Breaking the standstill
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The policy paralysis must not be carried into the new year. The rest will follow
A new year resolution the economy desperately requires from the government is this: no more policy paralysis. The US is currently in the throes of a version of it. But for a young economy, with every indicator within the correct range in the diagnostic report, it makes no sense that paralysis should have showed up at all. In all probability, it was because wrong medicines were advised in the first place. So, instead of clearing the toll rates for road projects, ministries waited endlessly for environmental clearances; instead of accepting a plan to fast track project clearance through the National Investment Board, ministers squabbled on turf issues and tax laws were tweaked when the government ran into a judicial wall.
For the new year, then, there should not be any desperation or despair, trying to conjure up an 8 per cent-plus rate of growth for the economy. The impact of the wrong prescriptions of old will take time to wear off. An economy shocked into a standstill — witness the slump in bank credit to a 15.07 per cent rate of growth against the target of 20 per cent — will be considered to be doing well even if it begins to walk. Sympathetic analysts have said that even the current conditions look favourable, compared to the global environment, but as the 12th Five Year Plan notes, the economy could slip even further from here to a 5 per cent average rate of growth if the conditions that led to the policy paralysis are not shaken off.
The first sets of positive indicators were in evidence around the winter session of Parliament. The budget session will need to go through with the same sense of purpose. A consequence of the US chill is that the global preference for debt papers could continue, which means there is a very thin sliver of money available for equity, which is what India, and even China, needs. If India continues to present a wobbly picture, even this thin equity will avoid the domestic market, making for a dismal investment climate. If the picture changes with a resolute tackling of the US fiscal cliff instead of more band-aid therapy, India will benefit from the thaw in global financial markets. But in this era of depressing global support systems, India needs to prepare for the worst through smart management of the domestic economy. That is, what is needed is the reversal of policy paralysis.
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