Win one for the Gipper

George Gipp was a champion American football player at University of Notre Dame. He died of pneumonia in 1925 shortly after being named an All-American player. On his deathbed, he is supposed to have told his coach, the legendary Knute Rockne, to tell the team that “when things are wrong… win just one for the Gipper.” Rockne used this to rally his team, most notably in a come-from-behind win against the unbeaten Army team in 1928. Ronald Reagan played George “the Gipper” Gipp in a 1940 biopic of Rockne. He too came to be called “the Gipper” as his own legend grew. Reagan urged Americans to “win one for the Gipper” by electing George Bush Sr as his successor.

Prime Minister Manmohan Singh probably has neither the temperament nor the time for such American folklore. But he clearly had a similar inspiring motive when he told the finance ministry officials to “revive the animal spirits of Indian economy” after taking over the ministry after Pranab Mukherjee’s resignation. He meant to convey that change was deeper than what wags gleefully described as one PM (Here Pranab Mukherjee)/FM being replaced by another PM ( Here Prime Minister)/FM combination. Conciliatory noises about the retrospective tax provisions and General Anti-Avoidance Rules, Mr Mukherjee’s parting gifts from his last Budget, followed. Kaushik Basu, the outgoing chief economic adviser, promised that economic growth would pick up post October, after “a couple of reforms” (sic).

The Sensex reacted positively and rose over 450 points at the end of the week. It had earlier greeted the news of Mr Mukherjee’s impending departure from the North Block with similar buoyancy.

The Prime Minister’s reading of the situation is that confidence in the Indian economy is lacking, which has been pretty obvious for some time now. The brave talk has begat what punters and analysts rightly call “sentiments”, because they are basically ephemeral reactions and not actual hard economic decisions.

P. Chidambaram had shrugged off negative share market reactions to some of his earlier Budgets. Montek Singh Ahluwalia has also been similarly dismissive of share price movements following government decisions (both these gentlemen are on everybody’s shortlist of candidates to succeed Mr Mukherjee).

The real challenges for the Indian economy require far more than symbolic gestures resulting in positive sentiments. One does not want to visit a messy place, leave alone invest in it, because those who inhabit it do not appear to be in control of their own affairs.

Thus, the government’s first order of business must be to put its own house in order and demonstrate that it is in charge. Providing a commitment to live (reasonably) within its means is the most effective way do so; something it has not been doing for some time now.

As individuals, we sometimes take loans, for a house or educating our children. These are “covered” liabilities, because we have concrete assets or income against them, which can help repay them.

If we borrow for a holiday abroad or a fancy wedding, we create “uncovered” liabilities, because there are no assets to help repay them. The government, too, creates uncovered liabilities when it borrows not for capital projects, or lending to states, but for meeting demands for entitlements or for providing goods and services below market costs.

Subhamoy Bhattacharjee, an economic journalist, tells us that over the last four years the uncovered liabilities have doubled to `30 lakh crore, or about 30 per cent of our current gross domestic product (GDP). That elephant in the room makes inflation stubborn and slows down the economy.

Why the government deficit swells is wellknown: rising wage and pension bills, spiralling subsidies and spending on entitlements are the usual suspects. The government’s feeble attempts to control deficits are to selectively target some components, such as petrol prices.

An attempt to control the totality of government expenditure, and not merely transfer of money from one account to another, would be a firmer response. Measures such as a freeze on wages and limits on entitlements could make higher fuel prices more acceptable. But that requires political courage and will of a greater order than this government has shown.

The weekend also brought another piece of bad news: the current account deficit, which is the difference between foreign currency inflows and outflows, swelled to $78 billion (4.2 per cent of the GDP) in 201112. That is the highestever figure in absolute and proportionate terms which has driven the rupee down.

Our imports for most years have exceeded our exports, but the net inflows through remit- tances and investments narrow the gap. Presently, uncertainties about India’s prospects and apprehensions arising from the retrogressive measures of the last Budget have slowed down the investment.

The government has responded by promising enabling provisions for foreign direct investment in multi-brand retail and pension funds, and higher limits for insurance. But these are no magic wands; at best they can lead to more positive “sentiments”. Real investment commitments will follow only when investors are assured of the safety and profitability of their investment. That in turn requires government action, not words, to show that it will not change the rules of the game midway, and bottlenecks such as power supply are being relieved. These are additions to the short term must-do list, but are even harder to fulfil than those stated earlier

The long-term challenges are even more daunting. Massive employment creation to alleviate manifest deprivation, infrastructure deficit, key resource shortages must be on the government’s do-list. They all require action across the entire spectrum of the economy. This would lead to a formidable set of tasks achieving which will need far more than even the most well-meaning emotional exhortations.

The government could somehow possibly muddle through its present term. Elections in 2014 appear too far away. Who could have guessed that the heroin of 2011, Mamata Banerjee, would now top the hatelist and the Samajwadis and the Congress would once again be in an uneasy but necessary co-habitation?

But one thing is certain: unlike in the United States in 1988, there will be no appeal in the name of the Indian Gipper in 2014. The writer taught at IIM Ahmedabad and helped set up the Institute of Rural Management, Anand. He writes on economic and policy

issues.