Not tackling crony capitalism or environmental degradation now for the sake of economic recovery will leave a destructive trail in the years ahead.
The sustained fall of the Indian rupee has raised questions about
the problems plaguing the Indian economy. While finance minister P Chidambaram
has finally stopped blaming external factors solely for the stock market and
the rupee plunge, his enumeration of the domestic problems started from the
period his predecessor Pranab Mukherjee was in charge.
Pranab presided over a fiscal stimulus package from late-2008 comprising policy rate cuts and increased public spending that partly helped the Indian economy post exceptional growth figures in a period of global distress. Even as the hype over the Indian economy rose to fever pitch in this period, a fundamental mistake was how this clouded our perception of the huge inflow of foreign capital.
This inflow was precipitated by the US Fed’s quantitative easing programme allowing for reduced interest rates and easy availability of dollars which made markets like India an attractive option for foreign institutional investors. Flush with dollars from this and short-term loans from foreign banks to Indian corporates, India missed the bus by not using this to boost foreign exchange reserves. The fiscal stimulus package soon began to rebound as inflation, fiscal deficit and current account deficit rose to uncomfortable levels. To mitigate inflationary pressures, the RBI began hiking policy rates that hurt economic growth. But on a parallel track, a number of developments took place revealing the fault-lines in our growth story.
Unfortunately, the weakening economy is now an ideal excuse to pan these developments. Sections of the industry and government are blaming judicial overreach and environmental activism for diminishing exports and stalled projects. It’s perhaps no exaggeration to posit that a change happened after the struggle against land acquisition at Nandigram. Protests against land acquisition and environmental degradation have, since, erupted with a frequency that has called into question the current development model.
Take Niyamgiri, Kudankulam, Rewari, and Greater Noida. Former environment minister Jairam Ramesh — rightly — made environmental clearances more stringent. But that process of transparency seems to have now become inconvenient. Though UPA-I was synonymous with welfare and public spending, the spectre of crony capitalism overshadowed it, finally assuming gigantic proportions in UPA-II.
Successive CAG reports have underlined the dubious allocation of precious 2G spectrum and coal blocks. Mining in Karnataka, Andhra Pradesh and Goa has been so blatantly illegal and rapacious that the Supreme Court has had no option but to clamp down on iron-ore export. Now an even bigger scam of public sector banks wantonly writing off corporate loans is brewing.
With elections approaching, the government is rushing to clear projects and bypass regulatory controls. On Monday, it cleared 36 stalled infrastructure projects worth Rs1.83 lakh crore. These belated efforts at quick decision-making may or may not help trigger economic recovery. But not tackling either crony capitalism or environmental degradation will not sustain development for long.
Nature is known to take its vengeance. Years of so-called development just takes hours to be wiped out. Uttarakhand taught us that much. Proceeding with caution to protect fragile ecologies should become established wisdom.
Capitalism’s worst enemy is crony capitalism. The 2G scam and the stagnant telecom industry also tell us that much.
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