Business Today

Govt worried as reforms get stuck

The government is worried over the economic reforms process being held up at the legislative level at a time when it is keen to attract more foreign direct investment (FDI) to boost the slowing economy.

S.P.S. Pannu | August 15, 2011 | Updated 08:56 IST

The government is worried over the economic reforms process being held up at the legislative level at a time when it is keen to attract more foreign direct investment (FDI) to boost the slowing economy and there are fears that the surge in exports will peter out due to the uncertainties in the US and European markets.

The government's image has taken a battering due to the series of scams and it was keen to demonstrate that there is no paralysis in the decision-making process. The finance minister had held a meeting with the country's top industrialists recently to assure them that the reforms process would be pushed through.

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However, no headway has been made in Parliament on the economic reforms Bills, which include those related to the amendment in the banking and insurance acts to liberalise FDI, the new Land Acquisition and Rehabilitation and Resettlement (LARR) Bill, 2011, and the Pension Fund Regulatory and Development Authority Bill. This is proving to be rather embarrassing for the government.

A senior finance ministry official lamented that even the new Direct Taxes Code (DTC), which was to replace the archaic Income Tax Act, 1962, with a more transparent and simpler tax structure, appears to be getting further delayed.

He admitted that it would be difficult to meet the April 2012 deadline for introducing the new tax regime as the Bill was still stuck with the parliamentary standing committee on finance.

The Goods and Services Tax (GST), which is to replace the central excise duties and services tax and value-added tax (VAT) at the state level, is lagging further behind because of serious differences with the states, especially those ruled by the BJP.

Senior officials admit that as the government does not have an absolute majority and has to obtain a consensus both within the coalition partners and the Opposition parties the economic reforms process is taking time. With headline inflation continuing to rage at over nine per cent and a series of key rate hikes by the Reserve Bank of India leading to a hardening of interest rates on loans, consumer demand has dipped leading to a deceleration in the economic growth rate. Uncertainty in the overseas markets is also expected to impact India. While the July figures show a more than 80 per cent jump in the country's exports, which touched the $29.3 billion mark, this growth is not expected to be sustained.

Commerce secretary Rahul Khullar, who has a sound background in economics and tracks the exports figures closely, is not at all optimistic despite the high rate of growth until now. Khullar explained that the July figures for export growth were high as they reflected the orders placed three months ago when the US and European economies were growing at a faster pace and the tsunami had not hit Japan.

"Since there is a three-month time lag between the placing of fresh orders and the actual export shipments taking place, the decline in fresh orders for Indian exports will be reflected in the August and September figures," Khullar pointed out.

The export sector has been growing at a robust pace and the commerce ministry has fixed an annual growth target of 25 per cent for exports during the current financial year.

Khullar said achieving the $300-billion export target set for 2011-12 fiscal year would be tough. Finance minister Pranab Mukherjee has also conceded that India could not be decoupled from the rest of the world and any slowdown in the US and in Europe was bound to impact exports going ahead as these economies account for more than 35 per cent of the Indian overseas market.

Courtesy: Mail Today 

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