The end of this quite eventful year 2008 comes on a rather quiet and sombre note. The widespread expectations of a ‘global downturn’ are becoming reality, as exports fall world-wide, and governments tamp down on growth forecasts. The fireworks for the New Year will be muted, and everyone is cutting costs.
The catch-word for the coming year, however, appears to be ‘hope’. An election that the world watched turned on it. There are things India can hope to achieve, in the throes of a slowdown. Doing well in adversity after all, is what India does best. Indian economists and policy makers alike often say that India is lethargic except in crisis.
Now, the kind of crisis that enables reform as it did in 1991, 1997, and 2001 is here. As our growth numbers come down, our national mood is shifting. Easy solutions are no longer possible for governments anxious about reelection — money is tighter, and giveaways are difficult when funds are scarce. As industry growth slows, the government is also finding that solutions for unemployment can no longer be addressed simply through job guarantees.
And as work becomes scarcer for new job seekers especially in rural and semi-urban India, migration will put more pressure on our cities and urban development. We will also not have the economic buoyancy that has so far, got us past massive inefficiencies or the complete lack of infrastructure.
The silver lining to the slowdown is thus the possibility that our policy makers and legislators will become more receptive to better ideas. This gives us an opportunity to push through more effective and long-term policies.
In fact, a slowdown makes such policies even more urgent. In a time of scarcity, the need for well-connected markets for example, cannot be over emphasized, in order to make hard to find opportunities accessible across distances and state borders.
This means that spending on infrastructure has to be sped up rather than slowed down. Emphasizing a well-regulated Public Private Partnership (PPP) model across our infrastructure projects can help the government drive road and rail-building and port upgrades in a time of budget constraints.
The state will also have to ease up on red tape restricting entry for new businesses, and convoluted taxes for companies already struggling with cash flows and revenue growth. Rather than bringing in new sops for specific industries, the government should use the opportunity to push through the remaining tax reforms and the Goods and Services Tax (GST).
Efficiency will be the byword in a tough year. We will have to address the chaos of our cities, and implement the reforms to improve urban governance and responsiveness, and reduce the massive inefficiencies that urban citizens face when it comes to transportation, doing business, and in dealing with local bureaucracies.
The slowdown also puts a renewed emphasis on social security, which is an opportunity to push more effective policies forward. The Indian government has passed the NCEUS bill, but we will have to go further to ensure that our social security solutions remain viable and well-funded bringing in some levels of contribution on the part of the employed.
As the dark clouds gather, we cannot ignore those who stand the most exposed we have to look closer at the welfare of our unorganized workers, in a way that goes beyond providing token pension protections. These workers are our economy’s most exploited, without key protections when it comes to job security and health care.
Their ability to find and keep jobs will only worsen as the economy weakens. Across factories, textile firms, these workers who are 90% of our workforce are the first to be laid off. We have to take a tough look at our labor laws in the coming year, which rigorously protect the few the unionised workers at the expense of the many.
As our conventional growth options see a lull, entrepreneurs and policy makers alike have a chance to innovate towards new sources of revenue and GDP growth. Alternative energy for instance, remains immensely promising.
While oil prices have come down, in part due to slowing global growth, this industry holds large rewards in coming years for first-movers and innovators in energy crops, solar technologies, and wind and hydroelectric power. The massive inefficiencies and losses in our energy distribution networks should also encourage us to look at radical new solutions such as decentralising our energy grid and making it ‘smart’, while tapping into a variety of distributed, alternative energy sources.
The Indian government has been especially worried about the impact of the slowdown on an already weakened agricultural sector, and they’ve announced schemes such as subsidies towards short-term loans to tide farmers over.
But these are timid steps in the face of an agricultural crisis that is at its heart, an environmental problem. The dismal health of our agriculture sector is tied in water scarcities and the absence of irrigation that has deeply constrained our farmers, and soil depletion that is worsening crop yields.
But addressing this means that we will have to radically alter our environmental approach by bringing our natural resources into our economy, and pricing them. Anyone using up these resources would have to pay a cost for it whether that means dumping pollutants into rivers, or drawing water.
What ought to give us courage here is that the benefits from this would be massive, and would disproportionately go to the people closest to the environment, who now live in a state of exploitation the tribals who live in our forests, and the farmers who have to bear the brunt of water pollution and soil losses.
There were plenty of predictions this time last year that India might even touch ten percent growth rates. The disappointment now is palpable. These tough times will put India’s reputation as an emerging power to the test. But this offers us the ultimate upside: the chance to remove all doubt about the Indian economy’s resilience.