India / US: A Strikingly Similar Paralysis

Policy Paralysis wafts like an invisible veil of smoke into a room full of card players with cigarette stubs lying on their ashtrays, and goes almost unnoticed until someone begins to sneeze. The 2 largest democracies in the world have come from opposite ends of the growth curve, and now seem to be treading down the same road to nowhere for a whole host of reasons.

The US has been on a tepid recovery as far as the numbers go, although the number of jobless citizens out there still spells worry. Recent studies show that the US would grow at approximately 2% this year, which is leaps and bounds ahead of Europe, which at this stage is still stuck with its own economic malaise.

The 2nd largest democracy in the world however still has a looming 15 Trillion dollar debt problem which stands out on the world stage like a perennial eyesore, perennial because it would take a lot of courage and discipline to set right. The American Congress in the meantime, does not have the appetite for any more constructive decision-making unless they are compelled to.

The largest democracy, India on the other hand appears to have fallen from the grace it had only a few months ago. In February this year, to an attentive and burgeoning middle-class, over a televised budgetary address, the finance minister proudly projected an 8.5% GDP growth for this fiscal.

Little did he know then, that by Christmas, a whole host of factors which include supply side pressures along with external conditions both within and beyond his realm of control would mercilessly throw these figures out of the window.

It is easy to point of that the policy paralysis in the 2 largest democracies have different root causes. In the US, it has been the result of severe ideological differences. One party thinks that a Robin Hood Tax on the rich coupled with increased Government spending is the way out of a recession while the other thinks that Government is in fact the problem!

In India, it has been incoherent policies and intra-party fighting between ministries about the right way ahead clubbed with the odd multimillion rupee scandal that grabs the headlines every now and then.

Having reached this regrettable state of paralysis, there are 2 key points that must be noted. Firstly, Paralysis is a Government operating under Crisis.

Paralysis simply permits the inertia of inaction to prevail until a disaster unfolds. When forced into action, the path of political brinkmanship will first be embarked upon, until one of the 2 sides decides to blink. The other side would then claim a sort of victory regardless of the outcome. The US debt debacle and the most recent payroll tax hike are text-book illustrations of this phenomenon.

The second point to be observed is that the anaemia of paralysis also causes the government to start kicking a whole bunch of half-filled cans down the road. It’s almost as if a government that has been given the mandate to govern by the people has lots its credibility to rule. In India, key differences on policy matters by different ministries (as stated above) have caused the country millions in the form of Foreign Investment. Crucial projects in the pipeline (such as Posco and Vedanta) remain clogged in the pipeline for lack of political will.

So how does one take on so crippling a paralysis of this nature? The 2 known approaches are already being used.

Firstly, Big Business or Business Councils could weigh in some of their urgency on the government. In the US, the iconic conglomerate head, Donald Trump has decided to conduct a republican debate on the 27th of December with all the presidential candidates (only a few have agreed). He has been for the past few months trying to bring his own list of issues to the forefront (one of which has been taking China on head-on). In India last week, the FICCI (a leading Business Council) rapped the government’s knuckles hard for rolling back a critical reform it had already introduced on multi-brand retail that would have taken the country a step forward.

The other approach is clearly visible in makeshift tents in the cold winter outside Wall Street as self-interest groups decide that working within the system has till date brought no form of change whatsoever to their lives. Next week, post-Christmas, the Anna Hazare camp in India will enter its next phase of agitations against what it sees as the Government trying to frame anti-corruption legislation that is as fierce as a paper tiger.

When policy paralysis begins to hit the front pages of tabloids frequently and becomes the subject of dinner table discussion, one does needs to worry. The impasse does more harm in many cases than good and often yields unintended advantage to opposition parties at the ballot box.

The onus is thus on the incumbent administration to crank the engines of growth (no matter how rusty they may be) and get the economy chugging along once again. When this happens, the smoke from the engines would bring many a welcome sneeze.

First posted on technorati