Each day that the government delays taking key decisions only adds to the perception that there is a ‘policy paralysis’ at the top
The threat by global rating agency Standard and Poor’s to downgrade India must be seen as yet another wakeup call to the government to decide on reforms that are non-controversial and don’t need Parliament’s consent, and yet will immediately create an investment-friendly climate both at home and abroad, and also send out positive signals about the government’s intentions. The government has, for instance, been dangerously delaying raising taxes on diesel cars, or effecting simple dual pricing of diesel, like subsidising only the diesel that is used for public transport, allowing each family only one subsidised LPG cylinder per month and making piped gas available in cities on a war footing — these will take the pressure off LPG, which depends heavily on imports. These measures will reduce subsidies significantly. It can also immediately announce FDI in aviation to the tune of 49 per cent; and in the case of Air India it can maintain control of the airline while leaving its management to an efficient professional investor. Each day that the government delays taking such key decisions only adds to the perception that there is a “policy paralysis” at the top, which even agencies like S&P are now capitalising on. If the government undertook these visible reform measures, it would swiftly send out the right signals to both Indian and international investors.
A major chamber of commerce, in a snap poll of senior industry leaders released on Monday, clearly indicated deteriorating business sentiments and expectations. The CEOs surveyed said they expected lower sales, lower profits and lower investment domestically, with almost 43 per cent saying they would prefer to invest abroad. They also saw employment falling precariously both for skilled and non-skilled people.
Coincidentally, just one day after the S&P threat of a downgrade possibility two years down the line, the industrial production figures for April came at a weak 0.1 per cent year on year, compared with a decline of minus 3.2 per cent in March. It reflected weakness in key infrastructure sectors like power, cement and steel, which are suffering from coal shortage and a serious investment gap in the capital goods sector. These figures only serve to bolster the S&P’s fears.
The government can ignore the puerile political comments and highly speculative nature of S&P’s reasoning for its threat to downgrade only India among Brics countries, but the government must recognise this as an alarm bell. It is just one of the many agencies and chambers of commerce and others trying to goad the government into action, like the thousand elephants that were needed to wake up Kumbhakarna, the legendary Ramayana character, from his long sleep to help his brothers who were in the midst of a war.