Gamble on economic reforms

One must give it to the Prime Minister Manmohan Singh. He has timed his moves perfectly well, both in calling the bluff of Mamata Banerjee’s TMC and in making a direct appeal to the people of the country to strengthen his hands “so that we can take our country forward and build a better and more prosperous future for ourselves and for the generations to come.” On the economic front, the mood of resigned despondency and helpless drift has been transformed into one of optimism and positive expectations. Politically, he has restored initiative to the Congress party and, at least for the time being, effectively relegated coalgate and other scandals to the background in public discourse. Doubtless, the first round has been won. The prime minister has already won the vote of confidence in financial markets. The BSE Sensex closed the week ended September 22 at 18753-the highest in 52 weeks. The rupee has surged to a four-and-half-month high of Rs53.45 against the dollar. So, is it time to announce that the government and the country are back in business, all our economic ills will soon be cured and the economy is firmly placed on the road to high economic growth? Most crucially, will the kind of the measures announced so far enable the Congress and its allies to win the next Lok Sabha elections in 2014-or earlier? Except for FDI in retail, the measures announced so far are broadly in the right direction. However, it would be a mistake to see these measures as path-breaking initiatives or game changers. Even in areas where the government has chosen to act, it has stopped short of real reforms. In fuel pricing, for instance, the real reform would be to remove any government role in determining fuel prices and allow them to fluctuate in relation to input prices. In aviation, a real reform would be to include Air India in the list for FDI. Does the government have stomach for it? India is desperately trying to avoid a ratings downgrade. But opening the floodgates to external borrowings will only weaken further the perception of the economy as the external debt-to-GDP ratios rise further. The measures taken and proposed are marginal, not major. They will not give a kickstart to much faster growth. They do not address even basic requirements. For example, there is no mention of administrative and judicial reforms. This government has not understood what reforms are needed. Domestic and foreign businessmen have been rightly deploring the large number of approvals required for investments to fructify, delays in land acquisition and in getting environment clearances, problems in electricity supply, water shortages, the numbers of inspections and permissions needed, making India among the most difficult countries to start a new business. Instead of addressing these basic challenges, largely of our own creation, the ‘reforms’ are focused on attracting foreign investment and foreign investment alone. This cannot take the economy very far. For all the bravado and rhetoric, the political dividends that the ruling coalition is eyeing may not come its way. Ordinary people are being plundered by corruption at every stage in every walk of life and they are groaning under the weight of high cost of living, largely resulting from policies pursued by the UPA II. Costlier diesel and cooking gas will only make their lives more miserable. The promise of shopping in the air-conditioned comfort of a foreign multi-national retail chain is unlikely to make the poor and the middle class forget all their other woes. From : Khalij