OPEN FORUM

New Delhi, 19 July 2012

Forget Global Pressures

CAN SINGH PERFORM MIRACLE?

By Col (Dr) PK Vasudeva (Retd)

US President Barack Obama statement recently lamenting India’s business environment not being conducive for investment might have been exaggerated but was certainly, not off the mark. What was new that he said that we did not already know?

Think. Prior to his averments, the World Bank’s “Ease of Doing Business” rankings available showed India close to the bottom, at 132, only ahead of Nigeria 133. Adding insult to injury, even Pakistan enjoys a more respectable ranking at 105.

Undeniably Obama’s words have turned up the heat on India, specially its growth trajectory. He pointedly observed: “It is too hard to invest …. In too many sectors, such as retail, India limits or prohibits foreign investment which is necessary for it to continue to grow.’’

This is not all. The US President went on to offer unsolicited advice. “There appears to be a growing consensus that the time may be right for another wave of economic reforms to make India more competitive in the global economy.”

Rubbing salt in India’s wounds, the International Monetary Fund (IMF) also sharply revised down its growth projections to 6.1% from 6.9% this year and chopped its 2013 forecast to 6.5% from 7.3%. New Delhi’s consolation prize is that the IMF cut China’s 2012 growth forecast by 0.2 points, from 8.2% to 8% and 2013’s from 8.8 to 8.5%.

Making matter worse, the Rupee has rapidly depreciated by 15-25% in less than four months thereby increasing volatility in exchange rates. Observed the IMF, “In emerging economies, India, Brazil and China policy makers should be ready to cope with trade declines and the high volatility of capital flows.”

Compounding this, even as the Reserve Bank of India (RBI) tries to find more proof of the country’s investment-led growth shrinking, the latest import data reveals the situation is not fine. May showed a 16%   negative growth and June witnessed a decline of 25% in non-oil imports.

Undeniably, if this trend continues, the country will surely end up with a Gross Domestic Produce (GDP) growth of around 6 % or even less in the current fiscal, 2012-13 as compared with 6.5% in 2011-12.

Clearly, Prime Minister Manmohan Singh needs to step in and take a bold political gamble, akin to what he did over the Indo-US nuclear deal. For starters, foreign direct investment (FDI) in retail should be projected in terms of promoting competition, with foreign retail chains basically expanding the range of shopping options for consumers and buyers for producers, especially farmers.

In fact, the pro-farmer angle ---- along-with that opposition to FDI in retail is coming primarily from entrenched intermediaries that stand to lose from firms sourcing produce directly from farmers --- can be used to turn the tables on the Opposition.

Pertinently, Manmohan Singh’s reference to evoking “animal spirits” is really about rescuing the investment story. As underscored by the 2010-11 Economic Survey which calculates the contribution of investments to GDP growth during the boom years 2003-07.

Remember, India’s GDP growth peaked to 9.3%, in 2007-08 of which over 60% (5.8%) was contributed by new investments and the rest 3.5% was consumption driven.

Thus, it is clear that the boom period of 8%-plus growth is characterised by investments contributing more to the GDP than consumption. However, as GDP growth dropped to below 7%, as in 2011-12, investment’s contribution shrunk to about 3% to the GDP number. Given that contribution of consumption remains steady at 3.5-4% even during a low GDP growth cycle, the investment story needs to be revived if GDP growth has to make a come back to 8%-plus over the next three years.

Already, Prime Minister’s two economic policy makers, Dr C Rangarajan and Montek Ahluwalia are pushing for investments currently in the pipeline which await various clearances. Many among these are in coal mining, railways, ports, airports, roads and energy under the public-private partnership (PPP) mode where the Government plays the facilitator.

Take road building. The promise of facilitating 20 km of roads every day is far from being achieved. Scandalously, the National Highways Authority of India (NHAI) is struggling at constructing 7 km roads per day. This needs to be enhanced to 14 km at least. Ditto the case with increasing port capacity.

Another sector crying for attention is gas exploration, especially in the deep sea, where MNCs await investments in pipeline. A warning bugle has been sounded against the backdrop of non-clearance of blocks already awarded under the New Exploration Licensing Policy (NELP). This could lead to an exodus of foreign companies who were invited with the assurance of a conducive investment environment.

Significantly, total investments in exploration have fallen 90% last year compared with those in 2007. Interestingly, a global company with expertise in deep-sea exploration recently made a presentation to the Government suggesting India had 100 trillion cubic feet of recoverable gas in its deep-sea basins worth about $1.5 trillion, extractable over a period of 10-15 years. Which, in effect, would reduce the country’s energy import bill by about $100 billion from $140 annually.

In the ultimate, notwithstanding global criticism, world leader, rating agencies, business community et al adopting pressure tactics, India and its polity needs to realise that only it and it alone can fuel the country’s growth story by adopting policies in its best interest. ----- INFA

(Copyright, India News and Feature Alliance)