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The wounded Asian Tiger

THE ASIAN Tiger’s roar that once had the West sitting up and taking notice not so very long ago has been muted and India is now licking its wounds.

The rupee is in a freefall and the government is in its customary funk. The economy is anything but healthy thanks to a deadly combination of global forces, petty power politics, scams, sheer complacency and missed opportunities.

Not since the balance-of-payment crisis of 1991 has the Tiger found itself cornered and trapped. But Indian policymakers won’t admit it and instead of taking some bold steps to arrest the rot that has set in, they prefer to bury their heads in the sand and hope the problems buffeting the country will go away.

India is no longer shining. It’s slowly sliding into a crisis and there isn’t a glimmer of hope that someone, somewhere will prevent the bruised and battered economy from getting worse.

It was just five years ago that the Indian economy was cruising along like never before prompting Prime Minister Manmohan Singh to claim that the cruising speed could easily touch 8-9 per cent. So confident was he that he went to the extent of predicting an end to the “chronic poverty, ignorance and disease, which has been the fate of millions of our countrymen for centuries.”

He spoke too soon and it now seems the country celebrated the much-touted ‘economic miracle’ too fast. The economy is now clearly under threat and could slip into a full-blown crisis unless the government gets its act together pretty quickly.

Everything is going south. The rupee is nosediving (13 per cent in three months), the stocks are tumbling, banks shares are shrinking, growth is limping (at 4-5 per cent), its current account deficit is ballooning — it was nearly 7 per cent of the GDP at the end of 2012 — much needed foreign capital is escaping and bad debts in state-run banks rising (according to a report in the Economist, “10-12 of bank loans are dud!”)

So what’s going north? Besides the ire of 12 billion people, graft, red tape and multi-million dollar scams is on the rise and so is inflation now hovering around the 10 per cent mark.

With elections to be held in May 2014, the biggest fear is that the government may resort to populist measures like the recently passed food scheme introduced to increase the vote bank. This is not the time for desperate measures or micromanagement. Capital controls are not the answer and neither are desperate attempts like slapping duties on televisions. Instead, the government should focus on further liberalizing the market like it did during the boom years between 2003-2008, control inflation, hold down its deficit, cut down fuel subsidies, get public banks to recapitalise and get its infrastructure right.

Will history repeat itself and se India slipping into crisis like it did in 1991? One can only hope not. All eyes are on the incoming central bank governor Raghuram Rajan. But can he alone put a derailed economy back on track?