When Commerce & Industry Minister Anand Sharma went into a high-powered meeting with the joint task force of business leaders and government on industrial slowdown on December 19, 2011, he must have had some inkling of the unpleasantness in store for him. Barely days ago, India Inc. had publicly hit out at the policy paralysis that had visibly derailed the reforms agenda of UPA II. But any ideas that the Minister harboured to pacify the growing discontent in India Inc. were quickly put to rest. Peeved with the stubbornly high inflation, mounting fiscal deficit, the declining rupee, among a host of other negative sentiments, the meeting saw belligerent industry captains turn the heat on the government instead. Strident in their approach, industry representatives on the joint task force viz. JK Paper MD Harsh Pati Singhania, FICCI President Harsh Mariwala, Bharti Group Chairman Sunil Mittal, and HSBC chief Naina Lal Kidwai, urged the government to break the logjam with the opposition and end the policy paralysis in decision making and governance.
Lack of any major reforms since the 2008 global crisis coupled with spiralling inflation, worsening domestic finances and policy impediments in doing business (India ranks 137th out of 183 economies in ‘Ease of Doing Business’ according to World Bank), has not only slowed global investments into India to a crawl, but has also had a huge negative impact on Indian exports. Says Siddhartha Rajagopal, Executive Director of the Cotton Textile Export Promotion Council, “We are growing at 8-10% but lack of demand is a barrier. Besides, higher interests and capital costs are pushing up our manufacturing costs.” Ali Ahmed Khan, Executive Director of the Council for Leather Exports agrees that the order position has reduced drastically and bemoans government inaction and laments that the government has done nothing.
The latest nail in the coffin for the government’s reforms agenda has ostensibly been the retail FDI debacle. The government was forced to eat crow and shelve its decision to allow 51% FDI in multi-brand retail after key allies joined opposition ranks on the issue. But the retail FDI debacle perhaps was only the tipping point that brought the simmering discontent.
In October last year, 14 eminent citizens including entrepreneurs like Deepak Parekh, Azim Premji and Adi Godrej issued a note of caution to the government in a joint statement. Their open letter to the Prime Minister drew attention to four failures of the government viz. growing governance deficit, galloping corruption, need to distinguish between dissent and disruption and environmental challenges. Only a few days later, India’s Comptroller and Auditor General Vinod Rai also delivered a stinging indictment stating, “Governance is at its lowest ebb,” adding that decision-making was the biggest casualty. In yet another embarrassment, the government had to revise its earlier projection of 9% growth. Barely three months after the announcement, the Prime Minister’s Economic Advisory Council cut the growth forecast to 8.2%. So much so that Dr Kaushik Basu, the government’s chief economic adviser, even conceded that there was a certain slow-down in bureaucratic decision-making. “Given the corruption scandals and subsequent witch hunt, some decision-makers are going slowly,” he admitted.
Clearly, the industry outlook for the future appears a tad disappointing and discouraging. While a fiscal stimulus would be a far cry, is there a way out of the current economic imbroglio? Dr Arun Singh, Senior Economist, Dun & Bradstreet, India highlights, “At this juncture, a marked improvement in business confidence and upturn in economic activity is heavily contingent on speedy implementation of big-ticket economic reforms,” he avers.
Just implementing the long due GST (Goods and Services Tax) regime, with a simplified and long term direct tax code could electrify business prospects, feels D. S. Rawat, Secretary General, ASSOCHAM. “Investors must find a robust bond market and corporate debt market working in India. Early implementation of market driven pricing of oil products to reduce subsidy outgo and conserve oil and gas resources should be undertaken,” he adds.
And if implementing the GST seems like a far cry at present with opposition from BJP ruled states, then Commerce Minister Anand Sharma only has to go back and refer the notes of his December 19 meeting with the joint task force on industrial slowdown. Industry representatives had then suggested that the government identify 50 major (but do-able) projects, give them priority status and send out the right signals to the country and the world. The government may continue to maintain that it’s not about policy-paralysis, but they need to demonstrate their supposed non-inertia through action instead of merely paying lip-service to rev up the growth process.
With inputs from Karan Arora and Mona Mehta
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