Monday, 22 April 2013

Thanks to UPA’s bungling, economy is back to where it was in 1990

Thanks to UPA’s bungling, economy is back to where it was in 1990, crown jakarta capital management environmental

The Atal Behari Vajpayee Government bequeathed a robust economy to the UPA. Remember that the growth rate registered in 2003-2004, the last year of the NDA regime, was an impressive 8.5 per cent. Foreign exchange reserves were plentiful. General prices were well under control. Share markets were booming. And there was a general sense of well-being. Work on the Golden Quadrilateral highway linking four corners of India was in full swing. And various public infrastructure projects under the Public-Private- Partnership model were proceeding without any hitch.

Now, in the last year of the UPA-II, we are back to the ‘Hindu rate of growth’. If the economy logs anything above 5 per cent, it would be a miracle. The prestigious highway project has become a casualty of the UPA Government’s venality and drift. Instead of making 20 kilometres of new roads daily — as was the case under the NDA — new construction has crawled to less than a kilometre or two. So much so that a number of private concessionaires, after successful bids have reneged on these projects. PPP model itself has been vitiated with collusive post-tender benefits being given to concessionaires at the cost of the paying public, be it the Delhi airport or numerous other projects, including the Build-Operate-and-Transfer toll roads across the country.

Worse, consumer inflation is still in double digits. There is pressure on foreign exchange reserves. Share markets are listless. Manufacturing sector is stuttering. After several years of steady growth, the auto sector is staring at a demand slump. Worse, the rupee has depreciated by over 25 per cent during the nine years of UPA.

In fact, the economic situation now mirrors the conditions back in the early 1990s when India suffered the ignominy of pledging its gold with the Bank of England to ward off a serious payments crisis. That would explain the recent peregrinations of Finance Minister P Chidambaram, begging bowl in hand, through the major financial capitals of the world.

With an alarming 6.7 per cent deficit on current account in the last quarter of 2012-13, and the fear of the foreign financial institutions pulling out at short notice due to better investment opportunities in Japan, the US and other Western countries, there is a real threat that the country may yet again face a forex crunch, especially if the current slide in exports continues unabated and there is no pick-up in domestic demand.

Thus far, the Finance Minister has tried to hard-sell India in London, New York, Toronto, Hong Kong, Singapore, etc. However, the outcome has been less than enthusiastic. Foreign investors foresee a period of instability and economic disarray ahead due to the uncertain political conditions leading up to the May 2014 general election. Though the sharp correction in the price of commodities and oil should ordinarily be good for India, but the fall in the price of gold in the global market has also shaved off the value of the gold reserves with the RBI.

Gross mismanagement is the main reason why the economy is in such doldrums. Power sector is suffering for want of coal. Coal mining is under a cloud because of the avoidable dogfight between the public sector behemoths, the NTPC and Coal India. Coal scam under the benign Ministership of Manmohan Singh is now a matter of CBI investigation which is being monitored by the Apex Court. A flourishing telecom sector has come under pressure due to the lop-sided policy regime of the Telecom Ministry and the telecom regulator. Fresh investment in scores of projects is stuck in the Environment Ministry which applies no objective criterion for granting clearances. In sum, the economic crisis is Minister-made.

Indeed, the economic situation has become so alarming that usually well-meaning economic pundits have suggested that India should approach the International Monetary Fund for opening a credit line just in case there is a sharp dip in the foreign exchange reserves. Such a cushion would be reassuring for both domestic and foreign investors. And might well prevent a further depreciation of the currency.

In sum, the economy is back to where it was in the early 1990s. Gains of the intervening years have been squandered by the UPA-I and II. Corporate mood is sullen. The ubiquitous aam admi is reeling under the weight of sky-high prices of essential goods. Fresh investment in industry is on hold. There is a demand-recession in large sectors of the economy. However, the lone sector which has registered a very high rate of growth is the scam industry. New highs in political corruption were recorded in the last nine years. It will be in the fitness of things if corruption becomes the calling card of the UPA when it goes to the people for an electoral encore in May 2014.


  1. Thanks for posting, this was very helpful. Ian Mausner of J.S. Oliver Capital Management gives great insight as well!