In the high jinks of election season, dour politics attains the fizz and thrill of sporting encounters, and the more boring news gets buried. As India approaches the cusp of a new financial year, it is a moot point that the economy is under severe stress. What is yet to be appreciated, though, is that it is holding up even worse than was thought. For whoever comes to power this summer, it will take more than the ordinary prescriptions of policy to break the momentum of the fall and claw back out of this trough.
This applies even if the incumbent prime minister, former economics professor Manmohan Singh, gets a second chance and ensures some continuity of sorts. In a way, it would be appropriate if he gets to clean it up because some of that mess is of his own government's making. He would have to contend with, for instance, massive pre-election sops that were rolled out without the mobilization of a penny's worth of additional resources.
For the common man, especially the middle class, this means once the drama of elections is over and the dust settles, regardless of who they voted for, there could be some depressing news in store. This may come in the form of multiple fresh taxes, reduced incomes, little or no salary increments and, if you have the privilege of being retrenched, a bleak job market.
But as is typical of the Indian political scene, there's little transparency on what awaits the voters. Surely, no party anywhere in the world can ever go into poll campaigns promising higher taxes. But India, for all the world-conquering ambitions of its elite, hasn't entirely completed its journey to becoming a fully functional democracy characterized by equal access to information (among other things).
So if it runs to type, voting in Indian elections rarely takes place on any larger concord between voter and policymaker on concrete issues. The general voter is fixated on the immediate exigencies that surround him or her - often veering towards caste equations or other forms of bloc behavior - and the political class is besotted with its own theater.
The only sort of thing that captivates everyone - as is the case right now - is the dramatic question: who could be the next prime minister? What that premier is going to do after assuming power is, unfortunately, always a haze of detail better relegated to the background. The tough measures that are bound to be taken have been cleverly kept out of public discussions. Wait till the election results are out on May 16 and a new government takes oath. Now, no one wants to scare anyone.
Silence is always a handy tactic, but especially so right now. In addition to the enveloping global gloom and its shadows on India's economy, the government has seen fit to create additional stress on the system through its own actions. This it has done by committing billions of rupees of taxpayers' money to fuel the system for electoral gains.
The public sees only the tip of the iceberg: the series of self-congratulatory, full-page advertisements that came out from just about every government department in all leading newspapers in the first two months of 2009, serviced by public money. It was timed so as to dodge the Election Commission's model code of conduct that disallows announcements of public schemes or any form of government publicity after election dates are announced.
The real thing will be the unbridled largesse selectively bestowed on various social segments, in order to create chunks of voting populations that are contented and partial towards the status quo. The sixth pay commission, for instance, committed over US$4 billion as salary arrears towards government employees (plus recurring costs).
Also sneaking in before the door closed were a slew of schemes that created a general impression of efficiency and welfarism including: the $2 billion Integrated Child Development Scheme and 60 similar social sector schemes; six new elite Indian Institutes of Management (IIMs); and a flurry of new airport projects.
Individually, each instance can make its own case of urgency and justification, but in a desperate year when public money could have had a positive role if put into basic infrastructure projects, these expenditures beget no immediate, tangible return. Especially in a year when the government was forced to show magnanimity towards the distressed farm sector with a huge loan waiver totaling almost $14 billion.
The ruling dispensation has taken cover under the fact that the current crisis has been thrust on them and they cannot really be blamed for its consequences. But an American recession laced with election-inspired profligacy makes for a nasty cocktail and there can be no running away from the hangover.
The ruling Congress party president, Sonia Gandhi, was not above advertising that the country had been saved from the global banking crisis thanks to the nationalization of Indian banks by her mother-in-law Indira Gandhi in the late 1960s (an act which she had traditionally been pilloried for by the economic right wing). It may be an ironic fact, but it cannot create wealth in common people's lives. As analysts say, it is not just the safety of money in the banks, it is the safety of jobs that is a larger determinant of financial security.
Nor can little nationalistic nuggets keep people smug in times of distress. Therefore, news that India is being praised and its bankers being booked for talks at the Group of 20 meet in London (to shed light on how to keep profit books clean and whether they can help collapsing banks in the West turn around) is not generating the usual sense of pride.
Much like the dull placement statistics emanating from the IIM campuses, the overall mood is low. The cascading social effects that job cuts, unemployment and underemployment among the young can have in the volatile South Asian milieu is far scarier than anywhere else in the world. In the absence of a welfare network to fall back on, any prolonging of this sickness in the system could take India back to the uncertain days of the 1960s and 1970s that saw first the rise of left-wing and later religious extremism.
