THE day the Monsoon Session of Parliament began with the Opposition scalding Prime Minister Manmohan Singh over the 2G allocation scam, the United Progressive Alliance (UPA) government was also rapped by the Prime Minister’s Economic Advisory Council (PMEAC) for failing to carry out economic reforms. The same day there was another piece of news: the country’s manufacturing output expansion plunged to its lowest in 20 months, as measured by the HSBC Purchasing Managers Index (PMI). These developments took place even as leading lights of India Inc met Finance Minister Pranab Mukherjee and pleaded with him to kick-start reforms.
As the Manmohan Singh regime lurches from one political crisis to another, consuming all the energies of the system, the economy gets short shrift. So, the PMI dropped for the third month in a row in July to 53.6, down from 55.3 in June. One reason is the hawkish attitude of the Reserve Bank of India. Since March 2010, it has raised the key rates 11 times, the latest one being last week. The central bank wants to control inflation, a menace for which the government is largely responsible. While the aam aadmi is paying for the bad policies of the government by way of high prices, business is suffering because of the tight monetary policy.
Unsurprisingly, the PMEAC has downwardly revised growth rate forecast for the current fiscal to 8.2 per cent, from its 9 per cent projection in February. Morgan Stanley was even more bearish, bringing down its growth estimate for the current fiscal year from its earlier forecast of 7.7 per cent to 7.2 per cent. Its report said, “External factors are unpredictable, but the government needs to ensure that it initiates the policy reforms needed to lift private investment.”
The PMEAC, headed by C Rangarajan, wants the government to boost economic reforms, improve governance, observe fiscal prudence, and maintain continuity in policy. It lamented that while political stability after the May 2009 general elections offered the government a “good opportunity” to take the “necessary steps,” little came out of it. It said that “we have lost time.”
Saumitra Chaudhuri, member of the PMEAC and the Planning Commission, was quoted in the media, saying, “Domestic industries are uncertain about their investments, because right or wrong, they feel something is not moving.” Foreign investors, he pointed out, “will be doubly conscious.”
The Big Biz appeared to be hopeful. Bharti group chairman Sunil Bharti Mittal said, “The government and industry are together working on forming a coalition to address it.” According to ADAG chairman Anil Ambani, “The interaction today (August 8) will certainly go a long way in building the momentum needed to catalyse economic growth. Mr Mukherjee and Mr [Anand] Sharma (who is Commerce Minister) were receptive to a large number of suggestions made by industry to accelerate growth in key infrastructure sectors.”
Similarly, M&M’s Anand Mahindra said, “If there was a trust deficit, it has vanished and there’s a sense of renewal and motivation. There was a time-bound assurance of action from the government and no doubt we’ll have to work together.”
Infosys founder NR Narayana Murthy said, “The FM has asked each industrialist to suggest five to six ways on how we can accelerate the country’s growth. These would then be acted upon by the government.”
One wishes that the optimism of industrialist was well-grounded. But, unfortunately, facts belie any optimism. Instead of working “together” with businessmen, the government is swayed by the agenda of the rabidly anti-business activists who infest the Sonia Gandhi-headed National Advisory Council. Mukherjee and Sharma might have been “receptive to a large number of suggestions made by industry,” their government is not interested in translating them into policy. At any rate, these suggestions are well-known; they are repeated in every industry-government interface.
Mahindra was very bullish about the vanishing of the “trust deficit” between the government and industry, but it cannot even diminish, let along disappear. The reason is not difficult to find: the NAC-inspired government policy is premised on the thesis that the private sector is bad and exploitative, and therefore it should be severely controlled if not killed. The NAC fanatics view entrepreneurs as the jihadis regard non-Muslims: ideally, they should not exist, and if they should they ought to comply with the rules of shariat.
The NAC’s jihad against private enterprise is at the root of most of our economic problems. Neither haranguing by the PMEAC nor the wishes of industrialists can change that.