2011: A forgettable year

2011 has been entirely forgettable for the Indian economy, and certainly for the Indian government. As the country has lurched from one crushing disappointment to another, a common theme can be heard everywhere: thank god it’s over, to be closely followed by, let’s hope 2012 looks up. Here’s a lineup of some of the biggest disappointments of 2011.

A huge data scam: Forget about 2G and 3G, this is a whole different type of data scam. The shocking $9.4 billion dollar lapse in exports data presented by the commerce ministry defies all logic. How exactly does someone miss a $9.4 billion abyss? A computer crash? A statistical meltdown? Did they lose the invoices submitted to them by industry? This piece suggests that something more sinister could be the reason: serial overinvoicing by exporters. Soon after it was written, another lapse was uncovered, this time a $6.3 billion copper exports overestimate. The commerce ministry asserts that 781,000 tonnes of copper was exported in 2010-11: a truly fantastic figure, given that India’s entire production that year was 650,000 tonnes. This is one scam that deserves further investigation.

Runaway inflation: The big economic story through the first half of the year was rampant inflation in the Indian economy. The RBI has responded with aggressive interest rate hikes, which have been more successful in slowing down the economy than in curbing inflation. This isn’t very surprising when one considers that much of the rising inflation has been driven by supply side bottlenecks in agriculture and oil price rises. The collapse in the rupee hasn’t helped either. Food price inflation is at the heart of Subir Gokarn’s compelling speech at the RBI earlier this month. Another interesting take by a policy insider is this paper by Kaushik Basu. Finally, Arvind Subramanian wonders why there isn’t more outrage at seemingly outrageous inflation levels.

Widening fiscal deficit: Even as we bask in schadenfreude at Europe’s misfortunes, India’s own fiscal situation looks increasingly precarious. A sound fiscal position is closely associated with high growth in India and the absence of the latter threatens the former. My own state, West Bengal, is flirting with near-shutdown, and the central government is floundering as well, caught between expansive social gestures and leakages through corruption and tax evasion. At least one interesting plan seems to have been mooted to raise funds in 2012. Here’s hoping for more innovative thinking.

Social security nets as sieves of waste: I was very moved by Jean Dreze’s passionate appeal for a right to food and an end to malnutrition. However, many commentators have suggested that the government can barely afford such a plan, especially given the present fiscal scenario. The government’s flagship social security programme – the National Rural Employment Guarantee scheme – became the centre of a storm when Rural Development minister, Jairam Ramesh, exploded about the endemic waste in the programme.  Naturally, there are concerns that the Food Security Bill will head in a similar direction.

Infrastructure slowdown: Two years ago, there were huge hopes for infrastructure investment in the country, spearheaded by a dynamic government and supported by enthusiastic foreign investor support. The sector has bitterly disappointed. A dysfunctional government and Parliament has put paid to hopes of quick decision-making. This article examines how fast-growing Indian cities have had to put together their own infrastructure in the absence of government support. But is the rise of the likes of Gurgaon based on a fundamental private sector growth story or is it a mirage built on the shaking sands of hyperinvestment in real estate? A candidate for article of the year delves into the story behind real estate development in Noida and Gurgaon.

Chaos over FDI: The rollback of the decision to allow FDI in multi-brand retail epitomizes the chaotic policy-making that has been a hallmark of this government for the last two years. The disavowal by its allies and even its own ministers of a Cabinet-sanctioned decision was a bitter reminder to the Congress of how much the rest of its term in office is going to be dominated by various elections. I’ve already written on the FDI issue and can only add that irrespective of your personal stand on the merits of FDI in retail, the debacle around its introduction is symptomatic of a government in crisis.

An absentee leader: At the centre of a government in crisis is a man whose personal stature has crashed in the last two years. One of my favourite articles of the year is a piece by Caravan on Dr. Manmohan Singh.

Where do we go from here: Finally, I conclude with two very different perspectives on development in India. S.S. Aiyar writes a baffling paper on how growth in India in the last twenty years has actually surged upward from the grassroots, beginning with the poorest Indians, rather than trickled down. What worries me is that many people uncritically buy into this type of feel-good, India-Shining story. A great piece that, in my opinion, sets the record straight is by Amartya Sen and Jean Dreze, highlighting India’s terrible performance on human development indicators and questioning the very aims of economic growth.