Indian economy is slowing down, given the depressive pressures being exerted on it by the international economic scenario. The last quarterly figures showed a growth of just above 5 per cent, the lowest in nearly a decade, the immediate prospect being that the figure could slump even further.

Euro Zone impact on India

Prof Basu has merely spelt out the reasons why this is a strong probability, his basic argument (as reported) being that, in the eventuality of a Euro Zone break-up, the Indian economy “is unlikely to have the strength to overcome a crisis of that magnitude”.

Those who do not agree with this thesis will say one of two things, or both. First, that the Euro Zone will not break up, and secondly that, even if it collapses, the Indian economy will have the resilience to weather the subsequent storm. The hope, of course, is that this specific reading of the future will unfold itself in reality. But, then, what are the “real” trends, as opposed to expectations based on kindly hope, the temptation being to say that Profr Basu has relied on just such trends to make his comments on the state of the economy in the event of a Euro Zone mishap.

As trends go, the Euro Zone is most certainly headed for disaster not because there is something wrong with the concept as such but because there are too many inequalities, and severe ones at that, within the group of economies forming the zone for the idea to succeed in reality. If this is accepted, the future of the zone must be bleak.

Economy held to ransom

As regards the Indian economy, while its basic features in terms of productivity, innovation and management practices are healthy, Government direction as far as policy-making is concerned has slowed down to a trickle, which is choking the mainsprings of growth. In fact, this is where the political element creeps into the larger picture, the result being that the economy is being held to ransom by those politicians who do not care about anything but their vote-banks, not to speak of the long tentacles of corruption which has the nation in a tight grip. The corruption aspect is unalterable in the short or even medium term; but this is not so with political populism, which is the chosen survival strategy of a large number of politicians who, essentially, cannot see beyond their nose when it comes to devising policies for the long-term benefit of the electorate.

Too many people are pointing a finger at the Prime Minister, who is not only an economist in his own right but who, the nation should remember, was the principal architect of the reforms policy in the nineties which, with time, brought about a sea-change in the fortunes of the economy.

Dr Singh wants a big push to be given to the economy using the infrastructure route. Very hopeful indeed, but, inevitably, it will get stuck with various interest groups, controlling some seats in Parliament, raising their selfish heads. And all this in the name of the principle of federation!