The 1991 trio is back!



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On Friday the 29th of June 2012, the stock market reversed its downward spiral and rose up by two to three percent. Stocks across sectors were upbeat. Investors suddenly became more confident about India. News headlines changed for the positive. Many suggested that the good times were not too far. Global brokerage house, Morgan Stanley, upgraded the Indian stock market after over a year. What happened overnight that suddenly many people started restoring their faith in India?

The answer lies surprisingly in a political event, the Presidential Election, which was ironically almost a non-event until this time (except on a few occasions). For the past one month, people have been inundated with news about who the next president could be. Even though there is no finality on that front yet, the resignation of Pranab Mukherjee from the post of the Union Finance Minister and the decision of the Prime Minster, Manmohan Singh, to retain the Finance portfolio with himself, did the trick. People did not react overwhelmingly to this news initially. However, when they saw the Prime cum Finance Minister getting serious about this job of his (pun intended!), they stood up and took notice. Manmohan Singh’s decision to get back his 1991’s magical team of Montek Singh Ahluwalia and Rangarajan raised people’s expectations.

1991 was a turning point for India, especially the Indian economy, because it opened up to the world. Before the economy opened up, India was on the verge of bankruptcy. India’s fiscal deficit was close to 8.5 percent of the gross domestic product (GDP), the current account deficit was close to 3.5 percent of the GDP, balance of payments deficit was huge and the foreign reserves were abysmally low. The then Prime Minister PV Narsimha Rao appointed Manmohan Singh as his Finance Minister. At that time, Montek Singh Ahluwalia was the Finance Secretary and Rangarajan was the Deputy Governor of the Reserve Bank of India. The trio ushered in sweeping changes in the Indian economy because of which India progressed leaps and bounds in a few decades. They abolished the License Raj system that inhibited the growth of private businesses and progress of the country as a whole.

Coming back to 2012. The India economy is not looking great again. The fiscal deficit stands at 5.9 percent of the GDP. The current account deficit stands at 4.2 percent of the GDP. India is growing at its slowest pace in nine years. Rupee depreciated by over 20 percent against the US dollar in the past few months, thereby becoming the worst performing currency in the region. Inflation is very high at 7.5 percent. Rating agencies like Moody’s and Standard and Poor’s have downgraded India. Capital flows to the country are dwindling. Not just the economy but the current state of politics and governance is also in shambles.

Just when people had started giving up their hopes for revival, they saw some glimmer of hope in the 1991’s magical trio. Manmohan Singh gave many reassuring speeches as the Prime Minister in the recent past but, those did not carry much weight. However, his recent statements as the Finance Minister carried much more weight especially because there is some promise of them being backed by some action. Nevertheless, the stakes are too high to rest easy.

Frequent political bickering, lackadaisical governance, slow decision-making, pause in reforms, uncertainty over key economic legislations, high inflation, slow growth and increasing fiscal and current account deficit are some of the momentous challenges facing the country. Reliance on the recent softening of oil prices, the expected normal monsoon and the oft taken-for-granted resilience of the Indian economy and its people, are too risky bets. Only some decisive and affirmative action can save the Indian economy from the quagmire that it is in.

High achievements often take place in the framework of high expectations. Expectations from the Manmohan-Montek-Rangarajan trio are high. Hope their achievements are equally high.