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India Needs A New Political Direction

Business, China, Company Strategy, Economics, India, Polyolefins
By John Richardson on 06-Dec-2011

Manmohan Singh compromises to the point where “policy has no direction”


Source of picture: Wikipedia


By John Richardson

IN A week during which the Eurozone could quite easily break-up, the influence that individual political leaders will have on shaping our economic future has been thrown in to further stark relief.

And in some countries it is political systems that are in question, most notably in India where the nature of coalition politics, resulting in endless compromises in an attempt to keep all the various constituencies happy, is a major threat.

“Manmohan Singh (the country’s prime minister) has to compromise so much that policy has no direction anymore. Nothing is being done,” a senior polymer industry executive, and an Indian national, told the blog last week during its latest visit to Singapore.

“It is not only coalition politics that is the problem. It is also because Singh is a civil servant with a weak political power base. He owes his position to the Congress power brokers. Therefore, everything he wants to do he has to run past the people who put him there, leading to dilution of all his objectives.”

Singh has been forced to put liberalisation of retail-sector ownership rules on hold. Forty per cent of India’s food production rots before it gets to the people who need it, and so there is a crying need for improved distribution that might well have resulted from foreign-owned retail networks run by Wal-Mart, Tesco etc.

The blog’s Indian friends say that confidence in the political class in general has evaporated because of the 2G telecoms and Commonwealth Games corruption scandals. This is understandable when refrigerators were reported to have cost as much as $10,000 each in the build-up to the New Delhi games.

Two years ago, the Indian stock market soared and confidence was high when the Singh “led” Congress government was re-elected.

But positive sentiment is one thing and genuine reform is another. India is still being held back by the coalition politics we mentioned earlier on, appalling corruption, restrictive labour practices and chronically bad infrastructure.

As we discuss in Chapter 6 of our book, Boom, Gloom & the New Normal, the money needed for infrastructure was supposed to come from the telecoms companies now being investigated for corruption.

Because few people trust the government, and public servants, income tax collection levels are low.

As a result, domestic and foreign investors have to foot most of the bill for urgently needed improvements in not only infrastructure, but also the agricultural sector, in order to avoid growth being stalled. This isn’t going to happen because of the lack of confidence in politicians.

“No-one talks anymore of matching China’s double-digit progress,” wrote James Lamont in an article in the Financial Times on Saturday.

“The rupee is 13 per cent weaker than when the year began, as direct investment slows and foreign money leaves the stock market. Many analysts now say India has missed a golden opportunity to build up a domestically driven economy that had been little damaged by the 2008 global financial crisis.”

Economic growth in the quarter to September fell to its lowest level in more than two years, with polyolefins demand likely to be flat or in negative territory in 2011. 

The potential for a wasted opportunity is nothing short of genuinely tragic (the word is so often misused) for a country, which according to the World Bank, is home to around 410 million poor people. This is 37.2 per cent of the population.

And as we discussed yesterday, poor in an Indian context is beyond the imagination of those of us in the West; it is hundreds of millions of people living on $2, or even less than $2, a day.

The “New Normal” will involve enormous political disruption and change in both the West and the East.

Chemicals and other companies need to play a role in shaping a new political agenda, where society’s needs are placed above that of short-term political popularity and survival.

We need bold and visionary business leaders, along with, of course, political leaders of the same calibre.