India in the Slow Lane

India in the Slow Lane

India's economy is about to clock its slowest annual growth rate in a
decade. The government said recently that gross domestic product would
likely grow at just 5 percent in the fiscal year that ends in March, a
sharp fall from the 9-plus-percent growth rates of the mid-2000s.

This slowdown should alarm the government of Prime Minister Manmohan
Singh, who has been far too timid in addressing the country's economic
challenges. It will be particularly devastating for the hundreds of
millions of Indians who are struggling to lift themselves out of
poverty; this growth rate means that the country's per-capita income
is growing at just 2.9 percent a year.

This weakness should also worry the rest of the world, which
increasingly needs India to play a bigger role in the global economy.
While India has been hurt by the economic troubles of Europe and the
United States, its current problems are largely attributable to the
passivity of Mr. Singh and Sonia Gandhi, the leader of the Indian
National Congress Party, who put him in the job.

Under their leadership, the economy remains hobbled by widespread
corruption, counterproductive regulations, weak infrastructure, and
government ownership of most banks and many major corporations. As
finance minister 20 years ago, Mr. Singh played an important role in
freeing some areas of the economy from a stifling "license raj," in
which businesses were required to get government approval to set up
shop and even to change production levels. But as prime minister he
has done little to follow up on those important early reforms.

The finance minister, Palaniappan Chidambaram, appears to realize the
urgent need to shore up the economy. In recent months, at his
prodding, the government has begun making changes — for example,
distributing subsidies like scholarships and pensions directly to
citizens instead of channeling them through corrupt bureaucracies.

Still, one finance minister cannot turn India around. It will require
Mr. Singh and Ms. Gandhi to push for legislative and administrative
changes to build roads and rail lines, add capacity to backlogged
courts, improve primary education and bring transparency to the
corrupt way in which political parties are financed.

The money to pay for needed improvements could come from privatizing
inefficient state-owned companies and banks. It will be difficult to
sell these reforms to Indian political leaders, many of whom are
ideologically opposed to the free market or benefit from the
dysfunction, but that should not stop the duo from pushing them.

India will hold elections next year, and many analysts are already
speculating that the Indian National Congress Party could suffer a big
defeat because of corruption scandals and its poor record of
governance. The party further tarnished its image recently by reacting
callously to the brutal rape of a 23-year-old New Delhi student and
ordering the police to attack protesters demanding justice. Ms. Gandhi
now needs to devote her full attention to reviving India's economy.

A version of this editorial appeared in print on February 10, 2013, on
page SR10 of the New York edition with the headline: India in the Slow
Lane.

I take issue with your Feb. 10 editorial "India in the Slow Lane."
Growth in recent years has been among the fastest in the world,
sustained by capital formation, including in infrastructure. The
once-enviable pace has slowed along with the rest of the world's, but
the government has acted quickly to lift market confidence, boost
investment and address fiscal deficits and trade imbalances.

A recent report by the International Monetary Fund called India's
growth prospects strong. The reasons are clear: favorable
demographics, resilient economic institutions, a stable democracy, a
vigorous anti-inflation regimen and continued infrastructure
improvements.

In addition, a new Cabinet Committee on Investments and an
infrastructure debt fund are set to accelerate major foreign
investments.

The budget proposals announced on Feb. 28 aim at restarting the
investment engine and restoring fiscal sustainability while focusing
on inclusive development.

Despite an unfavorable external environment, India's economy grew at 8
percent a year over the five-year period ending 2011-12; during the
next five years, it is projected to grow at more than 8 percent a
year. That's not slow.

NIRUPAMA RAO
Ambassador of India
Washington, Feb. 28, 2013
nytimes