There is that feeling of déjà vu. More precisely, there is a fear of a repeat of the 2008 global meltdown or something even worse. Because after all, it is obvious to anyone that the world economy is yet to recover its stride even three years later and hence immensely vulnerable. This trepidation is palpable in the volatility in the financial and commodity markets.
Given the rapidly growing global linkages it is not surprising that Indian policy planners are equally nervous. No surprise then that almost every key member, because of the “special situation” (as one of them chose to dub it), has sought to allay domestic fears. As they say talk is cheap and there is no palliative other than action.
For a government that is virtually under siege thanks to the political attacks for alleged missteps, focusing on policy action is easier said than done. Yet, if there is anything that can insulate or at the least mitigate the fallout of the ongoing shake up in the global economy, then it has to be action. Not just to provide symptomatic relief, but also effect the structural change to pull the economy out of its current rut.
Governance: Speedy action on the proposed Lokpal Bill will more than convince the markets that the government is serious on tackling corruption in public office. More importantly, it will also send out a message to the judiciary that the executive is back in business. The additional spin off is that the legislation’s passage is presaged on bipartisan action—a simple but power political message that the country matters more.
GST: The dream of a single goods and services tax (GST) went sour a while back. While it is easy to pin the blame on the opposition, there is no getting away from the fact that the onus to ensure its passage is on the United Progressive Alliance (UPA). With a new leadership of the empowered group of finance ministers in Sushil Modi, there is a great opportunity to make a fresh start. For starters, a clear blueprint can be laid out; Nandan Nilekani’s team is already half way there in setting up the software architecture to manage this massive project that will for the first time ever economically unify the country—at present, the multiple tax regimes of various states are almost tantamount to trade with rival countries.
Inflation control: There are no easy solutions here. While debottlenecking the economy, through big ticket investments in infrastructure, and stoking a second green revolution in agriculture are oft discussed, what is not laid down is a plan of action with a finite timeline. Speedy implementation of a GST is critical; at the least it will do away with the cascading effect of the present indirect tax structure and also make Indian goods more price competitive internationally. As a short term measure, there is an immediate need to send out a strong signal on administrative action by offloading large amounts of surplus food stocks on the market—it will help nix inflationary expectations.
Fiscal controls: Slippage in this year’s fiscal deficit targets are more than obvious. It may therefore be the right time to put in place the next version of the Fiscal Responsibility and Budget Management (FRBM) Act. Mercifully, finance minister Pranab Mukherjee is a fiscal conservative and hence his heart in the right place. He has to take courage to convince other members of Parliament to come around to his point of view. In this, there is no better ally than former finance minister Yashwant Sinha, who was the architect of the original FRBM and also a leader in the principal opposition party, the Bharatiya Janata Party.
Reforms: Given the current softening of international oil prices, the UPA should take the opportunity to push ahead on further decontrol of prices of petroleum products. A singular reform measure that will not only boost investor sentiment, domestic and foreign, but will also help address growing fears that the UPA lacks stomach for politically tough decisions. Another big uncertainty revolves around the grey area on land acquisition; paying lip service and playing politics with the issue are easy, but what is needed is fast tracking of the legislation, which is yet only in the draft stage.
None of the above is rocket science. These are palliatives that key members of the UPA are very familiar with. Putting it in place will restore their mojo and also structurally improve the economy’s delivery system. At the same time, it will spur domestic investment—very critical considering that the global economy is, at least for a year, likely to remain in the doldrums. If successful, the UPA would have put in place a counter cyclical strategy led by economic reforms. What else could the nation ask for?