Tough policy decisions waiting for India

INDIA: The finance ministry with Pranab Mukherjee not at its helm is facing a long list of tough policy decisions - from the goods and services tax and direct taxes code to allowing FDI in the pension and insurance sectors, among other things. Economists say immediate actions are needed to end the perceived policy paralysis that hit India - the global investors’ hotspot till not so long ago.

All through his political career, UPA’s Presidential candidate, Pranab Mukherjee, has been successful in maintaining an unblemished image and upholding probity in public life.

On Monday, US credit rating firm Standard and Poor’s raised fresh questions over India’s economy hit by high government borrowing, rising imports and political compulsions that have stalled reforms in key areas.

Indications are that Prime Minister Manmohan Singh will keep the finance portfolio to himself for now, as macro-economy managers are struggling for a way out of the slowdown, inflation, weakening rupee and a wobbly global economy. Chetan Ahya of Morgan Stanley said in a research report that actions to revive private investors’ sentiment and reduce government expenditure and subsidies would help India reverse “the bad mix of growth”.

It has also been pointed out that managing a restive alliance consumed more time than policy making, resulting in missteps that have stoked the investor’s fears.

Recently, the cabinet quickly bottled up a proposal to open up the pension sector for foreign investment, fearing opposition from its key ally, the Trinamool Congress.

Days after slowdown, lower job growth and high inflation were discussed at the Congress working committee meeting - the ruling party’s highest decision-making body - the PM announced a set of targets to fast-track infrastructure projects.

“We see a low probability of these positive triggers materialising... The announcement of the fuel price hikes in the last few days is a good sign – but a sustained major effort will be needed to turnaround the growth cycle,” Ahya said.

Global and domestic business leaders have also been unsparing in their criticism about the government’s economic management.

“In a glimmer of hope, the government has started showing some intent .... more proactive steps in this direction will help improve the business sentiment,” said Kamalika Das, economist at ICICI Bank.

HINDUSTANI TIMES