BackFor reforms, now every week counts
The UPA govt has a five-month window to push through essential reforms and get the economy out of its morass
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“Unusually uncertain" is what the International Monetary Fund (IMF) says in its Global Economic Outlook, referring to the prospects of the Indian economy. That’s an unlikely turn of phrase for the eggheads of IMF. In other words, they can’t figure it out, as well as they can, say, China (“activity is expected to receive a boost from accelerated approval of public infrastructure projects") or Brazil (“The projected acceleration is strong because of targeted fiscal measures aimed at boosting demand in the near term and monetary policy easing"). If you are an optimist, you’ll see a shiny silver lining there. After all, uncertainty could move things both ways.
“For 2012, with weak growth in the first half and a continued investment slowdown, real GDP (gross domestic product) growth is projected to be close to 5%," declares IMF. “But improvements in external conditions and confidence—helped by a variety of reforms announced very recently—are projected to raise real GDP growth to about 6% in 2013."
One doesn’t know exactly what improvements in external conditions it’s talking about here. It’s also wondering “whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component." The answer, it says, “depends on whether European and US policymakers deal proactively with their major short-term economic challenges." The report sees the world economy growing 3.3% this year, the slowest since the 2009 recession, and 3.6% in 2012, compared with July predictions of 3.5% in 2012 and 3.9% in 2013. But it also says that the downside risk is “alarmingly high" with a one-in-six risk of growth below 2%. “Confidence in the global financial system remains exceptionally fragile," it warns. And as the rotting cherry on the crusted icing, it predicts average oil prices to rise a full $11 to $105 a barrel in 2013.
That doesn’t sound nice at all for India, whose economy is beginning to look like it’s suffering from a slow degenerative disease (and let’s for the time being, not get into the argument about whether it’s the doctors on the case who are at fault). IMF talks about “confidence—helped by a variety of reforms announced very recently". Yes, the reforms have been announced, but most of them will have little impact in the short term. And time is running out, both in the economic and political sense.
The UPA government—and to be precise, the Prime Minister and the finance minister—has a window that’s open for only about five months more. Then the Union budget will be upon us, and the government will have to resort to all sorts of populist measures that will grant immediate relief to that dreaded aam aadmi and sundry interest groups, and add to the fiscal deficit. Mulayam Singh Yadav is not going to continue lending support from outside without claiming several juicy pounds of flesh. In fact, for entities like the Samajwadi Party, it may all be about getting the maximum they can out of this government and then forcing early Lok Sabha elections in which they hope to do well. For someone like Yadav, it does not make much sense to wait for two years for the elections; the popularity his party currently enjoys in Uttar Pradesh will definitely see some erosion by that time.
All logic points to the vital importance of the coming five months. This is the time to go hell for leather for disinvestment and give a strong booster dose to infrastructure investment. This is the time to shear red tape and hasten the process of clearances to industrial projects. And this is the time to ram through some bold measures in the power and energy sectors. The finance minister has the Kelkar committee report to brandish at naysayers, exactly what he had wanted and planned. That dreaded year “1991" has been mentioned both by the Prime Minister and by the Kelkar report. That’s a big weapon the government has.
It has to now make up for at least five lost years. Every week counts.
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