By Tarunkumar Singhal, Raman Jokhakar, Chartered Accountants
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The speech given by Prime Minister Manmohan Singh to business leaders last week was unfortunately overshadowed in media coverage by a largely vacuous speech by Congress vice-president Rahul Gandhi to the same audience.
Singh provided a clear sense of how he looks at the current economic situation. There was little to fault there in terms of economic analysis, though one cannot miss the hidden irony that he spoke as if the policy mess created by his government since 2004 has no role in the current slowdown.
There are three significant points he made.
First, the general economic slowdown cannot be dealt with unless there is a revival in private sector investment. Singh believes investment depends on the psychological mood, or what John Maynard Keynes called animal spirits of entrepreneurs.
Second, Singh did well to highlight the absolute necessity to bring down the fiscal deficit, not only because of its inevitable inflationary consequences but also its role in undermining the India growth story. Once again, there was no mention of why we are close to a fiscal crisis. The fiscal deterioration began before the crisis, with the farm loan waiver in February 2008.
Finally, Singh warned that the current account deficit, still the single biggest risk to economic stability, will be higher than acceptable for at least a few more years. “We have to accept that our exports will be weak and our current account deficit…higher than it should be,” he said. “We have to learn to cope with these problems.” He added that India will have to plan to finance a high current account deficit for a few years.
Singh’s speech had professorial clarity of analysis but lacked a strong agenda one expects from a national leader. That is an old problem.
