FM's plan to revive the economy

Tue, 20 Aug Pre-Open

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From being touted as one of the fastest growing economies of the world India's growth has taken a severe beating. Low single digit growth seems to be the new norm. The Reserve Bank of India's hands are tied and it cannot afford to lower interest rates due to rising inflation. Therefore in order to boost growth the government is keen to adopt other measures that can revive growth. And the finance minister's current move is testament to this fact.

It may be noted that finance minister, P Chidambaram, has asked his ministers to prepare a 10 point action plan to boost the economy. Basically this action plan will contain ideas that can be implemented to boost growth.

However, the need of the hour is action and not plans. True that planning leads to better implementation but that cannot be said of the government that seems to be in an eternal planning mode. The current growth concerns are not new. India's growth has come under pressure since the last couple of years. But very little has been done to bring growth back on track. It's not that 2 years have been insufficient for the government to identify the root cause of faltering growth. The real problem lies in execution. While many solutions have been identified, none of them have been executed.

So, even if the 10 action plan comes with some really innovative solutions we are apprehensive whether the suggestions will really be implemented. Also, it must be noted that India is scheduled to go for elections in 2014. Hence, government may not really bite the bullet when it comes to taking tough decisions. Especially so if these decisions are to cause any near term pain. That is because such decisions may not go well with the general public.

We feel that restoring growth is not as challenging as the government is making it out to be. True that growth, to a certain extent, does depend on the external environment. But if the internal operating environment is conducive to attract capital, then growth can follow. However, red tapism and corruption are hurting growth at the moment. Red tapism is hurting the capex cycle while corruption has impacted the business confidence of India Inc. If the government is able to resolve these two issues growth can easily be restored to higher levels.

The 10 point action plan may provide the right path. But it is up to the government to follow the plan or not. And to follow the right path one needs the right intention and not just an action plan!