Not impressed!!

Political gridlock is crowding out positive impact of reforms.

To the surprise and embarrassment of Finance Minister, who has been long exerting to project India as a flourishing economy among foreign investors, global credit rating agency Standard and Poor’s has retained its ‘negative’ outlook for the country which is just one notch above junk status. Though Government doesn’t agree to it and is audacious enough to acclaim that global investors hold a different view, but this audacity is like living in a fool’s paradise and is nothing more than its face-saving exercise.

Undoubtedly many financial reforms have been announced by Government since September and also the country currently experiences various green shoots like easing-out inflation even reducing most stubborn Consumer Price Inflation, increased factory output, falling gold and oil prices leading to decelerated Current Account Deficit etc. However, why the world is not still convinced to rely on these positives is no rocket science to conjecture. India’s appalling political-paralysis resulting into acute policy paralysis, a cornucopia of corruption and scams, non-transparent and archaic laws etc has severely tainted its image worldwide which might require decades to get cleaned up.

The slow pace, at which reforms undertaken by Govt. were moving ahead, got further decelerated with a Government in dock due to series of scam revelations and an opposition in revenge-mode leading to precluded Parliament. Now it is not shortcomings at economic front but at political which has derailed India’s progress. Legion of policy bills are languishing from one session to another un-tabled or un-concluded. Spate of policy-discussions have been elasticizing from one meeting to another with no consensus to be in sight. It seems political brinkmanship in India has escalated to a toxic level where legislatures have now started compromising on even their core responsibility i.e. to discuss and draft legislation. Food Security bill, land acquisition bill, FDI in insurance, Goods and Services tax including many more bills will perhaps remain stuck till new government comes in.  S&P rightly pointed out “Given the political cycle—with the next elections to be held by May 2014—and the current political gridlock, we expect only modest progress in fiscal and public sector reforms. For example, reforms of fertilizer subsidies, introduction of a nationwide goods and services tax, easing of restrictions on foreign ownership in various sectors such as banking and insurance sectors, will take time.”

It seems that India has taken an oath to always flow against the wind. In the aftermath of global financial crisis when the whole world geared up to restructure banking industry, India didn’t pay heed to it. Now when all major countries are coming forward to clamp down on tax havens, India doesn’t seem to be taking this call seriously. When every other country is enthused with the green shoots in the global economy and trying to make the most of it, India is clogged with unnecessary political altercation at home and losing on the most opportune time to recover from the economic meltdown.

S&P must not be blamed for India’s negative rating, in fact, it would be no wonder even if it is downgraded to junk status given the disturbing trend of political logjam leading to legislation logjam which has severely dampened India’s already fading credibility at international forum. Global investors, who look for stable and transparent legislative regime for their long-term investment plan, no more sees India as a prospective investment-destination. They have gone wary, uninterested and indifferent towards Indian economy. It is high time that Government ignites its dormant insight and modestly accepts what S&P has stated. Government, which is so enthusiastically branding itself at home through ‘Bharat-Nirman’ campaign, would do well if it channelizes even a tad of this enthuse to improvise its depressing global-branding instead of national-branding.

Silver lining

it’s merely the prospect of a strong green shoot spontaneously fuelling the virtuous cycle of growth which  can lead to a revived economy, certainly not legislative insight of legislatures. 

In the vein of International Monetary Fund, recently Prime Minister’s Economic Advisory Council has also forecasted that Indian economy is bottoming out and getting back on the growth trajectory.  The emergence of green shoots in domestic and global economy like easing out inflation, increased factory output, gold and oil price fall etc. also gives the same sentiment. While global economies are trying to make the most of current green shoots, India is not being able to, due to constantly getting crippled with acute political-paralysis having been already in throes of policy-paralysis.

March Index of Industrial Production print at 2.5% has provided some relief to a beleaguered Government and Reserve Bank of India who were constantly troubled with sluggish industrial activity and sputtering growth. Reeling under the huge pressure of massive gold and oil exports, recent steep fall in gold price and decreased crude oil price has sparked the hope that India’s forex reserve will boost leading to a declined Current Account Deficit. In addition, the most significant green shoot favoring Indian economy is its assuaging inflation. Not only wholesale Price Index lowered down to 5.6% in March from 6.2% a month earlier, Consumer Price Index (CPI) has also dropped for the first time in six months, though it remained in two digits at 10.4% in March against 10.9% in Feb. Core inflation has fallen under the RBI’s tolerance limit being at 3.4% and food inflation has also somewhat alleviated. However, RBI is still cautious and refrained from adopting eased monetary stance in its Monetary Policy released back on 3^rd May 13. Going against the expectations of industry and stock market, RBI cut the key interest rate by just 0.25% to 7.25% and kept the liquidity enhancing cash reserve requirement untouched.

