There is a feeling in government circles that winning the vote in Parliament on its decision to allow foreign big box retail to invest and operate in India marks an inflection point in the reforms trajectory. Indeed, going by the posturing of the ruling party’s spokespersons in the media and elsewhere, the FDI victory is the ‘final victory’ in the reforms battle.

It is nothing of the kind. The government may have won the battle on FDI, but even here, it is at best a Pyrrhic victory. There is absolutely no indication that the States, which have the final power to say yes or no to a particular investment in this area, since they have the power to grant licences to operate, are at all convinced on the FDI issue.

Lack of confidence

Even the manner of the victory was a telling giveaway of what is likely to happen on the ground. Realpolitik drove the decisions of the Samajwadi Party and the Bahujan Samaj Party to stage ‘walk-outs’ at critical points just before the vote actually took place, thereby assuring the government of an easy win on the reduced numbers. But in the debate on the issue which preceded it, the Congress was virtually isolated in its defence of allowing FDI in retail. Almost all the other parties, including its allies in the UPA coalition, spoke against it, even if some virtually cast a positive vote by either absenting themselves or abstaining from the vote.

This means that a significant section of the political class is not very confident of being able to sell the idea of FDI to the only audience which matters to them -- their electorate. That is why there was this careful distinction between the public pronouncements and posturing and their actual practice as far as the vote is concerned.

In politics, ‘plausible deniability’ is all, so this is understandable. What is not understandable is the irrational euphoria over the vote. Because when it comes to reforms, we have not even started to bite the bullet. And the longer the delay in taking the tough decisions, the greater the impact on growth.

The impact is already showing, and not just in the broad numbers, like overall economic growth. The GDP growth rate is now at a decade’s low and is showing every indication of staying there for some time at least. The Index of Industrial Production (IIP), which is a much more unreliable number, has shown an uptick in October to over 8 per cent, prompting Finance Minister P Chidambaram, clearly hard pressed for positive news on the growth front, to claim that this indicates the emergence of the first ‘green shoots’ of what would hopefully develop into robust growth.

But analysts point to the ‘base effect’ (growth in the corresponding month of last year was exceptionally low, thus projecting a modest turnaround in real terms as a higher percentage), and the difficulty of sustaining even this spurt. Even here, core sectors like mining continued to contract, while power output was up 5.5 per cent.

The real situation on the ground facing those who are running enterprises in this country is not told in these numbers. Those details will take much longer to emerge, since data on trends like employment and wage payouts for contract or daily wage labour is either tracked ineffectively, or not at all, and comes with huge time lags.

Power deficit

But there is enough anecdotal evidence to highlight the scale of the problem. Just this week, a major entrepreneur, with interests in coals, minerals, iron ore and coal mining and iron and steel manufacture, said that they have closed some units in Karnataka and Tamil Nadu. In Karnataka, because the ban on mining has rendered the plant bereft of raw material. In Tamil Nadu, because Hosur, where their unit is located, has an official 45 per cent power cut, which means power is officially available for a little over 12 hours in a day.

Even that availability is deceptive. It is not as if power is switched off for half a day and stays switched on for the rest of the period. “There are two hour gaps in supply,” this industrialist said in a private conversation with this writer, “how am I supposed to plan or run a shift? How can I pay labour for sitting idle?” Even when power is available, there are huge ‘quality’ issues – low voltage or fluctuations mean frequent tripping, and resort to expensive diesel generators.

The tale is repeated elsewhere in the country. In Maharashtra, India’s most industrialised state, power cuts average eight hours a day outside of Mumbai city, which is “islanded” from the rest of the grid. This is in addition to a compulsory one day switch-off in most industrial belts. Small casting and forging units in Kolhapur are struggling, because of lack of power. The Tirupur hosiery belt in Tamil Nadu says it is being rendered uncompetitive in global apparel markets because the cost of producing on gen set power is eroding their margins.

The tale is repeated virtually unchanged in every industrial cluster in the country, as the costs of decades on policy inaction, and a reluctance to implement critical reforms have finally escalated into a systemic logjam which is choking the entire value chain. From coal and minerals lying unmined in the ground, to power plants idling for want of coal or gas, to the downstream users of power downing shutters because of the lack of power, or raw materials.

Policy paralysis

Much has been written and said on the root cause of the problem – the systemic weakness of over-dependence on imported oil, gas and coal, the sustained deterioration in finances of State-owned power utilities that has sapped their ability to invest in modernisation and expansion, the widespread corruption that has led to one of the highest rates of what is euphemistically called “transmission and distribution loss” -- power theft, in plain English.

But the real problem is the policy paralysis which has prevented any viable solution from being formulated, let alone be implemented. Beset as it is by accusations of scams and corruption, the government finds itself unable to move decisively to find a solution. Meanwhile, the coal or iron ore continue to lie unmined, the steel or cement not manufactured, the power not generated, telecom spectrum unbid for, and therefore unutilised…

There is a cost to all this, but that is not worrying anybody in power enough to do something effective. Politicians tend to look at the costs purely electorally, in terms of winning or losing elections. Bureaucrats at best worry about transfers or suspensions.

Which means you and I are paying, and will continue to pay, the cost for all this inaction and corruption. Not just in terms of rising inflation and falling employment, but the cost of inefficiency and corruption by way of taxes.

As for industry, there is always the investing public, and the banks, which pick up most of the tab. In a recent report on the power sector, for example, brokerage firm Kotak Securities said total bank exposure to the power sector alone is estimated to touch Rs 9 lakh crore by 2015, and added, “The government’s and companies’ continued inability to address the challenges in the power sector may result in significant NPLs (Non Performing Loans) in banking sector over the next 2-3 years.”

Is the government prepared to write such a big cheque?

(Responses to >Raghavan.s@thehindu.co.in and >blfeedback@thehindu.co.in )

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