The United Progressive Alliance (UPA) is completing the first year of its second term. Actually, its sixth year in office, given that in many areas there is continuity in policies, notwithstanding the parting of ways between the UPA and the Left.
How should one evaluate its performance? An objective report card is never easy to compile. A lot would depend on how allowances are made for coalition-era politics. More importantly, how much one overlooks failures to harmonise differences among the allies and, more importantly, the cost of missed opportunities.
On the whole, the economy has done well, with a robust rebound following the global financial meltdown. Successive rounds of stimuli to inject additional liquidity, an accommodative monetary policy, increased disposable income through tax breaks and incentivizing of consumer spending, particularly through a new pay package to government employees, did create a virtuous circle.
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The emergence of inflationary pressures was not necessarily a direct contribution of the stimulus package. Food inflation reflects both demand and supply factors, domestic and global, and equally a distortion of distribution mechanisms. The inability to enact some stalled but important legislations in the first year of its office has, however, important implications for the next four years of UPA-II.
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So what are the positives?
First and foremost, the economy. This is no mean achievement considering that the developed world has yet to emerge from the unprecedented financial meltdown. The recovery of the US economy remains fragile. Europe, following the Greece crisis and economic troubles in Spain, Italy, Ireland and Portugal—not necessarily in that order—will make global recovery problematic. In comparison, India’s economic performance is robust, with optimism for the near term. However, our continued attractiveness, leading to inward capital flows and appreciation of the rupee, has consequences for retaining export competitiveness and managing a growing current account deficit.
Second, spending on important social sector initiatives such as free and compulsory education for children in the age group of 6-14 under the Right to Education Act, and rural development programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme has been enhanced, along with increased allocations for various components of the Bharat Nirman programme. There is a new spurt in the road building programme and several measures have been initiated to improve infrastructure.
Third, the mid-term review of the 11th Plan has been completed and preparatory work for the 12th Plan commenced in earnest. Despite the time lost due to the global slowdown, high medium-term growth, with emphasis on inclusive growth, looks achievable.
What are the negatives?
Inflation, particularly of food prices, has yet to evoke a coherent policy response. The food security Bill is being tossed around with lack of clarity either on the methodology or the number of intended beneficiaries.
Key economic legislations dealing with issues such as resettlement and rehabilitation, land use, labour, reform of the banking and financial sector, to mention a few, remain stalled. There is a lack of consensus within the Congress party and it is now increasingly clear the Left was only an excuse for postponing many important decisions needed to accelerate growth. The difficulty experienced by government in getting the Finance Bill enacted by reaching out to new allies does not augur well for governance and much less for enactment of stalled legislations.
A key feature for durable fiscal consolidation is credible action in rationalizing anti-poverty measures and better targeting of subsidies. The inability to act on the Kirit Parikh report for de-administering the prices of petroleum and oil products will cast an even heavier burden if oil prices head northwards.
The government increasingly looks a house divided with a multiplicity of power centres. It is also divided in its strategy of managing its allies. Too many scandals add to growing public cynicism. Inability to rein in errant ministers weakens its resolve to improve governance. This is at a time when there are serious challenge, both external and internal. External in terms of our dangerous neighbourhood; internal in terms of our inability to contain the continuing haemorrhaging of sovereign authority by the expanding reach of the Maoist insurgency.
In short, the government, and more importantly governance, seems stalled. Fresh initiatives and political resolve are an inescapable need both in its economic strategy and political management. It is time to act.
N.K. Singh is a member of the Rajya Sabha.
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