UPA II: It’s time to act!

The rupee is sliding to all time new lows against the dollar, inflation figures seem to be getting out of control again, GDP forecasts are being lowered by all major institutions, and major scams are being unearthed in every now and then. Last 3 years of UPA II haven’t gone according to the script so to say. At every front the government seems to have failed. The 3^rd largest economy in Asia has not been doing its act. The government and finance minister would rather lay blame on external economic scenario (read Eurozone crisis) but all fault lies in the way it has run its own house; especially in handling its coalition partners. The economy stands at a precarious point and it’s time the government gets its act together by enacting reforms which are key to getting the country back on the path of high growth. ‘Policy paralysis’ in UPA II has cost us much more than just a rating downgrade by S&P.

5 key reforms that have been put on the back burner need to be enacted to ensure that we return to high growth rates. These reforms are:

FDI in retail

This is one reform that has caused UPA much headache. Although 100 FDI is allowed in cash and carry stores, the opposition and even key UPA allies have been against entry of global retail giants like Wal-Mart and Carrefour in multi-brand retail, via 49 per cent ownership. The government did try to push the reform but given the strong uproar against this reform it decided to pull back.

FDI in Insurance and Pension

There has been a case for increasing the cap in these sectors from 26 per cent to 49 per cent, however UPA has not been able to push these two financial bills. FDI in insurance will bring in much needed capital and best practices; while FDI in pension could diversify fund management.

Fuel Subsidies

Fuel price is a hot topic in India, a topic which is used by politicians often. While UPA II has made a move by deregulating petrol prices, it finds itself unable to do the same with Diesel, Kerosene and LPG. Fuel subsidies are a major burden on government finances. UPA II has committed in its budget that it will try to cap subsidies at 2% of GDP this year. This target would not be met if it continues to bear huge subsidy costs on these commodities.

New Tax Laws

Both the Goods and Services Tax (GST) and the Direct Tax Code (DTC) have gone past their implementation dates. The way state governments are opposing these laws, especially the GST; it seems that they will miss their deadlines again, unless UPA II is able to forge out some compromises.

FDI in Aviation

The state of the aviation industry surely makes this one a no-brainer. The mess that both government and private companies find themselves in can be solved to some extent by passing this key law. But again due to its political allies the UPA II finding it hard to push through this reform.

With major financial institutions lowering India’s GDP forecast for FY 2012-13 to below 7 per cent, I guess a strong enough message is being sent to the UPA II that this is the time to act to save the economy from slipping any further.