Subdued

On Wednesday, Standard and Poor’s (S&P) downgraded the outlook on India’s investment rating.

The business news channels were abuzz with analysts spewing wisdom at their webcams in their warren holes in Singapore and Hong Kong office towers. What was striking was the assurance and finality with which these experts unanimously raised the issue of headwinds in governance in India. Every single speaker was apprehensive of what at home is referred to as the policy paralysis.

It’s a great turnaround from just four years ago. When the financial meltdown of 2008 saw most of the developed world suffer a debilitating economic slowdown, India went down its merry path of eight per cent growth. This did not happen by chance. The country was blessed with a government that recognised the enormity of the financial tsunami that was building and actively took pre-emptive action to minimise the shock to the Indian economy.

Those days, in any national capital in the world, governments were discussing nothing but the financial crisis. The mood was black. The pain still remains in most of the world.

But India in those difficult times took quick action. The liquidity tap was turned on and taxes were cut. Three successive budgets of the North Block did much more than what the much famed quantitative easings did to the US economy. All this was done without great fanfare and by just following the right economic response to the emerging situation. The great satisfaction we can take from the 2008-2011 is that our mandarins in North Block can surely find the right answer.

The need today is the same as in 2008. Successful policy interventions which helped us tide over the financial earthquake have now come to haunt us as aftershocks. The easy liquidity fed inflation and the tax reliefs translated into wider fiscal deficit. Two main reasons cited for the review by S&P. The third reason given by the rating agency, like all others, was headwinds in governance. Therein perhaps lies the answer to India’s future.

Good and active governance has to come to fore in these difficult times. There are numerous economic reforms on which broad multi-party consensus exists. Their legislation and implementation need to be expedited. Two decades after the first economic reforms, the second wave of institution building has to be started without further delay. New legislations, institutions and regulators need to be quickly created to meet the changed realities of the fast-evolving world.

North Block, as we have noted earlier, does possess the requisite skills set. Even today the finance ministry is headed by the same man who pulled the Houdini trick in 2008. The country is crying out for an encore. Please don’t disappoint.