Saturday, March 17, 2012

Time for a New Mandate

By most accounts yesterday's budget showed no signs of the 2nd generation reforms the government needs to carry out. On the same day the Chief Economic Advisor told the India Today Conclave that he expected growth to reduce further to 6.5% from the present 6.9%; figures he himself admitted were disappointing.

So here's the situation. The prime minister has on several occassions maintained the need to grow at 9% to create sufficient jobs. That hasn't happened for 4 years.

To achieve such growth in the current environment (and to sustain it in the long run) his government must enact second generation reforms ranging from new tax codes to new land & labour laws. It must also announce new policies that will increase investor confidence in critical sectors such as retail, agriculture, even telecom, rail and roads.

None of these reforms have seen the light of day. To be fair, when the government has tried to introduce new policies - FDI in retail, pension reforms and rail fair hikes come to mind - these have been scuttled by its own allies. Even petrol price hikes, no longer a domain of the government, in theory, meet stiff political opposition.

In short, this government is now unable to enact the reforms needed to provide Indians with sufficient jobs and livelihood. This is a dangerous situation. Aspirations, particularly among the youth, are high; and when they remain unmet the country risks great tensions.

With no sign of things changing, it is time for the government to do one of two things.
First, it could re-engineer its coalition to reflect the mandates from states such as Uttarakhand and Uttar Pradesh, and jettison its current non-cooperative partners from West Bengal. This will be hard and come with its own political costs.

Second, having lost its majority in the Rajya Sabha, and with its Lok Sabha alliance is in tatters, it must seek a fresh mandate from voters. It may not win, but what we have at the moment cannot be called a government by any stretch of the imagination.

What cannot continue is more of the same. India will pay too heavy a price.

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