We have Lost our Way, say PM’s top Advisors

Advisory council slams slothful govt, says India should have done better after coming out of global crisis unscathed

Araft of corruption-related issues so sapped the government's energies that India failed to build on its stability during the global economic crisis to bounce back with rapid investment and growth. That, in a nutshell, is the verdict of the Prime Minister's Economic Advisory Council (PMEAC) in its economic outlook for the year released on Monday. Coming down hard on economic management through the last two years, the council said India should have done better than it has, and cut growth forecast to a maximum of 8.2% for 2011-12. "While quite clearly we were able to negotiate the global economic crisis quite well, we have been unable to find our way back to the path of rapid asset creation and growth," the PMEAC report said. The policy drift has led to an "unintended slowing down of initiatives to restore investment and economic confidence". Other economic data too bear out its gloomy prognosis. The NCAER-MasterCard business confidence index released on Monday fell to its lowest since October 2009. A component of the index that measures confidence in political management of economic policies dropped 26 points to 77.6 in July from 103.6 in April. Economy has Potential to Grow over 9% 

This was the steepest fall since July 2008. Morgan Stanley lowered its India growth projection for this fiscal to 7.2% from 7.7%, only a whisker away from the low of 6.8% hit during the global economic crisis. 
"External factors are unpredictable, but the government needs to ensure that it initiates the policy reforms needed to lift private investment," wrote Chetan Ahya and Upasana Chachra in their note. 
Car sales slowed, with the two largest carmakers, Maruti Suzuki and Hyundai, reporting sharp drop in July numbers. Smaller carmakers, however, continued to grow. Manufacturing companies have also turned cautious, fearing a slump in demand because of high interest rates and general uncertainty. HSBC's Purchasing Managers' Index dropped to a 20-month low of 53.6 in July. 
Undeterred by the avalanche of gloomy news, Finance Minister Pranab Mukherjee continued his charm offensive, meeting 16 of India's top businessmen, including Ratan Tata, Anil Ambani, Sunil Mittal and Anand Mahindra, to pick their brains and talk up reform initiatives. C Rangarajanheaded PMEAC asked the government to prove that it is taking reforms forward by improving regulations and governance, staying within the budgeted deficit, and ensuring continuity and predictability of policy and regulatory regime. Rangarajan said the economy had the potential to grow over 9%, and India could allow at least 49% foreign direct investment in all sectors except prohibited ones. 
The PMEAC report said a stable government after the May 2009 elections and successful navigation through the financial crisis were a "good opportunity to take those necessary steps" such as rolling out infrastructure, pushing reforms and improving the efficiency of social spending. 
"However, we have lost time," it said. 
"Domestic industries are uncertain about their investments, because right or wrong, they feel something is not moving," said council member Saumitra Chaudhuri, adding, "surely foreign investors will be doubly conscious". 
The panel expects tight monetary policy to continue for 'quite some time', with inflation at over 9% till October, dropping to 6.5% by March. The Reserve Bank of India has raised rates 11 times since March 2010, with a sharp 50-basis-point hike on July 26, which triggered downgrades in growth forecasts.