“Under six.” Unthinkable a year ago, this is the muttered phrase on the lips of India’s business leaders these days: that the country could post gross domestic product growth of less than 6 per cent this fiscal year.
“It’s a crisis – we’re going to be looking at 5.5, but you wouldn’t know it from the way these guys are acting,” said the CEO of the Indian branch of one of the world’s largest Internet companies, referring to the central government; he would not speak on the record for fear of souring an already fraught relationship with that government.
In many of the world’s major economies, 5.5-per-cent growth sounds like a dream, but it’s barely half of what was predicted for India at the start of the fiscal year back in April.
The country needs the near-double-digit growth if the half of its citizens who continue to live in stark poverty are to get jobs and see change in their lives, and the Indian National Congress-led government needs to see it if they are to have any hope of winning re-election.
But a vicious mix of external and internal factors has combined to savage the prospects for this year, and there are signs the coming six months will be worse.
The ongoing turmoil in the global economy has not been kind to India: manufacturing and exports are way down, and the rupee has lost nearly 20 per cent of its value since the spring.
But the worst of the problems are homegrown, starting with a perceived paralysis on the part of government. The current session of Parliament has been hijacked by debate over corruption, and theatrics staged by an opposition that smells blood. The business community was hoping to see at least a dozen pieces of major economic reform legislation – particularly pertaining to land acquisition and tax policy – passed this session; it appears that at best one or two laws will be.
The government has a critical leadership vacuum: Congress president Sonia Gandhi is ill, reportedly with cancer, and has been away from the helm. Her son and presumed heir Rahul Gandhi has failed fully to step to the forefront. But the Prime Minister, Manmohan Singh, has stayed silent through the parliamentary turmoil and is rarely seen, leading to an overall impression that he is a hapless figurehead.
The sense of rudderlessness has seeped into the bureaucracy, where implementation of critical infrastructure projects has stalled: the national highways project has been effectively shelved; coal-fired power plants are perpetually short of fuel because of poor central planning; ports, railways and new planned cities are all stalled.
Rajeev Malik, a leading analyst of India’s economy, calls it all a “perfect storm” and said the consequences, in the near term, are grim.
“Under six – is it possible? Sure. Is it for certain? No, not if government gets its act together. But India is a supertanker, not a yacht, and it takes a lot to move it,” he said. Already there are clear signs that state electoral battles are going to preoccupy government for the first half of next year.
“Things could be improved but we would have to see a fairly aggressive turnaround as far as government is concerned,” Mr. Malik said. “And there is no sign of that happening, and with the state election calendar it’s unlikely to happen.”
Mr. Malik’s firm, CLSA, is predicting 6.7-per-cent growth for 2012 and – a downward trajectory – 6.3-per-cent average growth for 2013, with some quarters potentially below six.
