• The Business of Politics

    Both the Indian economy and the Indian Government have been facing turbulent times. The Government has been marred with scams, corruption scandals and constant attacks by the opposition on its handling of the affairs of the country. At the same time the Indian economy has also not fared well due to various reasons. India’s GDP growth has been consistently revised downwards from 7+ per cent to the current forecast of 4.5-5 per cent for the fiscal 2013-14. To some extent the economic policies of the Government have been held responsible for the slow-down. India Inc. has been blaming the slow growth on the deliberate Reserve Bank of India (RBI) policy of keeping the interest rates high, which has added to the high cost of capital, thereby impacting industrial growth.

    Amidst all this, the Government seems to be gearing up for the general elections next year by announcing a slew of populist measures. In the process, its conduct in the recent months has highlighted its dilemma between economics and politics as what is right for the economy may not be good for politics. The economy has been showing signs of decline for a while with the Indian National Rupee (“INR”) having touched its lowest to the US Dollar (“USD”) and the investor confidence, being all time low for a variety of reasons. Though the Government has visibly initiated a host of initiatives on the economic front to boost investor confidence, the desired impact may not be seen anytime soon.

    Showing a knee-jerk reaction, the Government has taken measures to attract foreign investment by further relaxing the caps and conditions for Foreign Direct Investment (“FDI”) in sectors such as retail, both multi brand and single brand, telecom, gas refineries, commodity exchanges, power trading and stock exchanges, asset reconstruction company, tea plantation, credit information companies, courier services, insurance sector, etc.

    The Parliament has in the monsoon session passed some important bills such as the Companies Bill, 2013, the Securities and Exchange Board of India (Amendment) Bill, the National Highways Authority of India (Amendment) Bill etc. The Companies Act, 2013 seeks to modernise the Indian company law and plug the pitfalls of the earlier law by making the companies more accountable to their investors and other stakeholders.

    In contra distinction, the Government has brought to fore certain populist measures such as the National Food Security Bill, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill. Almost immediately, economists and India Inc. have raised concerns that these populist measures would be counter-productive to the economy and a burden to the already ballooning current account deficits.

    Amidst all these announcements, the issues of current account deficit, inflation, infrastructure deficit, corruption and lack of clarity over certain aspects of the FDI regulations are still looming large with no quick fix in sight.

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