Pranab Mukherjee, the UPA government’s ‘go to’ man on almost every critical policy or political decision, will step down as finance minister on Tuesday to contest the presidential election, amid mounting criticism from several quarters that the Indian economy’s growth rate could deteriorate further if reforms measures are not initiated at once.
So, on what may well be the last day at the helm in the finance ministry, Mukherjee is set to shepherd through a series of steps to stem the sliding rupee — which hit a nadir of Rs 57.37 against the US dollar on Friday — and boost the sentiments of a financial market that is desperate for some good news. When Mukherjee took over as India’s finance minister, the global economy was going through the worst crisis in eight decades. He successfully steered the economy through that crisis.
Now, as the world stares at a worsening crisis that is already grimmer than the scenario of 2008, critics have been unsparing about some of the finance minister’s recent policy pronouncements.
The budget provision to empower taxmen to scrutinise old corporate deals, and uncertainty over the general anti-avoidance rule (GAAR) have sparked fears among global and domestic investors, who say this would choke foreign investment into India.
The growth of India’s gross domestic product (GDP) slumped to a 9-year low of 5.3% in the January to March quarter this year. It was 6.5% for the full year in 2011-12, pummelled by industrial slowdown, rising prices, the weakening rupee and a sputtering global economy.
Economists say immediate and urgent action is required to reverse the slowdown in India, which till not so long-ago was the hotspot for global investors. “The most important policies required to prop up the rupee is to contain the current account deficit and enable foreign investment inflow,” said M Govinda Rao, director of Delhi-based think-tank National Institute of Public Finance and Policy.
“Investment will flow if we withdraw the retrospective changes in the Income Tax Act and liberalise multi-brand retail and show that in the next one year, the government will carry out a number of reforms,” said Rao, who is also a member of the Prime Minister’s Economic Advisory Council.
From a country-wide Goods and Services Tax (GST), to a direct taxes code (DTC), from allowing foreign direct investment (FDI) in the pension and insurance sectors, to opening up the banking sector, the finance ministry has its task cut out to execute the unfinished reforms agenda.
Indications are that Prime Minister Manmohan Singh will retain the finance portfolio, leading from the front as macro managers struggle for options to hammer a way out of the slowdown.
“The government and the Reserve Bank of India (RBI) should take coordinated fiscal, monetary and administrative actions to reverse the current slowdown,” said Adi Godrej, president of industry chamber Confederation of Indian Industry (CII).