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Should India Inc be celebrating?

Filed on August 29, 2011

T he acceptance of demands of Anna Hazare (74), a Gandhian social worker who was on fast for 12 days to press for a strong anti-corruption law, by all parties in Parliament is a historic moment for Indian democracy. But is it celebration time for India Inc.?

While the long-term prospect of a less corrupt India is appealing to all people including businessmen, the movement has created short term uncertainties that do not augur well for reform initiatives and investment decisions.

The next few weeks will see lot of haggling, bargaining, manipulations and machinations on the proposed anti-graft law.

Even as the government was negotiating with Anna on Thursday, the Reserve Bank issued a blunt warning: economic growth could soon fall below eight per cent. This would be a big letdown for India, which strode at a nine per cent pace before the financial crisis of 2008 and hit 8.5 per cent last year. And it would pose yet another challenge to the global economy, which is increasingly depending on emerging markets like India and China to make up for stagnation in the West.

Indian industrialists and businessmen are indeed a worried lot these days. Their margins are under pressure and even the top line may be hit by slowdown in the economy. Their concerns, however, are focused on interest rates, demand and policies. Disruption of economic activity by political agitation is not bothering them — not now at least.

Policies are of course important for industry. There is some room for concern here. Great many important bills are pending before Parliament and precious discussion time is being used up on the governance issues rather than economic affairs. There are important policies on pension reforms, insurance, banking, FDI in retail, and so on, which will obviously miss the bus as Parliament’s time and energies are diverted to Anna’s agitation.

Now, it is possible to take a cynical view and say that these bills have been pending for a long time now and yet the country has managed to move on. A little more delay should not, therefore, matter. While it is true that immediate prospects of the economy may not be affected, further deferment of such issues will come in the way of future progress. This is so because once Bills are held back it takes a long time to get them back on the discussion table. Therefore, growth will definitely be held back in the medium run as there is a status quo on the policy approach, which is not desirable. It would be churlish to deny that investors have turned even more cautious about Indian situation. Although Anna has ended his fasts, the attention of government, parties and parliament will be centred on the Lokpal bills. It means that economic reforms will remain paralysed. Disinvestment of public sector companies will be delayed further. Foreign investors will hold their purses. Foreign capital is prepared to take risk, but it abhors uncertainties. The uncertainties as to how the whole thing will end will discourage investments—both portfolio and direct.

Ironically, it was not so much the agitation as the government’s confused and helpless reaction to widely perceived misuse of political power that got investors nervous. When policymakers rely on arrogance and police force to arm-twist a democratic protest, the world gets a wrong message.

Yet, we must remember that Indian economy is fairly mature and resilient to such occurrences. Quite clearly, a single issue cannot derail it. But it is not yet time for celebration.

Views expressed by the author are his own and do not reflect the newspaper’s policy


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