India needs Manmohan magic again
Yashwardhan Joshi
New Delhi, The doctor is in and has uttered some soothing and uplifting words, but the patient, it seems, needs a strong dose of medicines and fast. Dr Manmohan Singh, who took charge of the finance ministry recently from Pranab Mukherjee, has the onerous task of nursing the Indian Economy back to health and putting it on the run once again.
The economy has been ailing for some time– it grew by only 6.5 per cent in 2011-12, its nine-year low, industrial production rose by a mere 0.1 per cent in April, inflation was hovering around 9 per cent, the rupee lost a quarter of its value against the US dollar over the past 12 months to hit record lows, and the current account deficit– signifying country’s excessive foreign borrowings– was at a 20-year high of 4.5 per cent of the GDP for FY12.
Global ratings agencies Standard and Poor’s and Fitch have also warned that they may downgrade India’s debt to junk status if the economy continued reeling from high fiscal and current account deficits and stubbornly strong inflation. Against this backdrop Prime Minister Dr Singh took over the reins of the finance ministry and spoke of the need to revive the economy’s ‘’animal spirit’’.
‘’We need to work to get the economy going again and restart the India growth story,’’ he told senior finance ministry officials.
Spurred by hopes that the economist finance minister could once again make the economy bloom, investors drove the benchmark Sensex share index to a two-month high. A survey of India’s top 150 honchos carried out by business body Assocham also found expectations of ‘’renewed energy being infused’’ into the economy since Dr Singh took control of the finance ministry.
He has already indicated that India may back away from moves that have driven away foreign investors, including Mr Mukherjee’s Budget proposals to aggressively tax past transactions involving companies such as British telecom giant Vodafone. In his meeting with visiting Singapore Prime Minister Lee Hsien Loong in Delhi yesterday, Dr Singh stated India’s commitment to reinforce its status as an investment-friendly country.
To attract foreign capital from Singapore, a major source of FDI inflows, Dr Singh expressed the hope that Singapore companies would look at India as a valued investment destination in the current scenario. With markets bullish on the back of belief in Dr Manmohan Singh’s optimistic words, analysts say he must now find the deeds to match his words.
According to Confederation of Indian Industry (CII) President Adi Godrej, the Indian economy quickly needs a revival package. ‘’We need quick actions to push reforms. India can grow at 8-9 per cent rate if reforms are implemented,’’ he said. But the key to big-ticket reforms lies with the coalition partners. The Government is looking at bringing about pension reforms and raising foreign investment ceiling for insurance sector from 26 per cent to 49 per cent.
But will the maverick Mamata Banerjee of the Trinamool Congress allow them to pass after getting into a confrontation with the Congress over the candidature of Mr Mukherjee for the presidential election scheduled July 19? She has already stalled the Pension Bill once; she is capable of doing it again. Ms Banerjee and the Left have also put paid in the past the Government’s plans to allow 51 per cent FDI in multi-brand retail.
In the monsoon session of Parliament beginning next month, the Government will look at getting that proposal passed, a proposal that will allow foreign supermarkets, such as US giant Walmart, to own 51 per cent of Indian operations and bring billions of dollars in investments. Other reforms include permitting foreign airlines to buy up to 49 per cent of domestic airlines, which could help the cash-strapped aviation sector.
But all these reforms require support of the coalition partners as well as the main Opposition BJP. The Congress managers have to work over time to get a consensus from both inside and outside Government to get the reforms passed in the monsoon session.
Then there is the much-delayed Goods and Service Tax (GST) that should be implemented by April 2013. According to Mr Godrej, GST is the single most important reform that could stimulate the economy. ‘’It will add 1-2 percentage points to India’s GDP growth rates and will be very complementary to other reforms that can be implemented,’’ he said. But its implementation has been a big hurdle for the Government as it requires unanimity among the States.
Till now, slowing GDP growth and policy paralysis has given fodder to the BJP, which is eying the next General Election that, it feels, may be advanced earlier than 2014. Samajwadi Party chief Mulayam Singh Yadav has also expressed the hope of an early Election. The Congress has to now chalk out its strategy to get the reforms passed in the monsoon session. Besides, it has to take other measures to get the economy running.
Home Minister P Chidambaram, who had been finance minister twice earlier, has said that India’s derailed growth rate would soon be back on track as the Government has lined up measures to boost revenue collection and control unnecessary expenditure. There are reports of Mr Chidambaram taking over as finance minister from Dr Singh before the monsoon session.
But at present it is Dr Singh who is in charge of the country’s finance department. Expectations are high from him to deliver something. If that doesn’t come through, the markets will be disappointed. Dr Singh, whose radical reforms transformed the country’s economy two decades ago, has to rework his magic once again, and this time pretty fast.
Follow our WhatsApp channel