RBI not relenting upon policy rates is justified as India’s data computation system is not robust enough to produce micro-economic data and doesn’t give the clear picture of how small industries are faring at any given time. Therefore, it would be pertinent to wait for few more months in order to let the green shoots keep shining and solidify. It must also be noted that it is not economic constraints but escalating political-logjam that has bound the RBI to shower enthuse in the market. In the words of RBI-Chief D. Subbarao “the effectiveness of monetary policy in bringing down inflation pressures and anchoring inflation expectations could be undermined by supply constraints in the economy, particularly in the food and infrastructure sectors. Without policy efforts to unlock the tightening supply constraints and bring enduring improvements in productivity and competitiveness, growth could weaken even further and inflationary strains could re-emerge.”

Considering a Government dogged by scandals and corruption and an opposition hell-bent to spew venom against former, it appears that India has landed into a permanent crisis. It’s unfortunate that just because of petty political brinkmanship resulting into precluded parliamentary proceedings hindered the discussion on many important policy-decisions. Land acquisition bill, Foreign Direct Investment in insurance bill etc have been languishing from one session to another without getting tabled.

Economic recovery indicators are surely palpable. Having been in the throes of slow growth for long, this is exactly the time that India gears up to push reform agendas ahead and make the most of what global and domestic buoyant sentiments are offering. It must understand that economic slowdown is not as gruesome as the political slowdown resulting into policy stalemate. Expecting prudence on the part of Govt. and opposition at this time when general elections are round the corner is definitely like nurturing a false hope. Nothing is going to be done by these revered parliamentarians, it’s merely the prospect of a strong green shoot spontaneously fuelling the virtuous cycle of growth which  can lead to a revived economy, certainly not legislative insight of legislatures. 

Parliamentary Paralysis

Opposition-Goverment would do well by igniting their insight and pushing reforms ahead instead of getting clogged with insignificant altercation.

India is in throes of acute legislative deficit which doesn't seem to be tided over with ever increasing stand-off between Opposition and Government. It has now reached to the extent where parliamentary proceedings are getting disrupted on daily basis due to unnecessary uproar in parliament. While acrimonious political brinkmanship is the part and parcel of parliamentary form of Government which does exist in many other countries as well, but India’s situation is peculiar where acrimony between Opposition and Government has reached to a level that Parliament’s core duties i.e. decision-making and legislative functioning has come to a stand still. 

According to statistics compiled by the Lok Sabha secretariat, 1,157 hours of Parliament sittings have taken place and 634 hours have been lost on account of interruptions and adjournments until the 12th session of the 15th Lok Sabha, which was elected in May 2009. It is now well on track to achieving the dubious distinction of being the least productive in terms of business transacted among those that completed their full five-year terms.

Budget session is always the most significant session for Lok-Sabha, unfortunately, it has been the most chaotic and non-productive one for the current House especially with the resumption of second-half of the session beginning from 22^nd Apr. It is surprising that general budget and Railways budget sailed through Parliament with no discussion at all and many important bills like Food Security, Right to services, land acquisition, Lokpal etc are waiting in the cue to get parliament nod. It is highly unlikely that these bills get passed in the current session which will be ended by 10^th Nov.

The disturbing trend of political logjam leading to legislation logjam is the major dampener to India’s fading credibility at international forum. Poor governance and spate of corruption scams especially 2G spectrum and coal block allocation scam which led Supreme Court to cancel all allotments done by corrupt leaders have set a worrying precedent that deals can anytime be terminated and laws can any time be changed in the country. Global investors, who look for stable and transparent legislative regime for their long-term investment plan, no more sees India as the prospective investment-destination. They have gone wary, uninterested and indifferent towards Indian economy.

It is time that strict measures are taken to keep the parliament running. Petty politics of Indian politicians has reached to a toxic level where they’ve now started even compromising on whatever little they do for the country. Either opposition dares enough to promulgate no-confidence motion against Government or it simply let the Parliament transact its daily business. Point-scoring politics on the part of opposition and blatant denial of Government for its wrongdoings will help nobody. This is the time when global economy is reviving and India is also experiencing positive greenshoots. They would do well by igniting their insight and pushing reforms ahead instead of getting clogged with insignificant altercation.