Acche din: Is it only full of sound and fury?

What the government can and is already seeking to do is improve the ease of doing business. But the problem is, all wisdom says ‘hasten slowly’ in these areas, notes Subir Roy

A longer wait seems to be necessary for Narendra Modi’s electoral promise of acche din to dawn.

The pre-dawn signals, both domestic and global, are on the balance negative.

The most positive is that monsoon has begun to deliver, but even this cannot be taken as given because this most fickle of nature’s phenomena can keep playing games right till the end of season.

On the domestic front, macroeconomic stability has improved with falling inflation, but even if a good monsoon continues that trend, there will be multiple challenges in maintaining fiscal stability.

Two key destabilisers can be a strong big-ticket political demand to bail out farmers and the imperative need to bail out (substantially recapitalise) public sector banks.

This is essential for them to keep lending so as to enable fresh investment.

But despite the improvement in macro stability, the biggest drag for the economy till now has been the inability of business confidence to take the cue and revive, which alone can pave the way for renewed investment and robust growth.

But even if the spirit becomes willing to invest a few months down the line, the weakness of the flesh, inflected by low corporate profitability and high indebtedness, will be the spoiler for several quarters more.

Without industrial investment picking up, we can say goodbye to growth picking up to usher in the acche din.

While the domestic situation is neither too good nor bad, it is the global economic situation that poses the real worry.

The destabilising impact of the Greek crisis will only worsen a situation in which growth prospects have been steadily diminishing.

And what is perhaps the worst ingredient in this terrible global brew, there is no global authority to ensure that countries follow policies that promote their own and collective good at the same time.

This has prompted Raghuram Rajan, Reserve Bank of India governor, to use 'Depression-era terminology' in a recent London speech because of the “fear that in a world with weak aggregate demand, we may be engaged in a risky competition for a greater share of it . . . thereby also creating financial sector risks for when unconventional policies [like near-zero interest rates and quantitative easing] end”.

The challenge before the world, as he sees it, is to focus on domestic demand creation while avoiding this game of musical crises with “countries trying to depreciate their exchange rate through sustained direct exchange rate intervention or through unconventional monetary policies”.

In this scenario, what the government can and is already seeking to do is improve the ease of doing business and facilitate investment in infrastructure. While the former will raise productivity, the latter will immediately revive demand (growth) and earn attractive returns in the longer term.

But the problem is, all wisdom says “hasten slowly” in these areas.

Procedures can and should be simplified, made transparent and administered online. But while regulators’ discretionary space can and should be reduced, it cannot and should not be eliminated.

You don’t need a factory inspector to check on loos, but you do need to check whether construction labourers are being paid minimum statutory dues.

On transparency, witness the issuing of multi-crore government orders in Maharashtra without going through e-tendering.

As for investment in infrastructure, soundly designed projects take long to take off.

Witness the number of contracts gone sour and Gajendra Haldea’s mammoth effort to evolve leak-proof model agreements. Dilution of norms is likely currently taking place under the “hybrid annuity” rubric to get things moving and controversies will likely follow in good time.

Two elements quickly influence the feel-good factor.

One is a few good showers that bring down vegetable prices and take up market sentiment on news of accelerated crop sowing by farmers. The other is global trends.

In line with decelerating global growth, Indian exports have been faring miserably.

On top of that comes the volatility and turmoil resulting from the Greek crisis. It may settle down or it may be the trigger for another post-Lehman type “Great Recession”.

What is important is the way in which the Indian economy has integrated with the rest of the world and become beholden to not just its overriding realities but also the markets’ whims and fancies.

With hindsight, it is possible to say that the excellent growth achieved during United Progressive Alliance-I and the travails faced by the UPA-II had a lot to do with the global scenario.

When there was a rising tide, it lifted all boats and India benefited, and vice versa.

If that is the medium-term reality, what prevails at the short-term end is truly nerve-wracking.

The tax authorities have to so much as lift their eyebrows and the stock indices take a tumble.

And with more and more foreign money in equities and Indian market operators trying to second guess managers or foreign funds, market volatility is verging on neurosis.

Fine if you believe in acche din coming soon, but do bone up on your yoga so that you can absorb mental shocks with equanimity.

Image: Folk dancers of Chandigarh. Photograph: Reuters