Bijli, Paani and Policy Paralysis

By Jahnavi Prabhakar

Water and electricity facility, poverty and unemployment removal- these are some of the regular slogans/promises handed out to the people in election rallies. This time, however, ‘no more policy paralysis’ is new slogan that the opposition has been gaining on against the ruling government showcasing their inability to make policy decision. What exactly is the policy paralysis and what role does it play in the 16^th general Lok Sabha election? These are some important question that needs answer as the country is grappling with the election fever and it would not be wrong to say election are in the air, literally it is true too as some of the states have already gone through this phase recently and some states would be go through this process in the coming days.

Policy paralysis as the names suggests refers to the inability of the government to take any action/decision from a policy perspective and how this has stalled the economy at the crucial juncture. Large numbers of projects are in limbo due to this policy inactiveness. From economic perspective, UPA-1 and UPA-2 had a dream run as it was able to skyrocket India’s growth rate to as high as 9.6% growth in 2006-07 and it was anticipated that India could soon very well see its magical two digit figure of growth rate. But things took an ugly u-turn and the growth plummeted to 4.6% lowest growth rate in a decade. In the last, last two to three years a sorry picture of India has been showcased to the entire world. It should be noted that India was not directly affected by the 2008 financial crisis which crippled most of the countries though the ripple effect of the crisis had small impact on the India’s economy. India survived this crisis due to its strong fundamentals.

Land of wasted Opportunities

The UPA (United progressive alliance) led by Congress came to power in the year 2004 with Dr. Manmohan Singh as the Prime Minster of the country, people of the country had pinned high hopes from the prime minister as he had been the finance minister in the past and had orchestrated the liberalization phase in India which had opened a host of opportunities for the country. It was believed that his government was capable of realizing India’s true potential with his wide experience of handling the economy, taking into account his stint as a governor of Reserve Bank of India (RBI) in the past. There was no doubt on how well he would handle the economy and he proved it right too as the economy jumped from 7% in 2004 to 9.5% in 2005. Along with this the average inflation rate too was moderated to 4.38% in 2005 from 6.48% in 2004. With the rising per capita income and passing of the National Rural Employment Guarantee Act (NREGA) along with the Right to Information Act (RTI), UPA again came to power in 2009. It again stuck to its guns and despite the fact that most of the countries were battered up due to the Global financial crisis of 2008, which impacted the growth of these countries. India performed exceptionally well in this fragile situation by insulating itself through its stimulus measures and registered a growth rate of 8.6% in the year 2009.

But this dream run was soon over due to large amount of corruption scams which were unearthed, along with the delays in the implementing policy and taking decisions in a stipulated time frame. It was also believed that government has spent huge amount of money in the form of subsidies as a populist move to garner votes from the public, rather it should have spent that money on completing the big projects it had in hand. According to the figures released by Ministry of Statistics and Programme Implementation (MOSPI), there are around 301 central projects which have been delayed, each of them having an investment of more than Rs 150 crore. The delays in implementing these projects have resulted in ballooning these costs overruns to the tune of Rs 1.74 lakh crore.  This along with rising inflation changes the costs altogether which again is the matter of grave concern. Growth in manufacturing sector too has worsened off due to various factors such as high interest rate, regulatory or legislative pressures, structural bottlenecks, lack of domestic demand due to uncertainty on getting a project clearance and various other factors. The manufacturing sector declined from 1.1% in 2012 to a negative 0.2% in 2013.This is despite the fact that Government announced the National Manufacturing Policy with the objective to create 100 million jobs and improve the share of manufacturing sector in GDP to 25% in a decade. This too didn’t help much.

Last year the rupee nose dived to 68 Rs for a dollar, due to which imports became expensive and added pressure on the current account of the country. This resulted in rising current account deficit which resulted in the RBI and the finance ministry joining hands, it has long been known that there is an internal tussle between the two institutions and on some matters they do not see eye to eye with each other. But in these dire circumstances when the value of rupee was getting weaker and weaker, the current account deficit was expanding, steps were taken to ensure the deficit is reduced and rupee gains back and become stronger through different measures such as curbing imports, selling dollars amongst some steps.

In all, the government which itself created some many opportunities for the country, could not take advantage of those opportunities itself. For which, it is they themselves who have to blamed and no one else as they have fallen into its own pit. This self created pit comprises of ‘rising inflation’, ‘rising current account deficit’ ‘poor manufacturing sector’ and an overall dwindling growth rate.

Future Challenges

There are many alternates to the ruling government in the on-going election and one of the strong contenders for the prime minister post is Mr. Narendra Modi who has been projected by the Bharatiya Janata Party (BJP) as the future PM. The supporters of BJP have been projecting him as the superman who once after taking the office could vanish away all the problems and could help India reach its highest pedestal in all respects. He has been touted to be most favorable option in the PM race amongst other candidates and probably might win by leaps and bounds. This can only be known once the results are declared which still has some time.

There is wide belief among the Modi supporters which is based on his work done in Gujarat as he has been the chief minister of the state for the past 16 years, serving his fourth consecutive term. His work in Gujarat is used as a model or case study amongst other states to showcase his abilities on how well the state has grown over the years under his leadership. But the people should not forget if Mr Modi is elected, he has several challenges ahead of him with respect to India.  These include curtailing down the rising fiscal deficit and achieving its target of 4.6% of gross domestic product (gdp) which UPA has not kept in check due to rising government expenditure in terms of doling out subsidies and not monitoring its effects. Narrowing down the current account deficit and removing restrictions on gold imports is one of the promises that BJP has made in their manifestos. Another challenge is dealing with RBI and giving priority to interest rates and keeping a check on inflation rates. One of the major challenges which Mr. Modi would face would be to revive the private investment cycle, something that he has done in his own state and the markets have pinned their hopes on him to do so by attracting large amount of investment in the country. Along with this, his government would need to provide speedy approval and clearances of various projects. This would boost the economy as a whole.

In hindsight, the new government faces some urgent challenges with no easy solution and needs to count each of its steps as India is already facing abysmal growth rate and people will be expecting that the new government would uplift the economy and revive it back to its growth potential.

Jahnavi is working with National Council of Applied Economic Research. She has previously handled projects sponsored by Commerce Ministry, Government of India. She has worked with National Council for Educational Research and Training in the past. She holds her Master’s degree in Environmental Economics from Ignou in collaboration with Madras School of Economics. She has a bachelor’s degree in Economics from Delhi University.