Ways2trade: WHAT THE UPA LEFT BEHIND FOR ITSELF TO TAKE FORWARD

Sunday, May 17, 2009

WHAT THE UPA LEFT BEHIND FOR ITSELF TO TAKE FORWARD

HIT THE GROUND RUNNING

Five years ago, when the UPA government led by Manmohan Singh took office on a hot summer day, India was thought to be shining. The country had broken out from the grip of the Hindu rate of growth in 2003-04 with an incredible 8.5% economic expansion. There was a feeling of well being in urban India. Inflation was benign. The policy reforms carried out in the previous decade had begun to pay off. Roads and highways were being laid at a speed unknown before, ports were buzzing and mobile telecommunications had already begun to transform the lives of people. The disinvestment process kicked off by the NDA government forced global investors to sit up and take note of India. The six public offers at the fag end of the term, and notably the sale of shares of ONGC, saw smart money coming to India. India had emerged from the shadows. But it was a different story in the hinterland. Agriculture was suffering from years of neglect.
    It was on the promise of improving the lot of the aam admi that the UPA rode to power. You can say that the UPA government was lucky in its early years. The global economy was booming, and India too gained from a rising demand for merchandise as well as service exports. After a bit of deceleration in growth in its first year in office, due to growth in agriculture, the economy bounced back with 9.5% growth in 2005-06. We were suddenly important enough to be compared with China, or so we felt.
    But compulsions of coalition politics, which the UPA could not quite easily wriggle out of, ensured policy paralysis. Several reform measures were proposed, such as opening up of the financial services sector, but very little was achieved. Even road and highway expansion suffered. Money poured into the fiscal, the tax-GDP ratio soared, but the money was frittered away on fuel and fertiliser subsidies, bloating the real fiscal deficit, although, to paint a rosy picture, many of these subsidies were maintained as off-budget items.
    The new government that takes office later this week has its task cut out. Growth has slackened from a peak of 9.7% experienced in 2006-07. In the current fiscal, we can at best hope for 6% growth, unless the government acts with a sense of urgency in its first few months in office to remedy the situation. We need another reform stimulus, not just another fiscal stimulus. Reforms that were stuck for want of consensus in the government's previous term must be pushed through.
    Here's a look at some of the economy's vital statistics, as the new government takes charge.