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The Power to Perform

Towards a delivery-wise Congress-led UPA

Now that the new government that will be sworn in at the Centre is going to be the same one that was outgoing, there is a tremendous interest in knowing exactly what kind of a road it will take on a host of economic issues since it is no longer dependent on the support of the Left or other parties who were bent on implementing a very myopic agenda.

The Congress-led UPA has said it will retain Manmohan Singh as Prime Minister, but there is a vacancy at the top in the Finance Ministry that pundits are indicating will be occupied by the Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia – there are no takers for the view that P. Chidambaram will re-occupy the seat. In short, the core team, which was in charge of the economy for the last so many years, is still alive and kicking

The economy that they are inheriting has been powered by themselves over the past five years and therefore, there is no previous administration, except themselves, to blame for the negatives, aside from the global financial crisis, of course.

Both the economy and the markets need to be prodded in the right direction and that can be done by the government indicating its intent early on in its second term. In this situation, here are a few pointers in the direction of the new government. With Manmohan Singh already on record regarding the crucial need of spending on infrastructure to make sure India’s growth remains somewhere near the double-digit mark, rather than falling to the low single digits, it would require huge governmental spending. Build, build, build, that in effect is the first motto that has been mandated by the population via the vote. The second is create, create create more jobs, of course.

It would need to spend on the infrastructure space and turn it into the kind of engine of growth as this would benefit the capital goods industries and indirectly also generate employment.

Spending on communication, by rail and road, can be one of the biggest sectors to power the economy. While railways received a huge amount of UPA-cleared funds, roads was ignored to a large extent, with many projects started by the Atal Bihari Vajpaye-led NDA government virtually coming to a standstill. This will need to change, but the noises emanating from the corridors of power are quite muted.

Power is another core area that needs further attention. While the Nuclear deal with the USA created a huge noise, yet its delivery schedule is quite far away into the future. With electricity generation being the fulcrum around which other industries can weave their success, there is a dire need for the UPA to ramp up spending here.

While on agriculture the government made a huge mark on the farming community by waiving of their loans to the tune of Rs 71,000 crore, and it did go a long way in alleviating their precarious condition, but what the sector needs as much as lifting of the debt burden, is the freedom from the vagaries of the monsoon. That means huge spending on irrigation and other farm-related sectors and increasingly making available all the necessary inputs on time, every time, which calls for a prudent marshalling of resources. Also, while the farm loan waiver and the benefits of the 6th Pay Commission benefited the farmers and the bureaucrats, there is a need to ensure that other sections of the society must get a chance to up their income or otherwise benefit from government largesse – without forcing the government deeper into a deficit mess. That will take a lot of doing and at the moment, the shelf is bare as far as ideas on that front are concerned.

One of the biggest reforms initiatives of the government, the New Pension Scheme has kicked-in, but there is a lot of confusion on tax treatment on withdrawal of funds. In case the government retains the rules that it has cleared, then it will certainly water down the benefits flowing from this scheme. Clearly, people need to know that their lifetime of savings should not be taxed at all.

While the Reserve Bank of India has come in for a lot of praise in handling the global financial crisis, yet the government is still to iron out the rigidities of the interest rate structure. And, for most of the previous RBI governor’s term, the political and bureaucratic arms were at loggerheads over policy direction. Clearly, this has to be synchronized.
The investment rules in India are perceived to be amongst the toughest in the world, in spite of having been loosened in the more liberalized regime that Manmohan Singh has led from 1991. But it still requires further tinkering to ensure that foreign and domestic investors have a simpler time while funneling funds into investments.

For retail investors, the government should have an action plan where it gives greater tax incentives to boost the flow of money into mutual funds through the equity or debt route.

There is a dire need for effecting a policy that encourages the savings and investment culture. While Indians are definitely one of the biggest savers in the world, yet their knowledge and desire to shift that money towards investment is quite sketchy. It has led to huge swathes of population eyeing investments in equity, corporate debt and other avenues of investments like mutual funds, but they have shied away simply because of the horror stories of losses suffered by others who did venture into this. That means spending on education, from primary to tertiary must be increased and enough amounts have to be set aside to teach students about what to do with their money – aside from earning it. Clearly, spending on education has not been up to the mark.

While there are a huge number of possibilities in front of the government, what it needs to do is look at the whole, rather than only at the parts of the economy that the Congress has been doing over the last five years. While the previous strategy enabled the Congress to come back to power, yet it indubitably left a huge number of people and sectors in the economy disenchanted.

Aside from the NPS, the Manmohan Singh regime had nothing to show in terms of big-ticket reforms. Even on disinvestment, the NDA government surpassed it in doing what was possibly not even imagined by the UPA. Pending work on the insurance sector, and retail sector are crying for change. If you really want to look at Manmohan Singh’s achievements, then you have to go back into history, to the time when he was a finance minister and India was reeling from an economic disaster and the International Monetary Fund (IMF) was dictating terms that the then government under PV Narasimha Rao had to follow.
While, exigencies of coalition politics and the global meltdown may have precluded some steps from being taken, yet there was total immobility on sectors that could have seen some action.

Now, with GDP growth widely being seen at around the 5 per cent mark, threat of deflation, mass scale unemployment and industrial production plummeting, there is certainly a huge amount of concern that the Congress-led UPA must address. Or, it may well be open to surmise that the initial years of growth by the UPA in the first term, was achieved by the hard work put in by the NDA.

No excuses left, it has been given the power to perform.