Noted economist and honorary economic advisor to the Prime Minister Raghuram G Rajan has sharply criticised the UPA government for its ?policy paralysis? and lack of ?enough political will? even within the ruling coalition to push through key second generation reforms which would reduce rents and patronage and increase competition.

Rajan was speaking on Saturday evening in the presence of Prime Minister Manmohan Singh at the launch of a book on Singh?s contributions to the economic reforms.

Ruing the fact that public mindset has moved only a little in attitudes towards competition and private sector due to a ?long lag? in the trickling down of the fruits of reforms, he said in the meantime, powerful rent-seeking elements of the political class and ?aggressive business people? have formed an unholy coalition.

Rajan added that the government?s focus should immediately be on reforms such as allowing foreign entities? entry into higher education, ensuring auctioning of natural resources and transforming public sector enterprises into more autonomous corporations.

Rajan said: ?Even as the world becomes more competitive, India?s star has dimmed in the last few months, as our governance is besmirched by corruption scandals and our macroeconomic health has deteriorated. Alarm bells should sound when domestic industry no longer wants to invest in India, even while eagerly investing abroad.?

He added: ?Some of the key next-generation reforms have been stymied. Typically, these are the reforms that reduce rents and patronage, while increasing competition ? for example, the Bill on foreign entry into higher education, attempts to auction resources transparently, or attempts to transform public sector enterprises into more autonomous corporations. On the other hand, rent, patronage, or entitlement-enhancing measures have sailed through.?

Stating that we still had tools to tackle the problems, Rajan called for using those tools with vigor and a sense of urgency. ?The gap between our spending and our saving is making us dependent on short-term foreign inflows to a dangerously high extent, at a time that the international investor is increasingly skeptical about the India story.?

As a short-term measure, Rajan said, the government should immediately raise fuel prices to international levels and not roll it back; resolve the commodity bottleneck in a way that does not give a windfall or bailout to any party, least of all the private promoters; and be kinder to foreign investors as they were not the enemy but a necessity to fund our spending to the tune of 4% of GDP.

The event was organised by the Indian Council for Research on International Economic Relations (ICRIER) and the Oxford University Press to mark the launch of book India?s economic reforms and development: Essays for Manmohan Singh. This is the second edition of the volume edited by Isher Judge Ahluwalia, chairperson of ICRIER and noted economist IMD Litte.

Rajan said the government should bring certainty about taxation to foreign investors and resist the temptation to levy new retrospective claims, in a clear reference to the retroactive amendment proposed in the Finance Bill 2012 to tax cross-border deals involving underlying Indian assets. ?If we think Mauritius and Singapore offer undue arbitrage opportunities ? and I think they do ? we should renegotiate those treaties with prospective effect. Yes, there will be one-time adverse effects, but so be it,? he said.

He also pointed to the ‘tremendous? uncertainty created by catch-all measures like GAAR, which give tax authorities unbridled power. ?We should focus instead on clearly delineating specific actions we want to prevent,? he said.

Recalling the transformation India made ever since economic reforms were kickstarted by Manmohan Singh in 1991, Rajan said the new post-License Raj equilibrium became the Resource Raj by ‘coalition adharma?, a coalition of the bad.

?We need a common minimum programme across all sensible political parties to ensure we stabilise the economy and foreign investor perceptions quickly,? Rajan said.

Speaking at the event, RBI governor D Subbarao said while various economic indicators now pointed to a situation similar to the economic implosion prior to 1991, there was less probability of such an implosion now as economy was more resilient with a robust regulatory set-up and a fast-growing services sector. He also said the the central bank remained committed to full float of the rupee but would follow a calibrated approach.