Weeks from now, the Swiss Alpine resort of Davos will play host to the annual stellar gabfest of economic thinkers, leaders and corporate czars who will together try valiantly to make sense of a world economy that appears rapidly to be spinning out of orbit.
Up until two years ago, India enjoyed a luminous presence at the World Economic Forum, trumpeting its imminent elevation into the orbit of double-digit GDP growth, and hosting sparkling parties that showcased the sensory delights that India is justifiably famous for. ‘India Everywhere’ was the Indian delegation’s brand message a few years ago, soft-selling the country as the world’s next big economic superstar with the promise of untold riches for foreign investors who were then lining up in droves.
But after a year in which the Indian growth story collapsed spectacularly under the weight of economic mismanagement, when the hangover of monumental corruption scandals induced a policy paralysis in government, and when an already fractured polity descended even lower into the depths of discord, foreign investors have so lost their appetite for India that our brand message at Davos this year might more honestly be “India Nowhere”.
“The year 2011 will probably go down in history as the year of the perfect storm for India,” notes CLSA senior economist Rajeev Malik. “Whatever could go wrong, did go wrong.”
It was the year when India lost the plot - and its nerve.
Ironically, it was a year in which, Malik reasons, India had an opportunity to stand out globally – not necessarily by doing many things right, but merely by avoiding wrong moves.
Things went so horribly wrong in the US (which endured a sovereign rating downgrade and a political gridlock), the European Union (which survived from day to day) and China (a shadow loan crisis that belies heady topline GDP growth) that India merely needed to chug along to come out looking relative better.
But, says Malik, “we blew up the opportunity, thanks to politicians from all walks and to some boo-boos by policymakers.”
The India story has, of course, always been characterised by messiness. Its chaotic nature, accentuated by the shrill poly-lingual political posturing that defines our democracy, seemed almost an endearing Oriental oddity to investors - so long as the bottomline of high growth and high return on investment was being met.
Fanciful theories about how Indian businesses overcome obstacles, including reams of red tape, by resorting to jugaad improvisations, were trotted out when the going was good. So long as some kind of order emerged from the chaos, smart money was willing to bet on India.
But over the past year, chaos has only given way to yet more chaos.
Even early in 2011, although inflation was eating into growth and the tide was already beginning to turn against India, the (somewhat exaggerated) projection among policymakers was for 9 percent growth.
But after a year of profligate spending on over-the-top grandiose social welfare schemes, raging inflation that even successive interest rate hikes could not tame, and a wholesale lack of investor confidence in the Indian rupee (and the larger India story) that sent it into free fall, growth estimates have had to be scaled back.
“The Indian Miracle has been killed,” reckons Lord Meghnad Desai. To him, it isn’t obvious when – or even if – the growth momentum can be regained. “In the meantime, welcome back, the Hindu rate of growth.”
Even diehard India bulls who had invested their faith – and their money – in the country are gravely concerned by the colossal failure of the political leadership. CLSA equity strategist Chris Wood says his calculation that the “litany of bad news” in India in 2011 would trigger a “more resolute government response” has been belied.
“The reverse keeps happening, with the overwhelming impression of a growing political vacuum at the top in Delhi.” The chief legacy of the Congress-led government so far “appears to be a structural increase in oil-fashioned demand-pull inflation, courtesy of socialist government make-work schemes.”
That political vacuum at the top was engendered by a government whose own key ministers were squabbling, and a ruling coalition where the dynamics of power effectively programmed virtually every initiative to stalemate. It was also a year when, confronted by the nearest thing to a national uprising against corruption, and the remarkable sight of former ministers, sitting MPs and executives from some of the biggest corporate houses being jailed, the government virtually froze in its tracks.
If there was one overarching sentiment that gripped the national consciousness for much of the year in which India lost the plot, it was a widespread revulsion over corruption. Although much of this revulsion was directed at the UPA government at the Centre, other national and regional parties weren’t wholly immune to it: the BJP Chief Minister of Karnataka BS Yeddyurappa had to resign after being indicted by the Lokayukta in various scandals.
As a result, even business has been tainted by association. It is sufficiently rattled by the reversal of investor sentiment to undertake an image management campaign called “Credible India” in the hope of restoring public faith in itself.
It was this perception of a moral vacuum across the political and business spectrum that gave rise to the anti-corruption movement spearheaded by Anna Hazare to demand a strong Lokpal - or anti-corruption agency. The campaign starkly exposed the government’s utter cluelessness in dealing with it, torn as it was between the bottom-up pressure to accommodate its inputs and an imperious instinct and urge to crack down on the movement.
By year’s end, after considerable exertion of public pressure, the exercise has yielded a Lokpal Bill, but absolutely no one is happy with it, which only means that whatever happens to the Bill currently before Parliament, the confrontation between the various constituents will spill over onto the new year.
2011 was also a year in which political partisanship plumbed the absolute depths.
Nothing symbolised the gridlock that has seized the Indian polity more than the overly frequent shutdowns of Parliament, which by some counts has done the least work of any Parliament in the past 25 years. And although the UPA government on occasion faced the ignominy of being checkmated by its own alliance partners - by Mamata Banerjee on the policy to permit FDI in organised retail, for instance - the BJP came in for its fair share of criticism for being excessively obstructionist in Parliament.
The wholesale frustration over the political gridlock, where even small regional parties exert disproportionate sway and veto power over national-level policies - is giving rise to calls for radical solutions.
Former minister Shashi Tharoor, for instance, said he believed that the presidential form of governance may be better suited for India given the nature of our polity. “The parliamentary system sadly privileges a situation where checks and balances outweigh the possibility of decisive action; instead of electing someone to get something done and then holding him or her accountable at the next election, we are essentially forced to elect someone who spends a large portion of their time trying to stay in power rather than exercising their power in terms of effective governance."
Nor was Tharoor the only Congress leader to float desperate solutions to testy political challenges. Kapil Sibal compounded a rotten year of political setbacks for the UPA by artlessly swinging for pre-censorship of user-generated content on social media platforms, but was forced to backtrack after a firestorm of protest – and mocking vilification – on the same platforms that he was targeting.
The irony of all this is that 2011 was a milestone year that marked the 20th anniversary of the first wave of economic reforms of 1991 that Manmohan Singh, then finance minister in the PV Narasimha Rao government, unveiled. With firmness of manner that is uncharacteristic of him, Singh had said in his budget speech of that year: “Let the whole world hear it loud and clear: India is now wide awake.”
Twenty years later, sadly, India’s policymakers are asleep at the wheel – and the opposition and even some allies of the ruling party are so cussed as to reflexively work for a stalemate on every move. The results of this are manifest in every aspect of the economic slowdown and the political polarisation.
2011 was, in every way, the year in which India lost its nerve. And, from the looks of things, the next year brings no certainty that things will get any better.
more in India