The price of half-truths
Our biggest economic challenge: to talk ourselves out of the lies fed by government
India's growth prospects are increasingly uncertain. Economists can diagnose the dynamics behind the slowdown and the prospects for recovery. India is nowhere near economic Armageddon. But the complacent assumption that 8 per cent growth is our birthright now seems laughable. There is also a danger that the same complacency will reassure us that we cannot fall much below 6 per cent, though it seems that the Planning Commission has finally woken up to the idea that the prospect of a slowdown is real. If you look at the fundamental drivers, like the savings rate and the availability of capital for investment, there is no reason we should slow down dramatically. But our biggest challenge will be facing up to hard truths. Mendacity is the biggest political economy driver in India.
The central driver of good economics is recognising the problem. Despite the slowdown, government will continue to produce lawyer-like alibis: the whole world is slowing down, the global conditions are adverse, five-and-a-half per cent is not bad. These arguments are patent nonsense. Given India's demographics and the need to absorb labour, 5 per cent is flirting with social catastrophe. The global economy may be slowing down. But most of our slowdown has little to do with global conditions. Rather than using global conditions as an alibi, we ought to have been asking a reverse question: how could we take maximum advantage of adverse conditions elsewhere?
After the recent Democratic convention, there was a lot of nostalgia for Bill Clinton's astonishing ability to have a political touch and be a policy wonk at the same time. He did not insult the intelligence of the voters. Though, as my colleague Patrick Heller points out, Clinton can get away with being a policy wonk because he speaks in a Southern accent. He does not sound condescending even when being high-minded because he has the vernacular touch. On the other hand, we have three challenges in economic communication. Our policy establishment, including the prime minister, does not have the vernacular touch. They act as if the people are too stupid to be persuaded of anything sensible. The phrase "constraints of democracy" has now turned from an analytical insight to a self-fulfilling prophecy. Many vernacular politicians are quite smart, but unwilling to step out of their narrow vantage points. And the media crowds out serious discussion. So the preparation of narratives that will gird us for clear action is largely absent.