Thursday, December 15, 2011

Is Indian economy slipping from the main Road?

Competition is not so easy
As per the Index of Industrial Production (IIP) released by CSO, the industrial growth has reduced to 5.0% in 2011-12 (April - September). It was 8.8% in corresponding period of previous year. According to government the GDP growth in first quarter of 2011-12 was 7.3% and in the second quarter it slipped to 6.9%. In the sector wise break up, services leads with 9.3%; agriculture and industry struggling in the tail end with just 3.2%.

One of the main reasons is attributed to the increase in policy rate by RBI to curb another monster - inflation. Many of the problems can also be attributed to the problems in North America and the Euro Zone crisis, which is already affecting many other countries too. But is that the only reason? Can we accuse foreign factors for all our structural problems?

If we are searching for the number of reforms we successfully executed in the past few years there may not be many things to count. In fact after the sweeping reforms in the 1991, executed under the sword of balance of payment crisis, we went lazy in going forward with more reforms. When UPA II came in to power with a clear majority people expected a broad range of reforms in critical sectors - which are really choking the growth rate. Instead it was scandal after scandals of corruption, non functioning parliament, policy paralysis etc.

Even the most advertised policies too didn’t reach anywhere. Consider the case of much publicized Civil Nuclear Treaty; it’s far from fully operational. Reforms in power sector never saw the light of the day other than some blinking here and there. So is the case in mining, agricultural etc. Now one more thing added to the list - Reforms in Retail. It went back to cold storage faster than it came out.

One of the beacon areas of early successful reform was Telecom sector. It really able to link the entire India, but we failed to copy the same level of success in other areas. Now the 2G spectrum case results in the adjournment of Parliament, even though it is under consideration by two parliamentary committees - where the opposition too is a partner and court. Why the parties can't leave the rest of 2G scam proceedings to the court and concentrate on the real issues in Parliament? There are a lot of things to discuss - price rise, inflation, sector reforms in power, mining, retail, climate change issues etc. Losing the valuable time in the parliament will not help in the progress of the country.

If we are ready to accept the current course and live in the state of policy stagnation and structural paralysis it will not take much time for foreign investors - why only foreign investors, even the domestic ones will start looking for overseas grazing grounds. Simply because we have demographic advantage, growing middle class etc we can’t consider the growth as taken for granted. If we are so complacent in moving forward with reforms it will not take much time to return to low growth rates. Will it stop there? No over and above we will be considered as a bunch of people who are not ready to move ahead even in the favorable circumstances – in short the loss of faith in Indian markets.


photo courtesy: wikipedia

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