Did India get too arrogant about growth?

Rupee touched a long time low yesterday. For all the talk about “no intervention”, the worry marks are visible amongst regulators. More importantly, for all the talk about “global factors” that are leading to this fall, one can’t miss the fact that Rupee is the worst performing major currency against dollar in recent times. And what doesn’t even need to be argued is the fact that the economy will hurt bad because of this – not just the growing oil pool deficit, but many other issues that are going to burden the “aam aadmi” – that R. K. Lakshman character who has been made the protagonist of all the populist measures the government has been propagating at cost of reason.

So in a bid to gain from populism around the aam aadmi, we have landed up hurting the same chap because of our short sightedness. Be it discouraging investments in diverse areas, right from the business of investing itself, to retail, to aviation; be it throttling of innovation, right from insurance, to microfinance; be it populist spends whose effectiveness never matters. We seem to have developed an arrogance about our growth rate. Policy seems to have adopted the belief that growth is a given; that India is so attractive for capital that no matter what the policymakers do, capital will continue to flood the country.

This is the time for our wake up call. As much as past few years represented a positive spiral, we are staring at a short term negative spiral of economy, and if policymakers are not doing anything about it (as they claim they aren’t), they better had! India still has to deliver 30 years of super normal growth for the aam aadmi to win.

4 Responses to “Did India get too arrogant about growth?”

  1. B Shantanu says:

    Good one Alok..Although I would have loved to read a little bit more on the prescription..
    Just one point of divergence..You mention that: “…we are staring at a short term negative spiral of economy..”
    I think its going to get worse before it gets better…and we are probably talking mid-term than short-term
    You may find this interesting: http://satyameva-jayate.org/2011/12/29/of-subsidies-and-food-security/

  2. Karthik says:

    @Hedgfx:
    Interest rate is indicative for the fundamental price of money. When RBI increases the interest rates, then the price of money goes up. When the food inflation is at such a high rate, RBI has to be worried about the larger population for whom food costs are a major component of household costs. Contractionary monetary policies are sometimes necessary albeit a bit painful in the near term.

    Also, don’t agree with India being the weakest among BRICs and would like to know the reasons why you think that way.

  3. Hedgfx says:

    RBI is helpless and powerless to do anything against this slide. They will not be able to stem the slide for the simple reason that India is perhaps the most vulnerable and the weakest country among the BRICs, and perhaps among most of EMs.

    It is actually better that RBI don’t do anything in terms of intervention. Because this rupee depreciation is a secular trend and a damn strong one… RBI will be trying to achieve what SNB, BOJ and ECB have failed to achieve. Frankly, $360billion reserve is too small to risk trying intervening. Last thing a RBI, or any central banker, wants at this juncture in global economics is an overvalued currency.

    However all the blame should be placed to the policy paralysis that has engulfed the Govt. The constant mismanagement is resulting in the death spiral we are seeing in the economy. I hope this spiral can be reversed, but the facts indicate otherwise.

    I could go on and on and on on the reasons why we are headed into a very bad era of mismanagement.. and if the precedents are anything to go by, we (aam admi) are done for. Can the brains that lead to this quagmire get us out of it!?

    RBI too has to take lot of blame, though arguable. None can forgive the determination with which it raised rates. It dint crush inflation but it certainly did crush every capex, investments and business establishments. For instance, a business loan now a days cost 16-18% PA. What businesses can justify that kind of interest rates? Absurd!

    Huge mistake of RBI was going after inflation when the inflation was NOT monetary but due to commodity factors and over which the rate hikes have NO impact. RBI just worsened the situation. They also completely snuffed out the speculative bubbles.

    RBI was reacting to the situation and their tactics dint work out compared to 2007-8. The real fail is primarily of Government which has let down the economy, businesses and a billion plus people.

  4. Rahul Mathias says:

    Dear Mr. Mittal
    I wholeheartedly agree with what you have said. It is not just arrogance on the part of the policy makers, but also on the part of the well-off section on Indian society. I’m referring to the upper crust of the rising, fabled middle class.
    This has resulted in a great detachment. Now, when the successful view the down-trodden, instead of feeling empathy and a desire to help, they feel victorious. Triumphant that they are not one of them, the aam admi. This has got to change. This feeling of satisfaction should only arise once we see the happiness of those around us, and not manifest itself only in our personal achievements.
    Pantaloons India, along with Goonj, a nationwide NGO, has started an initiative known as Joy Exchange. All one has to do is take their old/spare clothes and simply drop them off at any pantaloons outlet and they will make sure that they reach those is need.
    I hope that some will take this opportunity to help our fellow indians, most of them small children. Clothing is a basic need. While most of us wonder about which designer to buy, these people don’t even have a piece of cloth to cover themselves up. Please help. For more info, and a little bit of humour, please watch – http://www.youtube.com/user/PantaloonsFashion

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