Indian industry leaders gathered on June 4 in New Delhi to unveil their solution to India’s unfolding fiscal crisis: a 12-step program to economic recovery. The dozen measures recommended by the Federation of Indian Chambers of Commerce and Industry (FICCI) are all aimed at soothing the troubled macroeconomic environment in the country by paving the way for more investment and pushing reforms that would usher in more labor-intensive industries.
The intervention was spurred by numbers released last week that painted a grim picture of the direction India’s economy is heading. Namely, down. GDP growth plummeted to a nine-year low of 5.3% in the first quarter, down from 9.2% the same time last year. A yawning deficit, a falling rupee and major slowdowns in key sectors like manufacturing have economists and business leaders alike saying if India wasn’t facing a crisis before, it is now. With 550 million Indians under the age of 25, R.V. Kanoria, FICCI’s president, said at the briefing, India can’t afford to not continue on a path of high growth that creates millions more jobs. “We are sitting on a time bomb,” he warned.
One of the concerns voiced by Kanoria and others was that the fractious ruling coalition has been unable to overcome its internal differences to face the problem head-on. For the past year, many have said the government is in the grips of a “policy paralysis,” unable to push through reforms that would pave the way for more investment, or flip-flopping on measures that would do the same. When it comes to natural disasters or security emergencies, Kanoria said, India’s politicians pull together. But, he said, “Somehow we don’t seem to be treating the economic disaster with the same kind of emotion that brings the nation together.”
Industry leaders at the meeting also said Delhi places a disproportionate amount of blame for its problems on the crisis in the euro zone. This is a crisis of India’s making, they said, and blaming Europe is only buying time. “Let us not concentrate on situations that are out of our hands,” said Y.K. Modi, former president of FICCI, at the press briefing. “We are all talking about Greece, and I don’t know why.”
Another major bone FICCI has to pick, not surprisingly, is over the government’s tendency to focus its attention on populist measures like subsidies, rather than reforms that would give industry a boost. (An immediate moratorium on doles was the first recommendation of the 12-step program.) In 2007–08, government revenue amounted to $97 billion, while expenditures were $128 billion. In 2011–12, revenue was $139 billion and expenditures were $238 billion, meaning, according to FICCI’s calculations, “the government now borrows almost two-thirds of what it earns and one-third of what it spends.”
It won’t be an easy situation to change. The government announced limited new austerity measures last week and rolled out committees to fast-track development that could help kick-start the growth needed to offset the rise in spending and create millions of jobs. But when the government recently announced a steep hike in fuel prices, which are heavily subsidized, nationwide protests erupted around the country, prompting retailers to cut prices again.
Others argue that business-driven growth is part of the problem, not the solution, and that the government should be listening more to the people and less to industry. “You get this clamor on the part of the rich to the extremely rich that there is paralysis,” says Mani Shankar Aiyar, a Congress Party India MP. The government, he says, “should be listening to the bottom.”