The Indian Economy: Stop the Slide…Before It Slips

The current crisis in Sri Lanka must make us sit back and realize our own vulnerabilities. Slowing growth rate, rising borrowings, increasing magnitude of withdrawal by the institutional investors and widening gap between export and import must make India cautious. The economy must be beyond electoral politics. We must leave everything aside and work with focused attention to protecting and safeguarding our economy. The rest can wait, but not the economy!

Born in 1960 in Bahariabad, a village in Ghazipur in the eastern Uttar Pradesh of India, I heard from my grandmother, parents, and relatives about the disasters that their generations suffered – famine, flood, plague. I could see many of my relatives, and the communities at large, losing all their property because a brother had migrated and had taken away all the papers with him. These properties were auctioned. A few had money and bought their property again. Most couldn’t and simply became landless, homeless, and with no means. Many spent their lifetime fighting the battle in the court but to no avail. 

Most others lost a substantial part of their landholding due to the zamindari abolition. The worst-hit were those who did not plough their own lands and rented them for sharecropping. In compensation, they received bonds that were due for encashment after twenty years or so. Living a hand-to-mouth existence, many were compelled to sell their bonds at discounted prices to the local moneylenders and sahukars.   

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Not only the individual families but the economy as a whole was in shambles. I remember the long queues of men, women, and children, daily, in the local dispensary and the primary schools to get a vitamin B complex tablet, a bowl of milk made from powder, and a basket of a grain that looked like the residue of wheat out of which all nutrients had been drained. Even these items were courtesy of the USA under the PL480 schemes. Mind you, a few IITs in India were also supported under PL480. 

In the early seventies, I moved from the village to Lucknow, the capital city of the State, for my studies. During the seventies I could see, very long queues, extending to a couple of days, of people in front of the government ration shop to get a few kilograms of wheat, rice, sugar, edible oil, and kerosene oil for lighting. I myself did stand in such queues many times for the sugar and kerosene. 

Things started easing in the mid-eighties – we seemed to have been overcoming our difficulties. Supplies of the essential items improved. Luxuries were still available to a few alone. You needed to wait for several years to get a telephone connection. You needed to wait for years to get your turn to buy a Bajaj or Lambretta scooter. You could jump the queue if you had a relative working abroad to provide you with the foreign exchange. You had to wait for months to get your turn to buy a black and white television. 

For international travel, you could get a maximum of 50 US dollars. Those going for studies or on job visas to distant places often travelled hungry and thirsty for many hours if their flights were late, as they would keep those 50 dollars close to their heart lest they need it badly when they reached their new destinations. 

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Beginning from the nineties, particularly after the economic liberalization, things started changing for the better. Life of people, at least for a good section of the society, became easier, if not comfortable totally. India experienced massive growth in the middle class with aspiration and purchasing power. Easier availability of finances enabled many to even look for a life of luxury, phone, mobile, car, and even a house or flat. Alas! Even before we could think that the bad days are behind us and were headed for being reckoned amongst the upper-middle-income countries and finally to high-income countries, we are now faced with a crisis caused by the pandemics and policies. 

The current crisis in Sri Lanka must make us sit back and realize our own vulnerabilities. Slowing growth rate, rising borrowings, increasing magnitude of withdrawal by the institutional investors and widening gap between export and import must make India cautious. 

Leave China, which was poorer than India until three decades ago, aside. Smaller countries in Asia and many in our neighbourhood, like Bangladesh and Sri Lanka, surged ahead of us in income levels. The Asian economies were called the roaring tigers while India was labelled as the elephant…slow but steady. The Asian tigers today are studied for different reasons – why did they stop growing? Why does the tiger not roar anymore? 

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The current crisis in Sri Lanka, which was counted among the upper-middle-income countries whereas India was still a lower-middle-income country, must make us sit back and realize our own vulnerabilities. It is true that in absolute terms we are a much larger economy which makes us more resilient to shocks. However, slowing growth rate, rising borrowings, increasing magnitude of withdrawal by the institutional investors and widening gap between export and import causing huge trade deficits must make us cautious. 

We must leave everything aside and work with focused attention to protecting and safeguarding our economy. The rest can wait, but not the economy! We must never take anything for granted; not the least, something as vital and as complex as the economy of a nation. The invisible hand, as explained by Adam Smith, works in strange and mysterious ways.  

So long the economy goes up, governments are quick, probably justifiably so, to take all the credits for the growth and attribute it to their policies, accident, decisiveness, and Simon. Once it starts slipping, it slips, slides, and tumbles rather fast and soon becomes out of control. Revival and rejuvenation of the economy of the size of India are never as easy as the economists in power might think. That invisible hand has so many arms and extensions that few are able to make full sense of it, despite all the developments in data science and the prevalence of predictive modelling. 

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The economy must be beyond electoral politics. It is true that the essential purpose of a political party is to win elections. But once in power, they have the responsibility toward the nation. Saving people from disaster and catastrophe, then, should become their topmost priority

It may be easy to say that foreign institutional investors are not the least important. What matters is foreign direct investment. But can we forget that the institutional investors can make or mar the market? So far, the market has been booming despite the shocks of pandemics and policies. That must have certainly helped in boosting confidence and investors’ morale. 

A slide in the market may not reflect the fundamentals of the economy but in the contemporary context, it is perception and the sentiments that play a critical role domestically and internationally. The economy must be beyond electoral politics. It is true that the essential purpose of a political party is to win all the votes or at least just enough votes to gain power. They are also in a position to do anything to achieve this objective. If polarisation could serve, some would not hesitate to use it to serve their ends. But once in power, they have the responsibility toward the nation. They have taken the oath of working in the best interest of the nation without fear or favour. Saving people from disaster and catastrophe, then, should become their topmost priority.

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