India’s high growth story stands derailed and the country may have to reconcile to slow progress for years to come, says Shankar N Acharya, who for long helped shape public policies as the chief economic advisor in the finance ministry for eight years up to 2001 and subsequently, as a member of the PM’s economic advisory council and finance commission till 2004. The setback to the Indian economy is mainly our own doing, said Acharya in an interview with Priya Ranjan Dash on Friday. Acharya’s book – India after the Global Crisis – that shows how our domestic policy failures have taken a toll on India’s economic performance was later released at a function in New Delhi. Excerpts:

It seems there are several myths about the Indian economy that you have tried to bust after the global crisis?

One of the 10 myths discussed is that high minimum support prices (MS-Ps) are good for the farmer. High MSPs do not benefit farmers because only a few of them have surplus to sell. On the other hand, it hits most farmers. They pay higher prices for the goods they buy.

MSP has been a long-standing policy. Why is it now being held responsible for food inflation?

In recent years, we have seen higher MSP-led stockpile — the government has become the biggest hoarder of grain. Part of that grain has been rotting while prices have been rising.

So, it is high MSP combined with mismanagement of distribution that has contributed to food inflation.

What are the other myths?

GST (goods and services tax) is a good thing. It will simplify taxation, but it is a myth that it would reduce the tax burden. After all, aggregate taxes will have to be raised. Similarly, it is another myth that labour laws in India protect workers. In fact, they work against their interests. Present labour laws discourage labour-intensive manufacturing. Incentives for manufacturing industries to stay small are too strong. As a result, you don’t get the benefits of economies of scale. Look at our exports. A country with cheap labour should be exporting labour-intensive manufactured pro-ducts. But our major exports are engineering goods, che-micals and the like. In India, if you have a reasonable level of skills, there is employment opportunity for you. But if you are a class VIII dropout from Kanpur, what do you do?

Isn’t it a myth that we were saved from global crisis because we were prudent in not opening up to the world? So, less the reforms, the better?

It is not true that we were decoupled from the world. In the pre-crisis period, our fast growth coincided with a period of growth in the world economy. Of course, the growth rate in developing countries like India was much faster than the rate at which the world economy was growing. Similarly, during the crisis, when the world economic growth went into negative, our growth too dropped to 6.8 per cent from 9 per cent plus. If we were not as adversely hit as some other emerging economies such as Russia and Brazil, it was because we had begun pumping up the economy by fiscal and monetary liberalisation even before the crisis.

But it is inaccurate to describe the manner in which we pumped up the economy as fiscal stimulus. There were enhanced subsidies and entitlement-based programmes such as NREGA. Now, we are stuck with these. The government is struggling with huge deficit. Fiscal stimulus can be withdrawn, but these entitlement-based subsidy commitments cannot be terminated. So, they might have saved us for one or two years from the global crisis, but now they are causing major difficulties. Today, we are more vulnerable should the European crisis deepen.

Do you think the loss of India’s growth momentum is temporary or would it be lasting for years?

My worry is that we could be in for less than 7 per cent growth not just this year or the next but for quite a few years. This is because we are not doing anything about some of the fundamental problems we face -- the energy shortage, for instance. Then investments are down and there is nothing we are doing to reverse the cycle, be it delay in environment clearance or governance deficit. You will agree that there have been little reforms between 2004 and 2011. While the reforms carried out earlier had their benefits in terms of higher productivity and growth during 2004-2008, the lack of reforms in the past seven years would be having their adverse effects now for years.

Do you think reforms have come unstuck after 20 years? That we have developed cold feet and self-doubts?

I don’t like to describe the process as 20 years of reforms because it would suggest as if we have carried out reforms consistently for 20 years. The fact is that we have done reforms in fits ans starts. There are only a few specific periods in the past 20 years during which reforms were undertaken.

So you have a pessimistic view of where we are headed?

Yes, in the sense that if we don’t address the issues of stalled reforms, mounting problems of sovereign fiscal stress, external current account deficit and falling rate of domestic investment, we cannot even think of growing at 7 per cent.

How important is the poli-tical factor in that context?

There is no doubt politics is an important factor in shaping the way India goes about meeting the challenges ahead. In 1991 when reforms began, if you remember, it was the same Congress Party. Politics had not changed. But at that time, against the background of a foreign exch-ange crisis, high inflation and negative industrial growth, there was great commitment to reforms. It’s also interesting as to why the NDA government pushed reforms during its term. They did not get the benefit. The benefits of reforms on the ground came later during UPA-I.

So, are you saying that we would await a crisis to act?

I don’t wish a crisis. No one wishes. But I see a crisis building up on two or three fronts. I am worried about the external balance of payments front. The trade gap is at 10 per cent of GDP. The current account deficit is already 3.5 per cent of GDP. The external debt today is at the highest level in absolute terms and it is primarily commercial and of shorter term.

We may talk about foreign exchange reserves of $300 billion, but $300 billion in today’s context is nothing. It can disappear in no time. We are vulnerable to external shocks

Then I fear that we can get caught in shortages — of energy, of infrastructure, water and of other res­ources unless we do act on those fronts. We could then be investing 30 per cent of the GDP, but would still be constrained to grow slowly. Poor economic performan-ce, besides its fallout in terms of lack of jobs and incomes within the country, could even have national security implications; given a volatile neighbourhood and the larger world we live in.