National

UPA-II – bogged down by scams

K. R. Srivats New Delhi | Updated on November 21, 2017

Failing to inspire: UPA Chairperson Sonia Gandhi and Prime Minister Manmohan Singh, releasing the UPA report card on its completion of nine years at a recent function in the Capital (file photo). – Rajeev Bhatt

The second term of UPA started in 2009 with a bang, but seems to be ending in a whimper with a series of scams and policy inactions having put paid to investors – both domestic and abroad.

The ruling combine has in its second term clearly failed to meet the aspirations raised by the economy’s robust growth during 2005-07.

Indian economy grew by about nine per cent a year from 2005 to 2007, but faltered later. Part of the reason was the global financial crisis of 2008.

India’s response in terms of three-phase stimulus ending in early 2009 – amounting to 1.8 per cent of GDP – did help in recovery.

In 2010, the India grew faster than China. But growth has now halved to near five per cent levels.

Rather than consolidating on the gains of stimulus, the UPA-II squandered it by regressive tax measures such as retrospective amendments to bring indirect transfer of shares to tax.

This dampened investor sentiment. After P. Chidambaram assumed charge as Finance Minister in August 2012, there has been several steps to soothe the frayed nerves of foreign investors on FDI as well as taxation front.

The UPA-II set up several high-profile committees to look into vexed taxation issues.

FDI MOVES

It also took the big step of allowing up to 51 per cent foreign direct investment (FDI) in multi-brand retail. Foreign airlines were allowed to take up to 49 per cent equity stake in domestic aviation companies.

But the surge in gold imports put the Government in a tight spot as it impacted the current account deficit.

With the situation getting out of hand, the Government was compelled to raise the customs duty on gold imports.

If there is one thing that kept the UPA-II on a tight leash in this term, it was the spate of scams that came out in the open at regular intervals.

The Commonwealth Games scam, the 2G spectrum scam, irregularities around coal block allocations, all cam tumbling one after the other.

The recently retired Comptroller and Auditor General of India Vinod Rai achieved celebrity status as his office started to punch several holes regarding the Government’s role in sectors such as telecom, petroleum, civil aviation and coal.

If there is one thing that India truly lacks, it is fiscal discipline. Unless it is able to keep a tight lid on fiscal deficit, the central bank will not be free to tame inflation.

Although wholesale price index (WPI) based inflation has softened in the recent months, it has been the biggest bugbear for UPA-II.

For various reasons, the policymakers have not been able to keep a handle on inflation for most part of this UPA-II term that began in 2009.

Land has been another issue where Government needs to get its act right. The pending Bill on land acquisition is flawed in some respects, argue industry players.

FII faith

Amidst all this, foreign portfolio investors have kept their faith on the India growth story.

With quantitative easing continuing in the US, a large chunk of institutional funds have been buying Indian equities despite macro headwinds and threats of an Indian sovereign rating downgrade.

>srivats.kr@thehindu.co.in

Published on May 26, 2013

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