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The struggling economy and the challenges for the UPA




We remember those times a few years back when the economy was growing at rates of around 8-9%, and there was a lot of talk of India catching up and maybe over-taking China in terms of growth rates, even though the size of the economy was still very different. However, over the past few years, this growth rate has kept on falling, and each time the response of the Government was that they are taking measures to increase the growth rate, and green shoots can be seen. However, the current situation seems to be very different; there was some boost of the stock markets due to some steps taken by the Government, but they have not really translated into some action. I was talking to a friend who works in the infrastructure and highway sector, and he was very relaxed. Not relaxed because things were going fine, but relaxed because there has been a slowdown in the economy, especially in the highway and roads sector (but also in other sectors of infrastructure), and the workload had reduced significantly. Over the past few months, the declared rate of growth of the economy has been reducing, with the latest estimates being around 5%.
For the past couple of years, from the time of the scams, the Government seemed to have gone into a policy slowdown, with no reforms, no steps to resolve logjam, and with a steadily decreasing apparent authority of the Prime Minister. Appeals by Indian industry did not seem to have an impact, even though there were major public appeals for the Government to get back on the reform and governance track. It seemed to be that there was some movement only because of 2 factors – one was articles in foreign media critical of the Prime Minister and members of the Gandhi family (directed at their inability to govern well), and the other was an impending downgrade of the Indian economy by international rating agencies, and that would have been a killer for the Government, both in terms of the impact to credibility, and the other to the ability of the Government to spend for the huge populist reform measures.

In a matter of more than a year, the country is going to go for elections. The Congress has believed that the only way to win elections now is to appeal to people with some major economic measure; in the past this was the rural jobs program and the loan waiver for farmers. However, the ability to spend large sums of money for more populist measures is now difficult; the Government is struggling with the deficit; if it balloons, there will be a ripple impact on the credibility of the finances of the country and make it even more difficult for the Government to raise money. Even the reform measures of the past few months will not translate into more money so easily – for example, the FDI policy has not resulted into any large scale movement of foreign retailers into India. At last count, none of the major international retailers had made it into the country – they are apprehensive of whether the policy is clearly defined and apprehensive of whether the Government is trying to just take some measures, or will actually follow through ?
The other major problem that the Government is struggling with is the increasing awareness of the electorate. There is a larger section of people who are more urban now, who want more, who need jobs, and with a struggling economy, these jobs are not be had. The proportion of people in agriculture has decreased, and yet with the Index of Industrial Production at a low, there are just not enough replacement jobs available in manufacturing or infrastructure (services cannot provide so many jobs as the Government would hope). And yet, one really does not see any urgency for the Government to do systematic reform. They make policy announcements, but there are different departments within the Government that will stop these from proceeding. For example, there is reversal of many road projects because of fears that environmental clearances will not be provided, or even about a timetable in which such clearances will be provided. Examples such as these are where the Government should be focusing, trying to ensure that there are processes that define timetables, and if there are rejections, these are also informed within a certain timetable. However, all these take a lot of hard work, and one wonders whether the Government has the energy and the realization that it needs to do this hard work ?




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