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How different will 2014 be?

R. Srinivasan
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Rising inflation, slow growth and falling Re made 2013 eminently forgettable. Will the coming year be better? All indications are that it will be — but only by a bit. Growth will pick up, but not much over 5 per cent.

If ever one wanted to chuck rocks at the government without fear of retaliation, 2013 was the year to do that. Virtually any stick could be used to beat a floundering government with — and was.

Inflation

An average inflation rate in excess of 10 per cent for the whole year could not be blamed on temporary ‘supply side’ bottlenecks. There was ample anecdotal evidence to suggest that the spectacular surge in fruit and vegetable prices during the year — food inflation was over 15 per cent for the year — was less due to late or heavy rains or physical disruptions caused by floods and landslides, and more due to speculation and hoarding.

But the government did little to control it, till an unexpected bumper crop brought some relief.

Growth

This was the year when the ‘global forces’ excuse started to wear thin. The US, the minutest change in whose fortunes finds a big reflection in India, actually managed to start turning around, with unemployment falling and growth rising. It even managed to avoid falling off the ‘fiscal cliff’; President Barack Obama pushed through his healthcare reform. And, even the feared Fed taper did not lead to a disastrous collapse in markets.

The Euro Zone managed to avert collapse and elsewhere, revolutions did not lead to the kind of super spike in oil prices as was feared.

Rupee slide

Back home, though, none of these helped. The threat of the taper sent the rupee nose-diving, stampeded foreign investors and caused a surge in gold buying as investors ran back to the safest hedge they knew. At one point, as the current account deficit widened to 4.9 per cent of GDP, and the threat of exchange controls loomed, it looked like 1991 all over again.

That things didn’t pan out the way they were expected to was no thanks to government or policy intervention. Reviving external demand and a falling rupee combined to rescue exports, which led to a narrowing of the current account deficit. The taper turned out to be not as bad as feared, which brought the dollars back into the markets and helped stop the rupee’s freefall.

Standstill continued on reforms, with the government failing to push through key measures such as the Goods and Services Tax and the Direct Taxes Code. The subsidy monster was not tamed, diesel price control could not quite be abolished and, just as the year was drawing to a close, the government even had to back pedal on the cooking gas subsidy.

The policy logjam continued on other fronts, with the government blaming ‘judicial activism’ for its inability to deliver clearances or kickstart investments. The Prime Minister finally stepped in, formed a group to clear stalled projects and even managed to clear projects worth over Rs 4 lakh crore. But on the ground, actual investment in infrastructure — in roads, ports, airports and power plants — continued to be at a near standstill.

Election year

Which brings us to 2014. Will the coming year be better? All indications are that it will be — but only by a bit. Growth will pick up, but not much over 5 per cent. Roadblocks in the way of actual reform in FDI remain, with the government managing to come up with just one Tesco for its touted FDI reform in retail.

And then there are the elections. The ‘semi-finals’ in the four State elections have already thrown up some surprising results. The Aam Aadmi Party may not be able to replicate its Delhi success, but it has already decisively changed the nature of politics. Which means the standard assumptions of the ‘If Modi wins, things would change’ variety can no longer be made.

Which may be the best thing to have happened yet in a year of lost opportunities.

(This article was published on December 31, 2013)
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