UPA bequeaths a ramshackle economy

12 May 2014

The United Progressive Alliance government led by Manmohan Singh will leave behind an economy that compares poorly with what it inherited from the Atal Bihari Vajpayee-led NDA government a decade ago, say commentators.

Asia's third-largest economy, which is forecast to overtake Japan to emerge as the second largest in Asia in the not-too-distant future, is tied down by a contraction in industrial production and still-high inflation.

The Indian economy is battling the worst slowdown since the 1980s as GDP growth has almost halved to levels around 4 per cent and investors expect a political change to infuse a new life into the economy.

Official data due this week may not show any improvement on the manufacturing sector, rather industrial output is expected to contract for a second straight month with a pick-up in inflation.

Foreign investors who flock to the share markets expecting a buoyancy in the economy may find an economy that is struggling to break away from sluggish growth high inflation and a debt-laden economy.

The United Progressive Alliance, which made several strategic errors during its second term of office, is falling back on its first term in government and the Congress party, which leads the alliance, prefers to speak in terms of average rate of growth since 2004, though the UPA, cannot escape responsibility for the mess it brought the economy into.

Commentators blame the government for misreading the economic boom and front-loaded all spending plans on the public expenditure on the assumption that tax flows would continue to rise as India grew rapidly on autopilot.

They say the government failed to bring in the necessary structural changes and provide the necessary incentives and instead prodded the Reserve Bank of India (RBI) to ease monetary policy in order to pump-prime the economy.

Instead, they add, the government failed to provide for a gradual reduction in its subsidy spending, with the result that the cumulative spending on subsidies since 2004 stood close to Rs12,00,000 crore.

The initial boom in the economy had led to an increase in demand while the government failed to ease supply constraints.

The economy registered the fifth successive monthly fall in industrial production in six months, reflecting weak consumer and investment demand.

Consumer price inflation is estimated to have stood at 8.31 per cent in March while the wholesale price index for the month is estimated at 5.73 per cent compared with a 5.70 per cent in March 2013.

India also has by far the highest fiscal deficit among the major economies even though the burden of public debt has declined because of a high rate of nominal economic growth, reflecting the mess the mismanagement of the economy has brought in.

Market expects an economic rebound in the fiscal year that began in April, but much will depend on what the new government that takes over in New Delhi after the conclusion of ongoing national elections on 16 May does to reinvigorate the economy.

The country requires a new political vision rather than more of the old type of reforms centered around foreign investment a new policy framework that focuses on tackling inflation, bringing the investment cycle back of track, cutting subsidies.

 search domain-b