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Zero Reform Society: Has the Economy Gone to the Dogs?

  • An unprecedented fiscal deficit heading northwards of 5.4% of GDP; probably the highest ever-current account deficit in India's modern economic history; a crisis in the Middle East and rising oil prices; huge governance and institutional challenges with a weak minority government, along with a paralysis of decision-making and reforms. Did you think i was talking about 2011? No! I was actually talking about 1991; exactly 20 years ago and the similarities couldn't be eerier or starker. So is India's economic miracle getting over? From 1991 till today the progress has been remarkable. An infrastructure-constrained, foreign capital inflows-starved, democracy-adjusted economy moved to a 8-9% rate of growth, reduced poverty from about 46% to 31%; savings rate shot up from 22% to 36%, and per capita income moved from $300 to $1800 during these two decades. Not at all an unimpressive achievement, considering the fact that the period has seen five, 24 or 25-party coalition governments, and yet the direction of reforms so far has been by and large progressive.
  • As against these significant achievements, the failures over the last couple of years in particular have been no less spectacular either. Consider the following: first, the well-conceived ultra mega power policy (UMPP) has gone awry thanks to various reasons, the most important of which is the fuel issue. Reliance has virtually stopped work at one of their plants after sinking several hundred crores and financing of most of them is proving to be difficult. Many coal plants have one day to two weeks' coal supply left. Australia, Indonesia and South Africa have declared a force majeure event and breached contracts for the supply of coal to Indian power developers at anything below global prices due to changes in the domestic law prohibiting the same.
  • Secondly, if IAS officers known for their honesty and integrity such as Shyamal Ghosh can find CBI knocking on their doors, a decade or more after their retirement, purely to become a pawn in the settling of political one-upmanship, is there any professional in any profession in the world, who would be willing to take decisions in such an environment? Forget about decision-making, would anyone even remember what he or she wrote on a file ten years ago?
  • Thirdly, the license permit raj is back in full force via environmental clearances. When we are adding population the size of Australia every year, but cannot plan for the energy security of the nation, it is a travesty. Coal mines are usually found in forests, and not in Connaught Place, and as such classifying every small shrub as a reserve forest and then denying permission to mine, and jeopardizing 50000 MW of power development is simply not done.
  • Add to this the Rs 70000 crore losses of SEBs and the picture is unarguably depressing. What's happened to the open access policy and privatization of distribution?
  • Fourthly, with a fiscal deficit going through the roof at 5.4% of GDP, procuring 100 million tonne of foodgrain, with a widening gap between a galloping maximum support price for foodgrain and a politically-determined rapidly decreasing issue price, the food security bill, given the structural capacity constraints of the government as they exist today, is highly debatable, even though no one can find fault with its intended purpose.
  • Fifthly, on the other hand, FDI in retail, with safeguards and a strong regulator would have been a first rate reform to do, given the appalling state of our food storage and processing infrastructure. Almost every major domestic retailer such as Reliance, Future Group, Aditya Birla Group, are all posting record losses and have significant debt on their books. India should be grateful if a large foreign investor is willing to invest in such a scenario, provided we could ensure a strong regulator and affordable real estate. Given that, India wastes 30% of the 180 million tonne of fruits and vegetables that it produces and has only about 20 million tonne of cold storage capacity which is a joke, despite 100% FDI allowed in it!
  • Sixthly, slowing domestic demand, a broader decline in Indian equity markets (Execution Noble's recent research labeled India as the world's worst performing stock market in 2011) and the Eurozone crises have hit the rupee hard, which many predict will only worsen. Also from January to August 2010, India got $15 billion FII inflows, whereas for the same period in 2011, they stood at a mere $400 million. The confidence in India is rapidly vanishing and globally investors are extremely cautious about investing in India and the overall sentiment is funereal.
  • Each one of the factoids above shows not just an absence of action but also more importantly, an absence of thought. India should go forward mark 7% as its lower bound rate of economic growth or perhaps call it the new Hindu rate of growth and not slip below that. Every concerned citizen should be asking, are we frittering away all the gains of the past two decades in just two years of zero reform? If yes, that should be a cause of huge worry that our much-hyped reforms are hardly sustainable and should we then be questioning its very viscera? How and in what form would governance reforms occur in, something for which India is crying for? Questions India can ignore only at its own peril.

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