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Slow rate of growth of the economy and promises to make it better – lot of hot air ?




It has been more than a couple of years since the Indian economy started declining from the high levels of 8-9%, a time when the Government was high on the prospects of India reaching the same growth level of China and also patting themselves on the back about riding out the overall global depression. When there was a time to take credit, the government fell over themselves to take credit. But, the lack of reform measures and the sheer weight of the scandals that were getting uncovered were causing huge problems to the bureaucracy. At that time, there seemed a lack of understanding on behalf of the Government. The Finance Minister was Pranab Mukherjee, and when you talked about increasing the rate of growth or about acknowledging that there was starting to be a problem, the Government would respond with all sort of stories about how this was a temporary measure, and then later that there were green shoots to be seen in the next couple of months. Unfortunately, the green shoots seemed to have gone further underground and the ongoing struggle with Vodafone and the way that the Government actually passed an ordinance to over-turn a Supreme Court judgment in favor of Vodafone was a big shock to investors (and when you have an economy that needs a lot of infrastructure support, telling investors that the Government can over-turn judgments and have policy that is not consistent is pretty bad for increasing faith in a country).
For some time, the message was that Pranab Mukherjee was the fly in the ointment, he was the one who with his stature was preventing the Government from practicing more reform, and so things would get better when he was kicked upstairs and made President. Well, he became President, although the scams kept on happening and the growth rate kept on plummeting. September was when the Government announced some reform measure – and so there was the announcement of FDI in retail (and yet, the policy and the overall corruption needed to start retail in India is such that foreign companies are fearful of entering this area) but so far, even so many months later, there is no big foreign retailer who will enter the country. And with recent announcements that seek to put more control on FDI in retail (as if there was a rush of retailers stampeding to enter the country) seemingly benefiting Reliance Retail (the only that does not seek to have deals with foreign retailers), it makes foreign retailers more resistant to coming on. The Government will not take any effort to try and curtail this level of corruption that is now scaring foreign companies from entering, and neither will it try and do any reform in terms of increasing infrastructure for agriculture such as cold storage and logistics (it was depending on these foreign retailers to do these).
There are numerous other problems in the economy that the Government does not seem to try and do anything about (such as huge shortfall in power and electricity, fuel shortages, a screwed up national road program, and other areas as well). When businesses see this, they realize that the economy is probably going to go down even more before it tries to get up, and as a result, you have businesses doing all their investing out of the country rather than inside the country. It would have been good if there were policies that moved people towards buying less cars and more towards public transport, but for the past many years, the car market was a shining example of the growth rate of the economy. Now, the sale of cars is down for the past many months, another sign that the economy is still tanking.
The only positive sign seems to be that one of the rating companies has finally moved India up by a notch, and that seems to be primarily because the Government has been forcing itself to meet budget deficit targets. The Government seems to have taken this as an example of reform working; but there are numerous signs of problems likely to get worse. The stock markets remain down (most people consider that the Sensex is an imperfect sign of the stock market, since most of the stocks outside of the Sensex remain way down from their highs), the Government goes in for divestment of state-owned companies to raise funds (instead of getting far more money by doing strategic divestment as the NDA government did) and then gets state run finance institutions to buy most of this divestment equity, the Rupee is way down and given that imports are more than exports – this can be very problematic for the deficit, and so on. In the middle of all this, the Finance Minister can only ‘promise’ more reform, and then you have the External Affairs Minister (Salman Khurshid) jumping in to make his prediction that previous growth rates will be achieved. Right now, the only thing that the Government seems focused on is the Food Bill (a huge populist measure that will depend on an incredibly leaking and corrupt system – the aim is to claim credit for doing good even though there are many states that have better measures and which should have been the examples to use). It almost seems like the Government has gone into stasis, no action, and hopes that the economy will get better.




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