Manmohan Singh must act now to fix India story, say expert economists

The Prime Minister needs to address the country on the economy, investors have to be sent confidence-building signals and India’s savings rate needs to improve. These are some of the steps economists argued would help arrest the fall of the rupee - which hit new record lows on Wednesday -and turn India into an investment destination once again.

The solutions were offered on CNN-IBN’s panel discussion at 9 pm, which featured Ajit Ranade, the chief economist of the Aditya Birla Group, Ridham Desai, the MD of Morgan Stanley, Pronab Sen, a member of the planning commission, Surjit Bhalla, the chairman and MD of Oxus Investments, Taimur Baig, chief economist India and ASEAN at Deutsche Bank, and R Seshasayee, former president of CII.

For Sen, the main problem was the lack of clarity from the government. “Everything that has been done seems to be ad hoc,” he said. It was therefore impossible to evaluate whether a particular intervention was working because no vision had been articulated. And the only person who could do that is Manmohan Singh.

“The Prime Minster must lay out the road map,” Sen said.

For Bhalla, the prescription for India’s ailing rupee was simple: “Reverse everything the ministry of finance and the RBI has done since 15 July. Say we did wrong, we made a mistake, and immediately start afresh.”

What India needs is investment, Bhalla argued and the only way to attract investment was to focus on economic growth. That means lowering interest rates and changing the perception that this government is not in control and is not interested in economic growth.

“Once you have confidence back, investors will come back,” he claimed.

Others offered immediate steps that could prop up the rupee in the short term. Desai proposed an NRI Deposit scheme of about $20 to 25 billion dollars; Seshasayee wanted the government to push banner infrastructure projects that would send out a message that India is a good investment destination; Ranade suggested pushing exports and opening swap lines for oil imports, as well as conducting trade with China in the countries’ respective currencies.

As for India’s current account deficit, the consensus among the panelists was that it was not something to worry about at this stage as it was a consequence of the rupee’s fall and not a catalyst for it. “It is not the current account deficit, stupid,” Bhalla said.

Seshasayee laid the blame squarely at the feet of the government’s inability to govern in recent times. “The root cause is much deeper,” he said. “It is the fact that we have become a dysfunctional democracy. We have a non-functioning Parliament. There has been no consensus for years for robust proposals.”

Both Desai and Sen said India needed to increase its savings rate to lower the current account deficit over the longer term.

“The current account deficit is about a mismatch between savings and investment,” Sen said. “Investment is down, but that means savings is down even more. That is something that should concern us much more.

“We have to get the Indian saver out of gold and into productive saving instruments.”

Ranade pointed out that India has the third largest coal reserves in the world, yet spent $15 billion dollars on importing coal. “We have to bring that $15 billion down to zero by enabling coal mining.”

At the same time, he felt that all the gloom and doom talk was overdone as a good monsoon would boost India’s economy, as would stronger exports on the back of the weaker rupee.

However, Baig, while pointing out that India should not feel isolated because investor sentiment had turned away from other emerging markets as well, said India could not afford to wait for financing.

“Whether it is by issuing bonds, opening swap lines or selling assets, India needs money now,” he said.