Slow down at election rush hour
Indian economy is dawdling along, the slowest it has stuttered in four years within the context of the overall Asian gloom. The American announcement on tapering of quantitative easing and prospects of reversal of capital flows had led the Indian markets to push the panic button. The free fall of the rupee, losing a sixth of its value against the dollar over the last three months has triggered panic, except maybe bringing cheer to those holding the greenback at forex counters.
The Reserve Bank’s selling of dollars through public sector banks helped the rupee to recover sharply from Thursday’s fresh historic low of 68.80 against the dollar to close at 65.70 on Friday.
Though Dalal Street speculators may have gone home, relieved that the Sensex closed the week at 18619.72 up 1.2 per cent and the Nifty at 5471.80 up 1.6 per cent, the cheer may not last long, even as possible indications of moving towards the 5,500 mark are not ruled out. But the Sensex nose-diving by 100-points post Prime Minister’s speech in the Parliament on the state of the economy Friday, only to rally later by over 200 points as a delayed reaction, indicated that India Inc. inheres latent pessimism and is not too impressed with the resuscitation measures.
A combative Prime Minister fired on all political cylinders against a cynical opposition, but economists gauged his midday speech as ‘strong on politics and weak on economics’ and distinctly unconvincing. His take that the fundamentals of the Indian economy remained strong and the rupee fall was a ‘needed adjustment which would improve export competitiveness’ and boost India’s performance did not cut much ice amid rising all round inflation.
The overall growth slipped to 4.4 per cent in the first quarter, the lowest it has dipped in four years, with sluggish performance by manufacturing and mining sectors. Industry recorded growth of 0.2 per cent while agriculture fared better with 2.7 per cent. In this bleak scenario, the Prime Minister assured that the Reserve Bank of India measures to resuscitate the economy would not include any measures for capital control, which the industry dreaded most. The Oxford economist PM vouched that there would be no reversal of liberalisation policies and that a 1991 kind of BoP crisis was not on the horizon, but conceded that current account deficit was unsustainable.
Going into election year, the PM projected that Q3 and Q4 growth would be flat at 5.5 per cent. While assuring to tackle inflation which is inching upwards, the doctor ordered large doses of bitter pills such as cutting subsidies, pensions, insurance bills and some tough reforms to reverse the fall. Revival of star projects, liberalising norms for FDI, restructuring of fuel subsidies and handling tax issues are on the PM’s radar.
Simultaneously, the PM lashed out at the opposition, to assert that he is fully incharge, blaming them for frequent interruptions in the House, which blocked key reforms and sent out a negative signal to the industry. But the cold reality that has to sink in, going into festival time is, India is in for a long haul and the turnaround will be nothing but grindingly slow.
UPA which has presided over the country over the last nine years with a perceptibly non-corrupt, honest and low profile erudite prime minister, has failed to impress on rising expectations of the corporate and middle class. Good Governance has taken a thrashing amid regular surfacing of mega scams. Though the feuding opposition BJP has been anything but impressive, in combating the UPA with effective Parliamentary debates and resorted to frequent disruption and walkouts, it is failure to deliver on the economic front which will probably dent the UPA’s prospects the worst. The Congress may recover some ground with its flagship MNREGA, food security and land acquisition legislation, but clearly the unhappy voters mood seems to foretell an indecisive mandate in the 2014 elections.
