Although it was expected to be a gabfest without much ado, the meeting of presidents and prime ministers of the G-20 countries in London on April 2 resulted in a surprising consensus on ways and means to confront the current global economic crisis following a decade-long spending spree in the US and around the world, funded by millions of subprime mortgage loans awarded by reckless American bankers and financial wizards during the past quinquennium of irrational exuberance.
The positive outcome of the early spring G-20 economic summit in London is that all participating heads of state agreed that government intervention by way of recapitalising failing banks, underwriting bank loans to deserving businesses and increased government spending — even at the risk of ballooning fiscal deficits — is the broad spectrum prescription for reviving failing business confidence and faith in faltering credit systems around the world.
By accident rather than design India’s banking system — dominated by the country’s 28 pathologically risk-averse nationalised banks — has escaped largely unscathed in the global banking crisis. Nevertheless they have become more cautious about lending, because stock market indices have plunged and business confidence shaken by falling exports and exposure to foreign banks has been adversely affected. The impact of the global economic crisis on the Indian economy is reflected in over a million jobs already lost, and GDP growth in fiscal 2008-09 plunging to 5 percent, against the forecast of 9 percent at the beginning of the year.
Against this backdrop the best course for the Union finance ministry, which is preoccupied with cutting interest rates and futilely exhorting naturally risk-averse banks to loosen tight credit dispensation norms, is to address several governance issues which, if handled with modicum competence, could add several percentage points to annual GDP growth. Foremost among them: improving the efficiency of the law, order and justice delivery systems because lack of secure business environments and prolonged delays in enforceability of contracts slows credit flow as much as high interest rates.
Shockingly despite a massive logjam of 25 million cases pending in its courts, contemporary India is equipped with a mere 13 judges per million people, as against 105 in the United States and 60 in the UK. And whereas the UK expends 4 percent of its GDP annually on maintenance of its superb justice delivery system, democratic India, which professes to be ruled by law, spends a mere 0.34 percent of GDP annually on its judicial system. It’s high time India’s me-too central planners and finance mandarins became aware that the law’s agonising delay and uncertainty about enforceability of contracts, also generates risk aversion and slows economic growth. The faltering Indian economy requires post-modern country and culture specific solutions, rather than inappropriate knee-jerk prescriptions imported from abroad.