Policy paralysis killing growth story?

Fri, 22 Jun Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

The policy paralysis in India is only getting worse by the day. The government which is already under fire from rating agencies like Fitch and Standard and Poor (S&P) and various business leaders over its decision making ability, has found a new critic. This time it is the turn of steel tycoon LN Mittal. The UK based NRI billionaire has said that the country is potentially condemning millions to remain in poverty by not helping industrialisation.

India's economic growth has slumped to a near three-year low and its current account deficit is the highest since 1980, a gap that is difficult to control when the rupee is at a record low. The fiscal deficit is very high. Inflation is the highest among the so-called BRICS group of major developing countries, and industrial production remained flat for April. The international rating agencies, watching parameters such as the GDP, capital formation and utilisation, fiscal deficit, investment and so on, and the development banks such as the IMF, the ADB and the World Bank are giving India the thumbs down presently. Somehow all the euphoria with regard to this country seems to have vanished.

The reason for some of the above mentioned problems are linked to policy paralysis. The government was forced late last year to backtrack on plans to open up the USD $450 bn supermarket sector to foreign firms such as Walmart after a political backlash, including from within the coalition. Then it delayed plans to tax foreign investors after an exodus of funds, partly driven by concerns the tax could be applied retroactively, battering the rupee. The delay in allowing FDI in aviation, further opening of insurance and pension sectors are some of the examples of the lack of political will in the government to take decisions.

However the government on its part has pinned the blame on the volatile economic situation prevailing globally, thereby indicating that it is trying to shield its failures. It is hard to believe that a vast country like India is solely dependent on international circumstances. So we slide from bad to worse with FII and FDI drying up alongside. And yet the longed for action to resolve our problems does not come.

In order to improve India's image and get the economy kick started again, the government would have to take steps to do something very positive. It should indicate that it means business and foreign investors are welcome.