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Saturday, December 29, 2012

Given a free run, can the PM reproduce the 1991 magic?

"The last time we faced this problem was in 1991. Nobody was willing to lend us even small amounts of money then. We came out of that crisis by taking strong, resolute steps. One can see the positive results of those steps. We are not in that situation today but we must act before people lose confidence in our economy," said Manmohan Singh in his earnest effort to lift the anti-people label that the Congress has been stuck with recently. His emphatic claims of 1991 reforms' success is meant to drive home the point that he and his team will be able to recover India’s clout squandered by the recent slowdown.

However, the economic scenario of 1991 is not even remotely similar to today. The foreign exchange reserves in June 1991 were below $ 1 billion, barely enough to sustain a couple of weeks of import, whereas today it has crossed $ 290 billion, enough to cover seven months of imports. The GDP growth in 1991-92 was barely 1.3 per cent; in stark contrast, last five years' growth trajectory stands at 7.95 per cent. The domestic savings have bettered from 20 per cent of GDP in 1991 to 31.6 per cent in 2011; and FDI flow, that had a modest figure of $ 500 million in 1991 has reached $ 42 billion today.

In spite of two decades of rigorously implemented reforms, the economic state is not at all stable today mainly due to policy paralysis and truculent opposition and coalition partners, who often flex their muscles on reforms measures. The opposition and Trinamool Congress’ stand on liberalising retail, where a justified Manmohan Singh has asserted that in a growing economy there is economic space for everyone, is blatant populist politics. His effort to boldly state that money doesn’t grow in trees, as a justification to insulate the country from oil subsidies, has met with ridicule from NDA and TMC. It’s not that there was dearth of policy oppositions with the Narasimha Rao government, when reforms were announced in 1991, but opposition lines didn’t cause stalemate in the government functioning. The Left and the third front leaders staged protests against privatisation of public sector manufacturing units and labour reforms – but at least the allied parties gave tactic support.

The economic condition that time was such that any party jeopardising those reforms would have taken the country to total disaster, while today it’s more of a constructive give-and-take realpolitik situation. Moreover, that time India was passing through an economic turmoil while today the entire world is engulfed into it. The economic downfall led to several protests even in the most advanced countries, from Occupy Wall Street in US to the anti-austerity drive in Southern Europe to Arab Spring in Middle East. If India's economy continues to tumble, India might even witness a similar mass uprising. Already, currency free fall, untamed inflation and plummeting industrial production are significant whiplashes faced by our economy. It is a litmus test that Manmohan Singh and Co must pass.

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