On Thursday, Union Minister for Finance P Chidambaram said there was no justification for the “unwarranted pessimism” over the rupee's free fall. But the primary concern is not the tumbling currency, because that is only one element of a larger, more alarming picture: The massive erosion of confidence that business had in the Congress-led UPA Government. This, rather than the rupee, calls for pessimism, and it’s fully warranted.
Government and Congress spokespersons continue to glibly maintain that all is well even as the economy collapses around them. If they refuse to acknowledge the malaise, how will it be addressedIJ The best indicator of the crisis of confidence is the flight of large foreign businesses from the country in recent months. South Korea's Posco has decided to scrap its steel unit in Karnataka because it was disgusted with the unending delays in the land acquisition process. This represents an investment loss of Rs 30,000 crore to the country. luxembourg-based ArcelorMittal is wounding up its 12-million-tonnes-a-year steel factory project that was to come up in Odisha at an investment of Rs 50,000 crore. The global giant took the decision after it faced repeated obstacles in land acquisition and allocation of captive iron ore blocks.
These are just two of the high-profile investments that could have changed the economic face of the country in the years to come. There are others such as the United States’ AES Power, which closed down its operations in India after it faced policy paralysis and lack of Government commitment in the power sector. It had invested more than $140 million in Odisha Power Generation Corporation. The situation in the service sector is no better. According to reports, Royal Bank of Scotland has decided to shut down 23 of its 31 branches in the country; Morgan Stanley exited after selling off its Indian wealth management unit; US-based Fidelity has decided to sell its Indian mutual fund business (it managed a whopping Rs 8,800 crore assets in the country). The latest in the list of foreign businesses seeking to flee the country is Nokia; according to a report in a leading national daily, the Finnish telecom major has written to the Government that India had become the “least favourable” destination for manufacturing activities.
According to reports, in the last 18 months, the country has lost massive investments that had either been committed or that could have come in had the Government not ruined the business environment. Some estimates say that almost one lakh crore rupees of potential investments have been lost. The Government talks hopefully of a revival once foreign direct investment flows in. The fact is that it has managed to do little in the years to attract such funds. FDI to India drooped by 21 per cent in fiscal 2012-2013 when compared to the previous fiscal. While we could manage some $36 billion of FDI, the Chinese by comparison notched up more than $100 billion.
The Government may not want to face the reality, but it is being hit by a tsunami whose intensity is only increasing by the day, and it has only itself to blame for the mess. The power sector is tottering because power plants do not have adequate coal to operate; the coal sector is unable to optimally function because the Government has allocated coal blocks to dubious operators who have no understanding of the coal business and had acquired licences to make a killing. To worsen the situation, the few coal projects that are on the anvil have been hit by activism of the most dangerous kind, both from within the Government and outside.
A similar story is repeated in other infrastructure and iron ore mining sectors. The Government allowed illegal iron ore mining to flourish, and paid the price when the Supreme Court clamped down on mining. Now we have a situation where steel plants are choking because of paucity of iron, with some shutting down or shifting elsewhere. The road network, so vital to the movement of goods across the country, is creaking, because forest and environmental clearances are delayed.
The Ministry of Environment and Forests has in the last few years become a nodal agency for obstructionism, and Prime Minister Manmohan Singh has failed to do much except to wring his hands in despair. Add to this the shenanigans of the Union Ministry of Tribal Affairs which wants a decisive say in development projects in tribal-dominated regions, and you have total policy paralysis. The economic agenda is dictated not by the Prime Minister but by the ‘Ministry of Obstructionism' (which is what the Environment and Forests Ministry has become) whose anti-development stand is robustly backed by the jholawallahs in the Sonia Gandhi-headed National Advisory Council. Since Manmohan Singh, and not the NAC, is accountable to the people, he has to take the blame.
But it's not these agencies alone that have contributed to the stunted growth, flight of capital and loss of faith in governance. The Congress-led regime's lop-sided priorities such as pushing through an economically unviable food security legislation, persisting with the inefficient Mahatma Gandhi National Rural Employment Guarantee Act, and changing goalposts in economic policies are luxuries that the country can ill-afford.
Add to this the UPA regime's failure to push through crucial legislations and you realise how difficult it will be for any Government that takes over from the disastrous Manmohan Singh dispensation to turn things around quickly enough. For instance, The land Acquisition, Rehabilitation and Resettlement Bill remains mired in controversy, with industry saying that its existing provisions will make acquisition of land even more difficult, and thus adversely impact development. Also, the Goods and Services Tax regime is far from being a reality, although there is general agreement among most parties that it must come soon.
The problem is that the Union Government has lost so much credibility that it is no longer believed, even when it says, on the rare occasion, the right thing. Because it has presided over so many corrupt deals, people tend to view its every action with deep suspicion. No one trusts the Congress-led regime's capacity to be above board. Thus, when the Government raises gas prices, it is accused of cutting a deal to favour a corporate house; when it seeks to swiftly modernise the Armed Forces with new, long-delayed acquisitions, it is accused of following opaque methods to hide bribery; when it desires to rationalise power tariffs to factor for direct import of coal (partly because domestic coal production has been held hostage to green-activists who go red in the face at every hint of development), it is viewed as favouring private power producers.