Rajeev Srinivasan suggests some ways that a layman, not an economist or politician, might accept.
I listened to a recent talk by Paul Krugman of Princeton, a proponent of Keynesian economics and an opponent of austerity; he was insistent that you could spend your way out of a recessions. This 'tax-and-spend' is what the UPA believes, only with a special Indian twist to it: it is 'tax-and-loot' as in the innumerable scams that keep popping up regularly.
There was a time just a short while ago when Indian economic planners were preening about how well India came through the 2008 crisis; they started believing their own mythology about how India's time had come. 'Incredible India,' I understand they started calling it. The fact was that it was a mere accident, and had nothing to do with their stewardship. The fact was a favourable demographic, and the foundation for growth that had been laid after the 1991 reforms.
P V Narasimha Rao is the unsung hero of the story; the liberalisation that he imposed under duress has had something like a 20-year run, but it has run out of steam. There was an interesting survey in The Economist in October 2011 (Business in India) which noted that the effects of this lasted roughly until 2004-2005, with an entrepreneurial flowering. But during UPA-1, it was back to business as usual, with the stultifying dirigiste State of old.
Well, what can be done now, when the economy is tanking? 'Austerity', the officials cry. That would be fine, but austerity by whom? Normally, the answer is: Belt-tightening by the common man (Indians already pay some of the highest prices in the world for petroleum products, and a lot of that is punitive taxes), but ostentatious spending and extravagance by the political classes and their cronies.
Let me suggest how there could be real 'austerity' that will bite, and this has to start at the top. That is the only way there will be real progress. I suggest an inflation-linked austerity programme for the government, as follows, given that inflation is (nominally) 9.5 per cent, although in actuality prices are galloping ahead at some 20 per cent.
Let us say that we will pick 20 per cent as the target for austerity measures. (If inflation goes down, then the targets can also go down).
India, renowned economist Jagdish Bhagwati once said, suffers from having clever economists. From the time of P C Mahalanobis who convinced politicians that he had a magic box that would spit out all the right answer, to the self-proclaimed economists (and other general busybodies) that populate the NAC, this has been India's curse.
If the government is serious about regaining credibility, it can take some of these short-run steps now; that will help stop capital flight and support the rupee. But there needs to be long-run steps as well to improve the economic fundamentals: Such as investment in education, infrastructure, and health. This is what the government should be doing instead of trying to do social engineering with all these absurd Rights to this, that and the other.
There is no way to prosper except the old-fashioned way: Slowly, and with forethought.
You can read more columns by Rajeev Srinivasan here
Congress a divided house on petrol price hike
'Re fall: Govt must act fast or economy will perish'
Public fury of fuel price hike: 'Is it petrol or gold?
Petrol price hike: NDA calls BANDH on May 31
The saga of the rupee and why it is falling