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Time to wake up?

Aug 8, 2001

A wake up call for our leaders. Its time they delivered what they are meant to. As a mark of their collective ability to deliver little more than nothing, the S&P, a rating agency, has downgraded its outlook on the Indian currency. This (downgrade by S&P) development comes at a time when the country is grappling with an economic slowdown. Investment activity continues to grow at a fraction of the desirable rate. Consumption has been hit by the three successive not-so-good monsoons. And finally, exports too have in recent months witnessed a slowdown. As a result there is a comprehensive slowdown in the economy.

However, some developments have been favourable in recent months. First is that investment activity, particularly in roads and housing, continues to be buoyant. Especially in the case of roads, activity is anticipated to accelerate significantly as the government undertakes two large projects - the Golden Quadrilateral and the North-South-East-West corridor. Second, and a more important development has been the onset of a normal monsoon. Indeed, the CMIE, a domestic think tank, has upped its projection for agricultural growth to 7%. Given that nearly 60 - 70% of the Indian population is dependent on agriculture, any growth in this sector will boost economic activity.

The downgrade in rating will impact India's ability to attract and borrow funds in international markets. This could prove to be a set back especially for capital-intensive sectors like power. FII flows too could be impacted as the potential of loss due to currency depreciation has increased.

Now, to our politicians, who have kept themselves busy in Parliament. Not over developmental issues, mind you, but debating issues of whether the UTI scam occurred in 1994 or in 2000. Whatever the debate, the result is the same. Little or no reform. The Parliament, which includes the incumbent government, must realise that there are things, which go beyond party ideologies. Take power for example. The power sector in the country is raking up losses by the day. The latest estimate puts these losses at Rs 250 bn i.e. 20% of fiscal deficit. However, the sector has witnessed little reform. Mention power, and our politicians will in all likelihood give a 'bhashan' on Enron. The point is that neither the incumbent government nor its predecessors were able to solve the power crises, which continues to worsen by the day.

An interesting case today is Japan. They have elected a leader who has opposed the ideas of his party seniors. The LDP, to which Mr. Koizumi belongs, has been in power for all but 10 months in the last 50 years. One reason for his election - the Japanese economy has been in a recession-like state for the last, hold your breath, 10 years or so. The LDP refused to change and continued with its old policies during this period. Mr. Koizumi on the other hand promised pain. Pain, which will be accompanied by reform. He won, very convincingly. In the elections to the upper house in July, the LDP's performance has been the best in a decade.

Our politicians need to learn from Mr. Koizumi's rise to power. People in India, like in Japan, want change. It's better the politicians deliver the change before everyone demands it.

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