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Policy
 
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INDIAN BUSINESS ENVIRONMENT: POLICY MUDDLE
Is it the last straw yet?
It has been a winter of discontent as the year draws to close. Faced with bleak business prospects, India Inc expects the government to act and act fast.
Issue Date - 19/01/2012
 
When Commerce & Industry Minister Anand Sharma went into a high-powered meeting with the joint task force of business leaders and government on industrial slowdown earlier this week (December 19, 2011) he must have had some inkling of the unpleasantness in store for him. Barely days ago, India Inc. had publicly hit out at the policy paralysis that had visibly derailed the reforms agenda of UPA II. But any ideas that the Minister harboured to pacify the growing discontent in India Inc. were quickly put to rest. Peeved with the stubbornly high inflation, mounting fiscal deficit, the declining rupee, among a host of other negative sentiments, the meeting saw belligerent industry captains turn the heat on the government instead.

Strident in their approach, industry representatives on the joint task force viz. JK Paper MD Harsh Pati Singhania, FICCI President Harsh Mariwala, Bharti Group Chairman Sunil Mittal, Sunil Kant Munjal of Hero Group and HSBC chief Naina Lal Kidwai, urged the government to somehow break the logjam with the opposition and end the policy paralysis in decision making and governance.

The prevailing negative sentiment in business circles is not without cause. The UPA II regime has been under siege for too long now. If corruption scandals, and a paralysed government hesitant to usher in any bold reforms for fear of opposition backlash were not enough, the global economic slowdown and its impact on investments and exports have all added to the crisis of confidence that has struck Asia’s third largest economy.

Lack of any major reforms since the 2008 global crisis coupled with spiralling inflation, worsening domestic finances and policy impediments in doing business (India ranks 137th out of 183 economies in ‘Ease of Doing Business’ according to World Bank), has not only slowed global investments into India to a crawl, but has also had a huge negative impact on Indian exports. Says Siddhartha Rajagopal, Executive Director of the Cotton Textile Export Promotion Council, “We are growing at the rate of 8-10% but lack of demand is a barrier. Besides, higher interests and capital costs are pushing up our manufacturing costs.” Ali Ahmed Khan, Executive Director of the Council for Leather Exports agrees that the order position has reduced drastically and bemoans government inaction and laments that the government has done nothing.

The latest nail in the coffin for the government’s reforms agenda has ostensibly been the retail FDI debacle. The government was forced to eat crow and shelve its decision to allow 51% FDI in multi-brand retail after key allies joined opposition ranks on the issue. But the retail FDI debacle perhaps was only the tipping point that brought the simmering discontent in India Inc. to the fore. Industry concerns over government inaction have been around from much before.

In October this year, 14 eminent citizens including entrepreneurs like Deepak Parekh, Azim Premji, Adi Godrej, and economists like former RBI Governor Bimal Jalan issued a note of caution to the government in a joint statement. Their open letter to the Prime Minister drew attention to four failures of the government viz. growing governance deficit, galloping corruption, need to distinguish between dissent and disruption and environmental challenges. “India’s focus must remain steadfast on reforms and growth to reduce poverty and ensure adequate job creation,” they noted, adding that land, judicial, electoral and police reforms were urgently needed.

 
Only a few days later, India’s Comptroller and Auditor General (CAG) Vinod Rai also delivered a stinging indictment of government functioning. “Governance is at its lowest ebb,” said Rai, adding that decision-making was the biggest casualty and that the situation was too deleterious for the nation. In yet another embarrassment, the government had to revise its earlier projection of 9% growth. Barely three months after the announcement, the Prime Minister’s Economic Advisory Council (PMEAC) cut the growth forecast to a more humble 8.2%. So much so that Dr. Kaushik Basu, the government’s chief economic adviser, even conceded that there was a certain slow-down in bureaucratic decision-making. “Given the corruption scandals and subsequent witch hunt, some decision-makers are going slowly,” he admitted. Quite a candid admission, from a government representative at that!

Clearly, the industry outlook for the future appears a tad disappointing and discouraging. While a fiscal stimulus would be a far cry, is there a way out of the current economic imbroglio? Dr.Arun Singh, Senior Economist, Dun & Bradstreet, India highlights the urgent need to move beyond the political acrimony witnessed in recent months and the urgent need for a program of reforms that would bolster investor confidence. “At this juncture, a marked improvement in business confidence and upturn in economic activity is heavily contingent on speedy implementation of big-ticket economic reforms,” he tells B&E.

Just implementing the long due GST (Goods and Services Tax) regime, with a simplified and long term direct tax code could electrify business prospects, feels D. S. Rawat, Secretary General, ASSOCHAM. “Investors must find a robust bond market and corporate debt market working in India. Early implementation of market driven pricing of oil products to reduce subsidy outgo and conserve oil and gas resources should be undertaken,” he adds.

And if implementing the GST seems like a far cry at present with opposition from BJP ruled states, then Commerce Minister Anand Sharma only has to go back and refer the notes of his December 19 meeting with the joint task force on industrial slowdown. Industry representatives had then suggested that the government identify 50 major (but do-able) projects, give them priority status and send out the right signals to the country & the world. The government may continue to maintain that it’s not about policy-paralysis (rather about global slowdown), but they need to demonstrate their supposed non-inertia through action instead of merely paying lip-service. If they manage to do so, it will be a blessing for the Indian economy as well.

          

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