Millennium Post

Stable reforms to allure investors

The Prime Minister Manmohan Singh’s assertion on Monday that ‘reforms need political backing to succeed’ has not come a day too soon as his own coalition government is hobbled by lack of political backing within his own alliance partners, leave aside bipartisan backing from political parties across the spectrum. With the economy into the crucial second quarter, the slowdown set in the inaugural year of the Twelfth Five Year Plan (2012-2017), appears to be staying longer than forecast, if the latest reading of the situation by the RBI is any pointer.

The economic management of the UPA government in its second tenure remains a botched bid to get back to pre-crisis growth of 8-9 per cent the Indian economy logged even as late as 2010-2011.  How else could one explain the Union Cabinet recent nod to hike natural gas price, almost double from its extant level and go in for the ordinance route to secure food security for the poor, entailing huge outgo on subsidies?

The former is designed to align natural gas prices to market level to ensure plough-back of investment into further exploration by oil companies, both public sector ONGC and the private sector, Reliance Industries Ltd (RIL), even as the end-use industries such as gas-based power and fertiliser companies need to be partly subsidised by the exchequer for the high cost of gas.

The food security ordinance assuring the poor the legal entitlement to claim their five kilograms of rice, wheat or coarse cereals a month at the subsidised rate of Rs 3, 2 and one per kg respectively is bound to balloon food subsidy by eating at least somewhere between 1.5 to 2 per cent of GDP even as experts estimate this to be close to three per cent of GDP.  So, on both counts, the twin steps are not in sync with the government’s commitment to stick to fiscal deficit target of 4.6 per cent this fiscal as stated in the Budget.

With time running short before the general election of 2014, the beleaguered UPA government is belatedly focusing on serious economic issues after a spell of prolonged policy paralysis, triggered by a spate of scams in the past couple of years. Predictably, the Union Finance Minister P Chidambaram has been leading from the front ever since he returned to the north block to address and assuage investors’ well-founded worries over the lack of policy reforms and return to regressive tax regime by his predecessor who had since become the first citizen of the country. Even as Chidambaram commemorated the first anniversary of his return to the finance ministry, the portents are anything but rosy.

Even as the domestic economy is trying to get out of slowdown, the credentials of India’s potentials as a big and growing economy got a boost with the latest endorsement by the Paris-based Organisation for Economic Cooperation and Development. In its bi-annual world economic outlook, OECD said recently that the Indian economy has now become the third largest in the world after the United States and China. This meant that India has probably surpassed Japan to get into the third slot among the world’s biggies in terms of purchasing power parity (PPP).
Paradoxically, a day after the euphoric tidings from Paris, the figures released by India’s premier statistical body Central Statistical Organisation (CSO) confirmed the worst but an inveterate apprehension that India grew by a tepid five per cent  in the fiscal year ended March 2013 (2012-2013), by far the lowest in a decade.

A point to ponder is that even after the global financial meltdown in 2008, Indian economy logged a GDP growth of 8.5 per cent in 2009-2010, 9.3 per cent in 2010-2011 and 6.2 per cent in 2011-2012. The growth fluctuations from a high of 9.3 per cent just a couple of years ago to five per cent in the last fiscal could be traced to a series of scams and corruption charges in the allocation of resources such as spectrum and coal and the policy timidity of the ruling dispensation to get past with pending legislative measures on the reform front in the face of a determined Opposition, from right and left, that stalled proceedings on one pretext or another.

The resultant governance deficit and the exit of even major allies from the ruling coalition such as the regional parties TMC from West Bengal and more recently the DMK of Tamil Nadu eroded the very stability plank of the government headed by Congress Party’s economist Manmohan Singh. This has rendered the coalition a lame duck incapable of implementing credible policies to pave the way to grow. It is also an uncomfortable reflection on the century-old party that its otherwise personally honest and unimpeachably urbane Singh, the original reform architect of India who opened up the Indian economy in the early 1990s, today remains impervious to all the imprecations and scorn poured on him and his party for their alleged ineptitude in implementing reform measures that are badly needed now for putting the economy on a sound and sustainable growth path.

That the principal Opposition party BJP which ruled India for six years 1998-2004 with several far-reaching economic reform measures to boot turned obstructionist during the last nine years of the present coalition is a grim reminder that good economics is seldom glue for and in sync with good politics.

The so-called demographic dividend India is credited with would be a liability if the political class does not come out of its parochial postures.
Otherwise, India’s restive young population with suffrage might take umbrage at the ongoing shenanigans and slowdown of the economy by punishing them to provide a chance for apolitical but all the more vocal groups emerging across the country on the anti-corruption platform.
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