Business Today

Economy failing, PM focusses on on six core infra ministries

With the country's economic growth rate slumping to a nine-year low, Prime Minister Manmohan Singh appears to have been prodded into action.

Mail Today Bureau | June 5, 2012 | Updated 11:11 IST

With the country's economic growth rate slumping to a nine-year low and the prospects of a failing monsoon looming on the horizon, Prime Minister Manmohan Singh appears to have been prodded into action.

But, strangely, he still blames "circumstances over which we have little or no control" for having precipitated the problems facing the country.

There is no mention of the inertia, lassitude, policy freeze - call it what you will - that are taking their toll on a rapidly decelerating Indian economy. The fact is that this inaction is the result of policy mavens not being able to come to grips with the lack of direction from their political overlords.

Addressing the Congress Working Committee (CWC) meeting on Monday, the PM said: "These are difficult times for our country and our economy, caused to a very large extent by circumstances over which we have little or no control. These are times when our will and determination are being tested. We must stay the course. We must have faith in ourselves."

This definitely sounded like a tired old spiel. The 40-point presentation laid before the CWC by the PM on Monday offered a cynical peep into how out of touch the UPA government is with its own people.

Sadly, some of the points were nothing more than a pat on the back for his government.

Sample some of the tall claims made: poverty is declining faster, real wages are increasing, agriculture growth has accelerated, large investment in the health sector is showing results, support prices have increased and foodgrain stocks are at a record level.

Yet, the economy is teetering.

The last quarter saw GDP pegged at 5.3 per cent and manufacturing - the backbone of any economy - actually contract to minus 0.3 per cent.

The question is: do the PM and his government have the necessary political sagacity and will to ram through reforms? According to Congress sources, Singh referred to the high international prices of crude oil and the problems created by coalition partners that were preventing the government from kickstarting the reforms process to revive the economy. This, too, is something that the people of the country have been accustomed to hearing for some time now.

To be sure, this combination of domestic paralysis and extraneous factors has finally goaded the PM into action. The wake-up call has galvanised him into convening a meeting of six senior ministers on Wednesday to review big-ticket infrastructure bottlenecks.

The move is aimed at expediting the implementation of projects worth Rs 1.46 lakh crore that are held up because regulatory clearances have not come in. These include coal, power, railways, highways, ports and even urban development projects such as the Metro. Several of these projects are to be implemented in the public-private partnership (PPP) mode.

Singh has also approved the formation of a ninemember ministerial committee to sort out differences over the draft Bill for setting up a regulatory authority for the coal sector. The mining sector has been contracting in recent months and this has caused a shortage of coal, which is holding back the expansion of the power sector.

Big power projects cleared by the government have failed to take off as fuel supplies have not been tied up. This puts a question mark on the economic growth rate as both industry and agriculture need electricity to enhance output.

Similarly, delayed highway projects are causing concern. With road build-outs virtually at a standstill, the government is concerned with the pace of infrastructure development.

The Delhi-Mumbai Industrial Corridor, which is stalled in patches over land acquisition problems, and the status of a catalogue of PPP model projects in the railways are an equally big bottleneck.

Land acquisition proves to be the single biggest impediment and the problems being faced by Korean chaebol Posco is something that the PM is seized of.

On the highway front, for instance, the Union government targeted a scaled-down figure of 13 km a day. But all that it has limped to is 9 km or even less per day.

Two major highway projects had to be cancelled recently as they could not achieve financial closure.

The prestigious National Highway Development Project has been hanging fire because banks are not willing to finance it.

The massive fiscal deficit, which has already touched 5.9 per cent of GDP and is still growing, also poses a major problem. Finance minister Pranab Mukherjee said on Monday that there was no headroom for running a proactive fiscal policy since the second round of global uncertainty and slowdown had come rather quickly on the heels of the previous one.

The PM was also clearly worried over the government's image being battered after a spate of corruption scandals and wanted the party to go into damagecontrol mode.

He said "canards and falsehood" were being spread by "disparate" and "desperate" elements, and asked the party cadre to effectively tackle the "misinformation".

In an apparent reference to yoga guru Ramdev and Team Anna, the Prime Minister said: "Every day, one hears of astronomical sums of black money that can be brought back in one stroke. It is alleged that in every area of its activity, our government has swindled unbelievable amounts of money. Nothing can be farther from the truth."

Singh added: "The truth is that our government is fully committed to tackle the menace of corruption in public life and bring about transparency and accountability in the work of government authorities. And we have proved this by taking action on multiple fronts. The legislative and administrative action we have taken in this area speaks for itself."

For its part, apex business chamber FICCI termed the economic situation "grave" and urged the government to go in for bold economic reforms such as allowing FDI in multi-brand retail and reducing interest rates to revive growth.

"India is in the midst of a grave economic crisis. The combination of low growth, high inflation, high fiscal deficit and the highest ever trade account deficit has raised a lot of concern," Ficci president R. V. Kanoria said.

Suggesting a 12-point agenda, he pointed out that during the time of low growth and global uncertainties, all political parties should strengthen the hands of policymakers.

He said reasons such as excessive monetary tightening, delays and uncertainty over key economic legislations and projects delays on account of factors that include stalled environmental clearances have pulled down the country's economic growth.

India's GDP growth has slumped to 6.5 per cent in 2011-12.

Ficci has suggested that the timely implementation of goods and services tax (GST) would be a landmark reform that could alter the dynamics of Indian industry and exports. "It would add 2 per cent to our GDP. Tax administration and tax collection will also go up," Kanoria said.

He asked for an immediate easing of monetary policy and bringing down of interest rates by 2 percentage points as well as CRR by 1 percentage point.

Cash Reserve Ratio (CRR) is the portion of deposits which banks are required to keep with the RBI. He also urged the government to revisit the Land Acquisition Bill, as it restricts the use of irrigated multi-cropped land for infrastructure development.

He recommended a fiscal stimulus for investments across sectors.

The government must ensure that key proposals (allowing FDI in multi-brand retail and allowing foreign airlines to take stakes in domestic carriers) reach their logical conclusion, he added.

Courtesy: Mail Today

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