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Policy paralysis

August 10, 2007

Caution appears to have become the leitmotif of this government. But this is not a caution born out of prudence, but one dictated by political expediency. The government's administrative impulses are being driven by political correctness-to ensure that the Opposition does not get a handle to use against the ruling coalition two years from now, when general elections are held.

Take the case of wheat imports. The supply position did not point to the need for imports, or, for that matter, the tender in the global markets. But political prudence prevailed, since the prospects of a bad crop next year could spell doom at the hustings.

This same alacrity is nowhere in evidence when it comes to supporting the public sector oil companies. Despite global crude oil prices rising again-it is close to $80 per barrel-there is no move to raise retail prices in the domestic market. Since public sector units enjoy a near monopoly at the retail end of the trade, the government is able to control prices.
 
Manmohan Singh
Eye on general elections: Reforms are slowing down


The result: the oil companies bore two-thirds the burden of Rs 50,000 crore (during 2007-08) arising from the non-revision of retail prices in line with global prices. Worse, the government issues bonds to the oil companies to partially cover the loss; it is the next government that will bear the brunt of this measure (since the bonds mature seven years later).

The policy and administrative paralysis flowing from this focus on the next elections is showing up in other sectors as well. The massive political opposition to SEZs and the spread of organised retail has brought these two initiatives to a virtual standstill. Although the existing policy allows for a single-brand retailer like Starbucks to own 51 per cent in its Indian subsidiary, the government has nixed its plans of entering the country through a majority-owned arm; this forced it to put off its plans. As India liberalises and integrates with the global economy, policy stability is critical to both attracting investments as well as ensuring that there is no significant flight of capital out of the country.

Rather than taking its foot off the reforms pedal, the government should look at improving the delivery of its services. In the long-term, this will go farther than populism in fetching votes.


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