The political cacophony over the CAG reports on coal blocks and Delhi International Airport is drowning several recent initiatives taken by the government, and will push back reforms urgently needed to revive growth, said overwhelming majority of economists and industry leaders, according to a quick poll done by ASSOCHAM.
As the national economic agenda is being used as a football in the political arena, reforms measures like FDI in retail, Goods and Services Tax (GST), Direct Tax Code (DTC), Company Law Bill and banking and insurance liberalization are certainly going to be pushed by a few years, stated the poll carried out by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).
“This is sad because the economy needs a non-partisan approach because the gross domestic product (GDP) growth has touched a nine-year low of 6.5 per cent,” said the ASSOCHAM president, Mr Rajkumar Dhoot.
As many 90 per cent of the industry leaders said they saw little hope of the big ticket reforms being pushed under the present political environment, where the ruling UPA and the principal Opposition parties are locked in a gridlock that followed tabling of three reports of the Comptroller and Auditor General of India (CAG).
Between 75 and 80 per cent of the economists and India Inc. leaders felt that Mr Chidambaram, after moving to the Finance Ministry last month did show a lot of personal initiative and facilitated a number of measures. He sent a loud and clear signal that the government meant business and would not go for witch-hunting through the retrospective tax laws.
The stock markets, led by the foreign institutional investors (FIIs) did respond to these initiatives. As a result, the Sensex made a smart come back in the last one month as FIIs inflows became positive. Rupee has also become stable and is not losing any further ground.
The government along with the Securities and Exchange Board of India announced measures like increasing penetration of mutual fund products and energizing distribution network. The SEBI board has also though partly, addressed issues like cost effectiveness of mutual funds by allowing fungibility of the total expense ratio. The Finance Ministry has expanded the scope of external commercial borrowings by allowing the non-banking finance companies to tap this sources.
Besides the Finance Ministry has also set up an expert panel to remove doubts on the retrospective tax laws.
FIIs have pumped in about 12 billion into the Indian market so far in calendar year 2012. On a monthly basis in CY’12, July saw the third-highest inflow of funds ($2.01 billion) after February ($5.13 billion) and January ($2.18 billion).
“But, unfortunately, all these measures are being drowned in the political noise over CAG…Besides, the stubborn stand taken by some parties, including in the UPA, on issues like FDI in retail, aviation and reforms of the pensions sectors etc, is pushing the economic agenda back,” said the ASSOCHAM chief.
He said the country would again be going into the election mode in the next few months as state assembly polls are due in several states. Moreover, it is only in the next few months that the Central Government can work on repairing the fiscal position by disciplining expenditure and avoiding untargeted subsidies.
ASSOCHAM Secretary General D.S. Rawat added that as many 70 per cent of the respondents in the survey felt that the government would not be able to control expenditure in financial year 2013-14, as that would be a penultimate year for the general elections due in 2014. Besides, there would be pressure on the UPA to come out with populist schemes which may upset the fiscal calculations.
“The only wayout for increasing resources is through higher economic growth as bigger GDP leads to higher tax revenue but the growth needs an environment, which is being in the current political scenario,” said Mr Rawat.