Indian economy: A tale of two narratives (and a missing narrative)..

I came across this piece on two narratives on Indian economy. One of impressive macroeconomic stability and two of dipping growth which cannot be stimulated by monetary or fiscal policy.

Despite impressive statistics quoted in the piece one clearly sees how much of Indian economic story has been around government policy. The author says there are two narratives but actually there is just one: the role of government in Indian economy.  This is obviously ironical in its own way as we would imagine economy to be shaped mainly by several private hands rather than the one hand of government.

I don’t know but reading the various articles today take you back to yeseteryears when all that mattered to Indian economy was the Indian Government. But we are told that since 1991 things have changed and it is private sector which rules the roost. However, ever since the government was voted in power in 2014, the focus of economic performance of the country is only seen from what government is doing. We have celebrated 100 days, 1 year, 2 years and now 3 years and 2 more to go. There are pieces after pieces highlighting the role of the government which is all so ironical. There is very little on what India’s private sector is really doing.  If Indian economy is indeed doing so well, we need to know about new products being made, new services being created, entrepreneurship and so on.

This glaring missing narrative also perhaps explains the puzzle between the two aspects of Indian economy discussed by the above piece. If macrostability is indeed so great, why is growth dipping? The piece as expected can only think in terms of policy:

How should policy respond? The key is not to panic, but keep fixing the economy’s plumbing. Double down on asset resolution in the banking sector, plow stronger tax-revenue from demonetisation/GST into higher public investment, rein in state deficits to push down the private sector cost of capital, and keep plugging away on reducing infrastructure bottlenecks. Put differently, hang in till the growth dividend from deleveraging and productivity-enhancing reforms (GST, Aadhaar) kicks in. Unfortunately, there are no quick fixes at the moment. Furthermore, overreacting to the second narrative (slowing growth) simply risks jeopardizing the first one (macro economic stability).

Well, what eventually matters is how private sector and households responds to most of these initiatives. It is this narrative which eventually matters. We are told that private sector investments are hardly picking and then there are always talks of jobless growth.

This clearly is the missing narrative which needs more attention than merely looking at government measures..


One Response to “Indian economy: A tale of two narratives (and a missing narrative)..”

  1. vikramml Says:

    “impressive macroeconomic stability”
    Yet another annoying term.

    First of all, stability is a matter of perspective and overrated (for who, and why – do we really want stability in our pathetic conditions or should we be looking for a big ramp up in improvement?). When a country is young, and potential is waiting to be unleashed, it is a time to embrace volatility. Depressions and wars didn’t prevent the US from growing into a superpower. The correct policy stance since 2012 was to undertake rapid reforms and embrace volatility. With Rajan we got a risk-averse RBI governor who did not even solve the NPA problem inspite of labeling it a major issue in 2013 in his opening speech. I was looking for him to push the banks with the help of PC before the 2014 election to give the incoming govt a clean slate. Just imagine how much difference it would have made.

    Secondly, NaMo made an early switch into stupid Jet Lee’s incremental reform approach. The problem with Jaitley is that he is a good lawyer but a pathetic finance minister. He continued the temporary stabilizing actions of his friend PC and followed all the economists at the rating agencies and elsewhere asking for stability, instead of adopting a bold vision encompassing what was actually needed. Statistics should follow policy not the other way around.

    Thirdly, PC went on a 1-2 year journey around the world in 2012-13, trying to attract foreign investors (new bakras, since the domestic private sector bakras had gotten wiser and refused to play with the govt). PC should have focused on domestic private investment instead. NaMo doubled down in 2014-15 with his hectic visits around the world. Result is domestic investors took their money outside and/or did nothing with it. Note that smart cities have not attracted much if any at all private investment as yet.

    The good thing is that the time to be concerned and depressed was 2012-16. Now, all these mistakes have been done. The reality refuses to go away and soon the foreign bakras will demand results from NaMo or give up so there will be no options left. Eventually even NaMo and Jaitley will have to switch over to better policies. So, its time to look up. Of course, many times course correction requires a crisis. So. lets all look forward and hope for upcoming crises with some optimism, shall we? The sooner we get it, the better. In that sense, the macro crisis of 2013 was an opportunity missed.

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