Feb 22, 2014

As the Indian economy has grown rapidly since 1991, there are 4 apparent “conflicts of interest” that have been recently witnessed in the socio-economic-political mix, and which many perceive might be adversely affecting the growth rate of the economy.

1. Is the Environment Ministry anti-growth or are we actually harming the environment with our quest for 8%+ growth rates ?
2. Is the anti-corruption movement of Anna Hazare and now AAP resulting in slower growth because of over-cautious bureaucracy and policy-making ? Is an over-assertive Media abetting the cause of this brigade ?
3. Are the Judiciary, CAG, CVC, CEC, CBI slowing down growth by questioning many actions taken by the Legislature & the Executive, and by almost getting into policy-making ?
4. Are welfare-directed subsidies like MNREGA, food subsidy, fuel subsidy increasing deficits, and hence reducing growth ?

I term the above factors as causing “conflicts of interest” or “strategic inconsistencies”, because in the past 5-10 years, all of these factors have been alleged to cause an effect of slowing down our growth juggernaut. I am assuming that there is no second thought that Growth is a must for any development of India. These factors further become regular whipping boys when we compare our slower growth as compared to that of China’s.

My personal view is that all the above four factors are doing a great job in maintaining the Quality of Growth of India. Let’s try to explain how.

Environment : We are poised at that juncture of our development where we are running very hard to grow all aspects of our economy. The Services sector is growing fast, driven by the sheer availability of human talent. Manufacturing, Mining & Construction is growing through planned utlilisation of natural resources, acquiring land and setting up massive plants. It’s here that some growth might be coming at the cost of some environmental degradation. While growth is necessary for the immediate results, say next 2-5 years, environmental protection is necessary for the next 50 years! We need to remember that we are only safe-guarding the Earth for our future generations. Our eagerness to grow very fast should not come at the cost of long-term degradation of the environment. It’s very similar to the quality of sales in a business. There have been numerous instances in which lots of customers have been acquired in a short time by overly ambitious but short-term oriented CEOs and the successors have had to clean up the business, taking the business back by a few quarters or years. We have gone through this before in NPAs in banking & NBFCs, gross additions of mobile connections, and poor rating credit cards being sold in millions ! The Environment Ministry is responsible for ensuring the long-term protection of the Environment. Now, where should the line of trade-off between speed and environmental protection exactly lie is anyone’s guess, but the Cabinet collectively needs to decide on that, taking the leaders of opposition in confidence – it’s not only a question of this government – has to span across all parties.

Anti-Corruption crusade & the Media : While there is near unanimity in opposing corruption, there have been dissenting voices, mainly in the Industry about the negative impact on speed of clearances from bureaucrats and ministries themselves. But the larger sections of the populace – the aam aadmi and also, most of the khaas private individuals are fed up of the rampant corruption and more importantly, the brazen perception of impunity. When people get the feeling of being taken for granted, that’s the last straw (one 2G scam business owner had said during early investigation “nothing is going to come out of all of this” – he was imprisoned later!). Growth might slow down because of over-cautious law-makers and the executive. But getting a cleaner nation is a much bigger reward that we can give ourselves. “Fair inputs giving fair outputs” taught in the Gita is being practised in much of the developed world – at least in 98% of the people and systems. We need to reclaim this ancestral learning back for India too!  

Coming to the Media’s impact on reining in corruption, there’s has been no more powerful arm of the democracy in recent years than the Media. Besides haunting out corruption, they have also championed the causes of injustice, slack law and order, rights of women, exposed the petty mechanisations of politicians and had even brought a new party to power in the state of Delhi! There of course have been instances of excesses when under media pressure, smaller issues have got blown out of proportion (was 2G scam impact as much as portrayed?). But then, there are always some collateral damages in mass movements of clean-ups. And, never before have people felt so assured that if the powerful commit a wrong, they cannot escape scot-free. People will surely think twice before committing a crime or even a moral sin. Getting shamed in media and facing your family after that is not a pleasant thought for anyone.

Judiciary and the C-Suite : The Judiciary and the C-suite, viz the Comptroller & Auditor General (CAG), the Chief Vigilance Commissioner (CVC), the Chief Election Commissioner (CEC) and to some extent the CBI have been playing an increasingly active role in running of the country. They have sometimes questioned laws made in Parliament and have gunned after irregularities in poor execution of the same. There is a bit of a fear among the law-makers that their actions may be investigated long after they are out of power. The same fear pervades the bureaucrats. Ditto for the business owners, who have got older cases opened against them. But then, the Judiciary and the other arms have simply walked into a governance vacuum created in the past 2 years – more by default than by plan. If the captain (read the cabinet or the entire UPA2 government) of the team is de-motivated or has slowed down, sometimes the coach has to pick up the strings. Ask NRN in Infosys – the show has to go on! Also, this is the famous checks-and-balances that has been thought up in our constitution for our democratic framework to function well. Sometimes, one pillar is stronger, sometimes the others. Decisions of growth taken in such a multi-institutional environment will always last longer, will be irreversible and will generate higher quality growth in the long run.

Redistribution subsidies impacting growth : There is a view amongst many of the people in the Industry that welfare subsidies like those under the MNREGA program, food subsidy bill, fertilizer subsidy, fuel subsidy are hurting the growth. This happens because of increasing fiscal deficit, higher government borrowing, crowding of corporate borrowing, increasing interest costs, lower investments and hence slower growth! But ask the grey-haired CEOs – only top-line growth as a strategy without worrying about revenue mix has been the downfall of so many businesses. Equitable growth is a must for avoiding any slightest provocation for social unrest. And for a country like ours with so much class disparities, we need to be more mindful of seeing that all sections are progressing well. We have already created swanky private townships next to Urban Development Authority pockets, created glass-walled glitzy malls next to slums, our petrol bills exceed the salaries of our drivers! This is a dangerous trend, and the only long-term solution is to effect an across-the-class growth. The good news is that Poverty has fallen from 37% to 22% in the past 7-8 years, and this has happened by the combination of high growth and redistribution subsidies. We need to continue this mix for 10-20 years more and then, we would have come out of this inequality trap – that will be the right foundation to launch a uni-dimensional aggressive growth program – the benefits will then be shared by all. So, to summarise, we need to be aware of the Quality of our Growth also rather than just discussing one dimension – the Quantity of our Growth. We need to take care of our environment, need to ensure that the moral fabric remains clean, and need to see that all sections of the population are benefiting from the growth. GDP growth rate has to be juxtaposed with other indicators – Human Development, Environmental & Moral – growth of this entire set needs to be monitored holistically. Only then, we will have High-quality growth and only that will be truly sustainable growth which would last us for the whole of the 21^st Century. Anything short of that could give a few of us some short-term feeling of success – but in the long-term, that will be a compromise !