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Business Commentary/ Jay Dubashi

Economy is on the verge of collapse. Right? Wrong. It has already collapsed!

One wonders why some people are going round saying that the economy is on the verge of collapse. It has already collapsed.

Industrial growth in October was just two per cent. It was thrice that in the same month a year ago. For the seven months April to October, industrial growth has averaged three per cent, against twice that a year ago. The outlook for coming months is not very rosy either, going by some of the surveys by industrial associations.

There is no movement on the export front, in spite of claims by the commerce minister that exports will exceed last year's figure by ten per cent. So far, they are running three per cent below last year.

And the Balance of Payments situation is so grave that most people believe the rupee will be devalued very soon.

The current account deficit this year is likely to touch three per cent of gross domestic product. We had the same figure seven years ago, when the country had to sell its gold to keep home fires burning.

Things are not so bad this time since foreign reserves are quite adequate at the moment. But one never knows.

What has gone wrong? Why is the economy not picking up? We have had three years of slowdown but nothing seems to work.

The finance minister has lost credibility and so has the government.

Investors are on strike, not just foreign investors, but Indian too.

November was the first month when there was not a single public issue. Companies are actually busy getting rid of some of their assets, not acquiring new ones. They are so down and out that they simply do not want to raise further capital.

There can be no growth without investment. And if the investors themselves go on strike, there can be no investment.

One reason for lack of investment, and therefore lack of growth, is the lack of faith in the government. And the reason for the lack of faith is the belief that the current government is hostile to Indian business.

It sounds strange -- this belief about what is after all a nationalist government, or a government headed by a nationalist party. But that is not what Indian businessmen think. They think the Vajpayee government has done little for them and favours foreign companies and multinationals against them.

Vajpayee's party has reversed its policies. It fought tooth and nail against the entry of foreign insurance companies into India, but is now even more enthusiastic than Congress in welcoming them.

And it has not cared to explain the reasons for this volte face.

You see the same change in policy in the case of the patents bill. The same bill that was rejected two years ago has been introduced by the new government, without so much as an apology.

Indian businessmen have a lot to lose if the bill goes through, and they think that the government is hostile to them. Indian businessmen are not against reforms but reforms are useless if the benefits go mainly to foreigners. This is what is going to happen if the patents bill goes through.

The Vajpayee government may please foreign investors by opening the doors to them, but in the process it has antagonised Indian businessmen.

This is precisely why Manmohan Singh's reforms went down badly with most Indians who then proceeded to throw out the Narasimha Rao government. The same thing is happening to Vajpayee government.

In the last six months, gold worth Rs 105 billion has been imported. This is twice the amount imported last year during the same period. No businessman worth his salt is going to put his money into gold, unless he has given up on the future. If the government is hostile to him, he is going to be twice as hostile to it.

No investment, no growth, it is as simple as that. For every dollar that the foreign investor brings in, you need three dollars from his Indian counterpart. And he will not part with his cash if he believes that the government, his own government, is not friendly to him. Especially a government that came to power on the slogan of swadeshi!

Jay Dubashi

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