Question mark over the government's ability to push through pending reforms
The last month of the first year of the new decade of this century has so far been very eventful for the country's economy. As the curtain is ready to drop for 2011, it is clear that India is headed for a difficult year ahead. Even as a cautious Reserve Bank of India kept the key rates unchanged, it is becoming increasingly clear that the economy has indeed hit the speed-breaker. The constant quibbling among political parties has only hurt the near and long-term cause of the economy. The ugly row that erupted in the wake of the Cabinet decision to allow up to 51 per cent FDI (foreign direct investment) in multi-brand retail saw Parliament go dysfunctional. In the wake of fierce opposition, the government had to backtrack and put the issue on backburner. The entire episode, however, had put a big question mark over the UPA Government's ability to push through the pending reform initiatives. This has already sent out negative signals to the global investing community. With the Vijay Mallya-headed Kingfisher Airlines facing severe financial crisis, it was widely speculated that the Centre would step in to free the skies by opening up FDI into the aviation sector. The inter-ministerial disagreement on this issue and also the wave of protests against the FDI in multi-brand retail have ensured that the skies are kept out of bound for the global investors.
Early this month, the government had to trim its growth forecast to 7.5 per cent for the fiscal. The Economic Survey, presented in February this year, had forecast a 9 per cent GDP growth. On the day when it lowered the GDP forecast, the government had also come out with a self-admission that a software-related error had inflated the country's export by $9 billion for the April-October period.
More bad news was to follow subsequently. The government was stumped when the IIP number for October went into a negative trajectory.
As if these were not enough, the rupee started getting under the nerves of the monetary and fiscal authorities. The depreciating rupee against the greenback has sent the calculations on the foreign trade front haywire. It was only after the rupee breached the 53-mark that the RBI stepped in to announce strong measures to curb speculations in forward contracts.
The move had the desired effect with rupee moving up a little. It is against these all round negative signals that the Reserve Bank of India's mid-quarter monetary review was anticipated with great expectations. In the end, the apex bank preferred to take the cautious route and kept the key rates unchanged. Ironically, many a hurt participant in the economy lauded the status quo decision of the RBI. But the RBI drew predictable flak from the markets. The 30-share Bombay Sensitive Index (Sensex) tanked 345 points. The Nifty too went down. The RBI has indeed expressed its concerns over the growth. As 2011 is slowing moving into the pages of history, the country appears to be headed for uncertain phase in the coming year.