UPA on overdrive after season of 'policy paralysis'

Just when "policy paralysis" was fast turning into a catch phrase, the government has sprung into an overdrive taking many decisive steps. Experts and industry watchers agree the UPA government seems to have woken up from its policy slumber, which it had slipped into while coping with corruption charges in 2G telecom spectrum scam and Commonwealth Games.

The Committee of Secretaries (CoS)' recommendation on Friday to allow up to 51 per cent foreign direct investment (FDI) in multi-brand retail is the latest forward-looking action in the UPA regime. The same day, the Cabinet Committee on Economic Affairs (CCEA) cleared a mega deal involving an FDI component of $7.2 billion.

Reliance Industries (RIL) in February had announced its proposal to sell 30 per cent interest in 21 oil and gas blocks to BP, but the CCEA nod came only now.

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Among the other decisive measures that the government has taken in the past one month is the introduction of the proposed Goods and Services Tax (GST).

While CCEA had approved the Cairn-Vedanta deal last month, oil minister Jaipal Reddy has now said a formal letter communicating the decision would be sent to the companies in a few days.

The manufacturing policy, which was stuck for over a year, is also set to move ahead. The third phase of FM radio privatisation was another decision that the Cabinet took recently, after years of inaction on the issue.

A GoM recommending Rs 1,200 crore (Rs 12 billion) equity infusion into Air-India was also seen as a decisive policy move. In the days to come, several GoM meetings are expected on commercialisation of coal mining and no-go areas. Prime Minister Manmohan Singh is also slated to hold a meeting next week on the coal shortage issue.

So, what triggered the slew of decisions after months of inaction on the policy front?

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Almost everybody that Business Standard spoke to said the growing worry over slowing down of economic growth had prompted the government to act. These measures were necessary to improve the investment climate, they said.

Another important point that has emerged is that many more pro-reform decisions are expected over the next six months or so, preparing the country to go into the next Union Budget with a revived growth momentum.

D K Joshi, chief economist, Crisil, said: "There was little action on the policy front in the past many months. So, these decisive measures were imperative to improve the investment climate."

According to Joshi, with the GDP growth going down, these steps make sense. However, he added that more was needed to be done, especially in the infrastructure sector.

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Tarun Das, former chief mentor at the Confederation of Indian Industry (CII), agreed with Joshi. "If infrastructure projects get a push, there will be an additional 1 per cent growth from there," Das said.

A former bureaucrat preferred to call the recent decisions as just "some signs of life" in a timid governance regime. On FDI in multi-brand retail, he said: "It will be interesting to see how quickly the matter is decided by CCEA."

As for the RIL-BP matter, he argued that "it did not need the Cabinet approval" and that it could have been decided months ago in the petroleum ministry. According to Rajiv Kumar, secretary general, Ficci, the recent decisions are sending out a message to the world that there's no policy paralysis.

"It is not just a projection of things being done, because most of these are real steps taken." The main trigger for these steps, he said, was that there was a clear sign of an economic slowdown in the country. CII director general Chandrajit Banerjee said the government was likely to take many more decisive steps. "But many of the reforms will now have to move to the state level," he said.

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Joshi argued this (the reform-linked decisions) should not be an event, but a process. "Reforms should be gradual and should continue. Otherwise, there could be repercussions on the economy."

By the time India goes to the 2012-13 Budget, the growth revival would have already started if these steps continue, Das said.

"I think Prime Minister Manmohan Singh has not given up his dream GDP growth rate of 10 per cent," he added.

He said the slowing economic growth rate was perhaps the main reason why there was a sudden turnaround in decision-making within the government.