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Will the new FM bite the reform bullet?
Wed, 8 Aug Pre-Open

Great power brings greater responsibilities. The person who will most agree with us this point of time will be the Finance Minister (FM) of the country. India has been rocking back and forth between slow growth rate and rising inflation. With the rupee touching new lows against the dollar and Indian equity markets painting bearish scenario since the last four years, the job of the Finance Minister is more hectic than ever.

On one side, the pressure from the market to introduce liquidity is high. But high liquidity without any substantial growth and investment is only likely to fuel inflation further. And that certainly is not in the best interests of the economy. We hope that the Finance Minister is wise enough to take a lesson from the US crisis some years back, the scares of which are still fresh, before giving in to market friendly demands.

So what should the FM do? We believe instead of focusing on short term liquidity, the FM should pull out all the stops to implement tough policy reforms. Some of these include long due reforms like reducing fuel subsidies, power sector reforms and taxation reforms (introduction of Goods and Service tax).

However, this is easier said than done. This is because unlike market friendly measures (infusing short term liquidity), economy friendly measures do not favor political motives. And without a strong political backing, no reforms can see the light of the day. For the lack of the latter, we have delayed reforms enough. While we somehow managed in the past, the challenges that the economy faces now leaves little room for disagreement on taking tough measures. It was a crisis in 1991 that forced us to take some reforms after a long period of dormancy. As the country seems to be coming full circle, we hope that the Finance Minister will unleash the next round of revolution.

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