PM spoke of subsidy cuts while passing the Food Bill
Prime Minister Manmohan Singh did well to reinforce the message that with both domestic and foreign investors a worried lot, it was incumbent upon Parliament to send a message that India meant business. He did well to remind the country of the measures taken to clear up the regulatory logjam by the Cabinet Committee on Investments (CCI)—given he said the measures would start bearing fruit in H2, the markets took that to mean even Q2 GDP would be muted; at 4.4%, Q1 GDP fell to the lowest in 16 quarters, giving rise to the possibility of a sub-5% FY14 growth, putting in serious doubt the fiscal math.
The PM is right in asking for MPs across party lines to cooperate, but it is telling that the Bills on which the government feels the need to garner this cooperation are all populist ones like the Food Security Bill and the Land Acquisition, Rehabilitation and Resettlement Bill. While the food Bill will raise food subsidies by 50-60%, the land Bill makes it impossible for any land to be acquired without a lengthy social impact assessment even though land-losers are to be paid a minimum of 4 times what their land is registered for right now. A solution was required given how states often use their coercive powers to acquire land cheap for industry, but a better solution could have involved, through zoning, changing the usage for agriculture land so that farmers realise the value of the land before it changes hands. It is problematic that the government uses its political capital to take India back to the pre-reforms period in terms of rising dole as well as in its opposition to industry—it’s worth keeping in mind that the bulk of the 138 million persons who moved out of poverty between FY05 and FY12 did so because they moved out of agriculture to industry within rural India. But even more problematic is that the Opposition should criticise these Bills—read JDU President Sharad Yadav’s impassioned critique of the food Bill—and then go and support them in Parliament since, in election season, no one is taking any chances with being anything but politically correct.
But what are investors to make of the PM’s speech in terms of the way forward or his turning a blind eye to India Inc’s solvency problem and suggesting RBI keep hiking rates which are, in real terms, upwards of 9%—a sure recipe for a slowdown. How do you reconcile the talk of the need to rein in subsidies with the just-passed food Bill? And surely the PM is aware the rupee’s fall has brought all fuel reforms since January to nought, or that tax issues continue to bedevil industry? While the CCI process is a great step, it remains true as FE reported, even the PMO’s intervention for over a year has not got the DDA to transfer land for a R40,000 crore investment in the capital to the Japan-funded quasi-government DMICDC; the government continues to play ducks and drakes with gas pricing for RIL and, while clearing one of its projects, has asked it to quit an equally big one on fairly specious grounds; a critical gold-dematting scheme that can curb imports dramatically hangs fire for lack of ownership and the industry ministry is allowed to hold back large investments almost at will. India needs political consensus to get its growth back, but that consensus is most needed within the Congress party.