India’s deadly complacency and failures to reform

The Economist has pointed out the causes for India’s economic regression. Currencies and shares have tumbled, from Brazil to Indonesia, but one country has been particularly badly hit.

Not so long ago India was celebrated as an economic miracle. In 2008 Manmohan Singh, the prime minister, said growth of 8-9% was India’s new cruising speed. He even predicted the end of the “chronic poverty, ignorance and disease, which has been the fate of millions of our countrymen for centuries”. Today he admits the outlook is difficult. The rupee has tumbled by 13% in three months. The stockmarket is down by a quarter in dollar terms. Borrowing rates are at levels last seen after Lehman Brothers’ demise. Bank shares have sunk.

India’s troubles are caused partly by global forces beyond its control. But they are also the consequence of a deadly complacency that has led the country to miss a great opportunity.

During the 2003-08 boom, when reforms would have been relatively easy to introduce, the government failed to liberalise markets for labour, energy and land. Infrastructure was not improved enough. Graft and red tape got worse.

Private companies have slashed investment. Growth has slowed to 4-5%, half the rate during the boom. Inflation, at 10%, is worse than in any other big economy. Tycoons who used to cheer India’s rise as a superpower now warn of civil unrest.

As well as undermining 1.2 billion people’s hopes of prosperity, failure to reform dragged down the rupee. Restrictive labour laws and weak infrastructure make it hard for Indian firms to export. Inflation has led people to import gold to protect their savings. Both factors have swollen the current-account deficit, which must be financed by foreign capital. Add in the foreign debt that must be rolled over, and India needs to attract $250 billion in the next year, more than any other vulnerable emerging economy.

India continues to fail to get a handle on solving hunger, basic nutrition and clean water.

Diarrhoea kills over 400 young children in India every day. Two-thirds of Indians lack proper sanitation. Some estimates suggest that 70% of drinking water is seriously polluted with sewage. No wonder, says Mr Virmani, infected people fail to absorb nutrients, whatever their diet. Only when votes are in supplying lavatories, and politicians clamour to lend their names to sewage systems, will that change.

Over 60 million children in India, aged five or younger, are stunted. The consequences can be grim: damage to young brains, a reduced capacity to learn, even death.

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