NeutralCitizen
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It was only last summer that the Indian government forecast that the economy would grow at an annual rate of 9.0% to 9.5% for the next half-decade. So it came as a shock Thursday when new data revealed the economy slowed to a 5.3% annual clip in the January-March quarter. After a decade of rising incomes, this feels like a recession, but it could give the Congress Party a much needed kick in the pants to restart reforms.
India's growth prospects have been fading for some time. Multinationals are walking away from the country, withdrawing some $10.7 billion worth of investments in 2011 alone, according to Nomura. Manufacturing contracted by 0.3% for the year that ended March 31. Agriculture and services faltered as well.
Yet Congress, in power since 2004, has governed as if it could continue to divide the spoils of growth without spoiling the growth itself. It used windfall tax gains to go on a welfare-spending binge. This year, it raised service and excise taxes, but refused to cut fuel subsidies. It is now set to tax corporations retroactively on cross border deals. It also aggressively sought to enforce dubious "tax avoidance" rules, though it shelved this plan last month.
Delhi managed to keep the party going after the 2008 financial crisis with more government spending and easier credit. But that only postponed the reckoningwhile sending the inflation rate north of 8% for the better part of the last two years.
After growth dipped below 7% late last year, Prime Minister Manmohan Singh turned to gimmicks, like having state-owned Coal India boost coal supply to power producers in a one-off manner or proposing to set up special manufacturing zones where factories would get tax breaks. But businesses want less red tape permanently, especially when it comes to energy investments, as well as labor reform to make hiring and firing easier. On both fronts, the Prime Minister has done nothing.
Then there was his one serious attempt at reform. In late November he announced plans to allow foreign investment in big-box retail stores. The reform would have been a boon for consumers, and would have helped import some crucial supply-chain know how. But the reform met the usual combination of populist and special-interest resistance, and the government folded in 10 short days.
Indians are increasingly disenchanted with Congress's failure to push for pro-market reforms, and have voted accordingly in recent state elections. That's the good news. There's been a lot of talk about India's emergence as a new economic superpower. An India with the ambition to rise in the world will not treat a high-growth economy as a national birthright.
India's growth prospects have been fading for some time. Multinationals are walking away from the country, withdrawing some $10.7 billion worth of investments in 2011 alone, according to Nomura. Manufacturing contracted by 0.3% for the year that ended March 31. Agriculture and services faltered as well.
Yet Congress, in power since 2004, has governed as if it could continue to divide the spoils of growth without spoiling the growth itself. It used windfall tax gains to go on a welfare-spending binge. This year, it raised service and excise taxes, but refused to cut fuel subsidies. It is now set to tax corporations retroactively on cross border deals. It also aggressively sought to enforce dubious "tax avoidance" rules, though it shelved this plan last month.
Delhi managed to keep the party going after the 2008 financial crisis with more government spending and easier credit. But that only postponed the reckoningwhile sending the inflation rate north of 8% for the better part of the last two years.
After growth dipped below 7% late last year, Prime Minister Manmohan Singh turned to gimmicks, like having state-owned Coal India boost coal supply to power producers in a one-off manner or proposing to set up special manufacturing zones where factories would get tax breaks. But businesses want less red tape permanently, especially when it comes to energy investments, as well as labor reform to make hiring and firing easier. On both fronts, the Prime Minister has done nothing.
Then there was his one serious attempt at reform. In late November he announced plans to allow foreign investment in big-box retail stores. The reform would have been a boon for consumers, and would have helped import some crucial supply-chain know how. But the reform met the usual combination of populist and special-interest resistance, and the government folded in 10 short days.
Indians are increasingly disenchanted with Congress's failure to push for pro-market reforms, and have voted accordingly in recent state elections. That's the good news. There's been a lot of talk about India's emergence as a new economic superpower. An India with the ambition to rise in the world will not treat a high-growth economy as a national birthright.
