Economic worries abound, politics dooming revival efforts

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Bikky Khosla | 20 Dec, 2011
At last, the RBI has pressed the pause button on interest rate hikes. In its mid-quarter monetary policy review last week, it kept the key rates unchanged. The better piece of news is that the central bank has also said that from now onwards monetary policy actions are likely to reverse the cycle.

The move by the RBI that is well known to be conservative by nature is a welcome step but I think it offers only dim ray of light amid gathering economic gloom. As per official data for November, headline inflation is still ruling at 9.1 percent, exports growth has slowed down to 4.2 percent, and fiscal deficit has ballooned to $13.6 billion. In addition, a shrinking industrial output (5.1 per cent in October), a swelling external debt load ($316.9 billion at the end of June), and a falling rupee â these are, needless to say, some of the biggest challenges at this moment. Adding to these worries, the global economic situation has continued to be fragile.

But there is a bigger problem â our disgusting political climate. This year the dirty face of Indian politics has been exposed more clearly than ever before with the Centre rocked by a series of high profile corruption scandals leading to protests by the opposition and the general public. Subsequently, it resulted in a policy paralysis. More recently, with the cabinet approval of FDI in retail it seemed that the long period of official inaction would come to an end, but this time the effort was pushed back by the opposition and some of the government allies, who are, I think, eager only to oppose instead of showing a constructive approach. With such messy politics, it is really hard to imagine progress.

Keeping the aforesaid issues aside, another key area where we are lagging far behind is infrastructure â an area where substantial commitment to spending is required. It will help not only the Indian industry to flourish but also to attract foreign investment. In addition, the government must speed up regulatory clearances of big infrastructure projects and put more efforts in removing other bottlenecks that are major impediments in accelerating economic growth.

As far the Indian industry is concerned, it needs government support to survive the ongoing turmoil both at the domestic and global levels. Particularly the MSMEs and the export sector need an immediate push by introduction of government measures to avail low-cost credit, incentivize exports, minimize transaction cost, and control prices of essential raw materials.

There is not an iota of doubt that Indian economy has the greatest long-term potential than any economy on the planet. But there are enormous obstacles that stand in the way. The government must act more efficiently; the opposition must put the interest of the nation beyond party politics. Our economy needs a second phase of reforms â urgently.