India’s growth story has unraveled. The stock market index has dropped from 21,000 to below 14,000 in hardly five months. Growth of industrial production is declining. Foreign fund inflows are dropping. The declining rupee has necessitated massive interventions by the Reserve Bank of India and reduction in foreign exchange reserves. Inflation is galloping. The after effects of 991 are catching up. Fiscal deficit reductions were achieved by cutting expenditure on agriculture, physical and social infrastructure. Deficit figures were fudged, real deficits being much higher. Attempts to cut subsidies were rolled back, as were attempts to improve efficient delivery of subsidized food grains, kerosene and so on, opposed by vested interests in the bureaucracy, the Food Corporation of India and in the trade. Even when inflation was low retail prices of petroleum products were frozen despite crude oil prices rise. Defense expenditures were never questioned, even on grounds of efficiency and effectiveness, or corrupt practice.

Declining public investment in agriculture led to fall in productivity and agricultural growth, hitting the majority that lives on agriculture. The stifling hold of bureaucratic procedures remained. Infrastructure bottlenecks added to costs.

Poor investment in roads was compounded by little investment in railways and ports. This increased the turnaround time for goods sent by rail or ship. It delayed deliveries of many imports and led to higher inventories and higher costs for industry. Transmission and distribution were opened to private investment in 1998, but the central public sector transmission monopoly, the Power Grid Corporation, successfully prevented private investment in transmission till 2006. Electricity distribution was and is mostly with poorly managed state government monopolies. World Bank mantras to unbundled and corporatize were followed as nostrums, not out of conviction. There is practically no commercial culture in power distribution. The private sector had little incentive to invest in electricity because of concerns about payment security and profitable tariffs. Endemic power shortage hampers growth and efficiency and raise costs.

By not allowing retail prices of petroleum products to rise in relation to real cost of inputs for years, the government has dug itself a fiscal hole. We should not have related domestic petroleum product prices to international markets, but let retail prices rise when required. We must have a market economy. But sectors like oil, gas and other natural resources, and essentials like medicine, while enabled to earn adequate returns, must be subservient to the needs of a poor people. Neglect of the social infrastructure, namely health and education, has eroded India’s competitive abilities. Economic growth appears to have increased relative inequalities in health and diminished health indicators for many.

Blame it on skewed priorities, poor governance, poor administration, subversion of institutions like independent regulation, poor investment in essential sectors like agriculture, physical and social infrastructure, failure to understand the market economy in areas like energy, the fudging of deficit figures to look good to international investor, thus building strong inflationary potential, excessive liberalization of the financial sector in relation to the real economy, consequent highly volatile foreign fund inflows making a casino of our stock markets and excessively strengthening the rupee and so adding liquidity into the system. We did not stimulate growth in the real economy and relied on services for economic growth. Massive infrastructure must be undertaken to improve efficiencies and reform the administration so that it is accountable for performance. Then we can largely avoid inflation which has always hovered to prevent growth.