What with terrorism having invaded everything, including the sub-continent's favorite sport - the previously inviolable world of cricket (the Liberation Tamil Tigers of Tamil Eeelam in Sri Lanka, for instance, were known to lay down arms on match days for a stint in front of the TV) - the state of the economy adds to the sense of suppressed rage. Political parties will have to swallow this brewing mix once the election carnival is over.
As for the government, after being in denial mode, claiming India was insulated from the worst effects of the global meltdown, it announced wide-ranging stimulus measures in three quick packages to tamp down interest rates, trigger increased lending and pep up the flagging economy.
But the rudest awakening may have come from the estimates of gross domestic product (GPD) growth provided by the Central Statistical Organization last week. The cat was out of the bag: the growth rate had dipped much below expectations. Between October and December 2008, the economy grew by 5.3%, way below the 7.8% recorded during the first six months of the fiscal year.
The extent of deceleration took everyone, including the Prime Minister's Economic Advisory Council, by surprise. Against all odds, they were hoping to average out at a 7% growth rate. This CSO figure was below earlier projections by the Reserve Bank of India and the Economic Advisory Council this January.
Though some analysts here are insisting a 6-6.5% growth rate is still possible for 2008-09, far too many depressive factors are at work in the domestic and global arenas that are bound to keep the economy hugging the new low. For instance, the untenable fiscal situation, dwindling exports and falling remittances from Indians employed in the service sector abroad.
The economy in the southern state of Kerala, for instance, is partly dependent on the remittances it receives from millions of its people employed in the Gulf. With jobs there drying up in the aftermath of the global crisis, Kerala has been badly hit. Its other major forex earner - tourism built around its palm-fringed beaches and backwaters, tropical forests and the traditional healing system of ayurveda - is naturally affected by the world crisis. The foreign tourist inflow, especially from Europe and Japan, is dwindling.
As everywhere else in Asia, the export market too has atrophied due to the collapse of demand from Europe and the US. The worst affected are leather, garments and the gems and jewelry sectors. The diamond trade in the Surat district of Gujarat, western India, is a classic case study. Export orders from their largest clients, the US, have fallen to an all-time low. The ripples are then felt across the country.
The workforce required in the diamond polishing units (totaling over a million in India) is largely immigrant and comes from the poorer states of the north. Large numbers have been laid off after the Gujarat chief minister refused a bailout package for the sector as retribution for acting against his interests in the last assembly elections. Though the traders have since partially recovered after the crude diamond price fell by 8-10%, the retrenched skilled hands have taken to working as daily laborers at road construction sites for less than half of what they made cutting and polishing diamonds.
Exports were hit for the fourth consecutive month, slipping by 16% to $12.38 billion in January 2009. Imports too have fallen; dovetailed with the decline in domestic demand, they registered a dip of 18% to $18.45 billion, and the weakening rupee is making things no easier. News of a 0.5% dip in industrial output for the second consecutive month came along with word that inflation dipped to a six-year low of 2.43%, threatening to go negative in the next six months - the classic index of low demand.
Despite offering attractive incentives, the once-booming auto industry has also been unable to push up sales. The big car segment has been expectedly worst hit by the recessionary mood (Mercedes has slashed prices by $0.4 million). Even the poster boys of Indian liberalization have been hit hard - industrialist Anil Ambani, whose net worth is down by almost $32 billion, has been retired from the Forbes A-list.
All doomsday predictions come laced with pep talks; things will pick up by 2010, says the government. But the dire straits the new government will inherit in May belie easy hopes. The fiscal deficit, factoring in the latest stimulus packages, could come close to 9% of GDP by year-end. Worse still is the estimate of the consolidated fiscal deficit (adding state figures to the central government's tally) which could touch an all-time high of 12% of the GDP.
The overall situation was deemed so critical that the Election Commission, which otherwise acts harridan-like and thinks nothing of breaking the momentum of public works, has agreed to relax the norms and allow certain big-ticket projects (on a case-by-case exemption) in housing, urban infrastructure et al so that the flow of money can perk up demand. But till now, steps like the reduction of home loan interest rates to appease urban middle-class voters and bring relief to the recession-hit real estate business have hardly had the desired effect.
The biggest challenge before the new government would perhaps be the external account. It would have to shore up the balance of payments at a time when capital flow is dipping, "soft earnings" from the information technology and service sector are down and remittances from overseas Indians are drying up. Whosoever takes over the helm in May, if not already a gerontocrat, has the luxury of turning grey on the job like President Barack Obama.
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