How the UPA lost the confidence of markets and investors

by Merlot Daruwala Wed Aug 21, 2013 1:15 am

Nice column by a one-time insider, Sanjaya Baru:

The roots of the extant crisis lie in the hubris of 2009. Five years of an unprecedented near 9 per cent growth, a secular rise in the gross savings and investment rates, a robust response to the trans-Atlantic financial crisis and the global economic slowdown and, on top of it all, a handsome victory in the general elections of 2009 made the Sonia Gandhi Congress intoxicated with over-confidence. Five years earlier, the same Congress had chastised the Atal Bihari Vajpayee government for its "India Shining" campaign, but by 2009, the Sonia Gandhi Congress began to believe the rhetoric. India had arrived. The world would genuflect....

The decision to appoint a very 1980s-style Congress leader like Pranab Mukherjee as finance minister was an invitation to a very 1980s-style economic policy. Many analysts understood this and raised an alarm. Look at the comments on the budgets of that period. The neglect of all those warnings resulted in the wounding blows of the March 2012 budget that sowed the seeds of the current crisis.

The liberal fiscal spending of the 2004-08 period was made possible both by rising government revenues and national income growth, and by relative comfort on the external side. After 2009, these pillars of growth began to wobble. By 2012, they were shaking. To add to this mess, a new group of over-confident second rung leaders in the Congress party, mouthing new mantras of "inclusive growth", began defining new principles of economic policymaking, creating further dissonance within government.

by goodcitizn Wed Aug 21, 2013 9:10 am

Frankly nobody believes in what Chidambaram says. His claim of bringing down current account deficit from 4.8% to 3.7% by year-end is laughable. Hiking duty on gold and banning purchase of coins and medallions aren't curtailing gold importation. RBI measures are band aids to curb rupee devaluation. The only hope is for the dollar to take a beating but the American economy seems to be improving.

S&P's, Barclays' and Moody's ratings have all been dismal about India's quick recovery. UPA 2 has been negligent in taking adequate steps in reducing fiscal and current account deficits, building up forex reserves and reducing overall external debt. What is worse is that the opposition parties want the Indian economy to fail just so that they can unseat Congress. Meanwhile the general public is feeling the pain of high prices, high interest rates and no hope for any savings.

It beats me that the government is preoccupied with irrelevant issues like Telanga that do zilch to improve the economy or the standard of living for India.

by Marathadi-Saamiyaar Wed Aug 21, 2013 10:32 am

Merlot Daruwala wrote:Nice column by a one-time insider, Sanjaya Baru:

Please ask everyone to vote for UPA/CONcrass/Commie and MT Mata ji and Rahul Baba...

so that India can have more of the same...for the next 5, 10, 15, 20 years..

by Idéfix Wed Aug 21, 2013 11:19 am

goodcitizn wrote:It beats me that the government is preoccupied with irrelevant issues like Telanga that do zilch to improve the economy or the standard of living for India.

It feels as if they have consciously chosen an agenda that distracts attention from the economy. Their one-step-forward-one-step-back approach on Telangana hobbled the growth of Andhra Pradesh for at least the last four years. Now in the run up to elections, they want to focus on this issue and a food security bill that will make public finances worse. It feels like a government that has lost the will to govern, is counting down to the end of its term, and hoping to somehow squeak through to a narrow win.

by goodcitizn Wed Aug 21, 2013 11:52 am

Idéfix wrote:
goodcitizn wrote:It beats me that the government is preoccupied with irrelevant issues like Telanga that do zilch to improve the economy or the standard of living for India.
It feels as if they have consciously chosen an agenda that distracts attention from the economy. Their one-step-forward-one-step-back approach on Telangana hobbled the growth of Andhra Pradesh for at least the last four years. Now in the run up to elections, they want to focus on this issue and a food security bill that will make public finances worse. It feels like a government that has lost the will to govern, is counting down to the end of its term, and hoping to somehow squeak through to a narrow win.

My sentiments exactly. The Telangana issue doesn't concern a majority of the Indians who are indifferent to it. If you look at the major components of revenue expenditures I'd guess about 10% is for defence, 30% is towards interest, 15% is towards subsidies and the rest is towards others. With the devaluation of the rupee, interest expenditures will shoot up, and with mounting oil prices and the food security bill, subsidies will make up a bigger share which means that there will be severe cutbacks on nation-building GDP growth-oriented efforts as well as on defence neither one of which bodes well for India.

The government also lost a fortune close to $500 billion (by not auctioing) in allocations between coal blocks and 2G spectrum which would have significantly added to public deposits and reduced fiscal deficit. Mismanagement on such a large scale goes unpunished. What is the point in blaming the private enterprises who took advantage of the windfall through corrupt means when it was the fault of the PM and his cabinet for not going for auctions? They alone cost the country the bulk of its economic downward spiral.

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