The UPA government?s Report to the People released on June 1 chose to highlight the government?s proactive role in ensuring resilience of the India growth story through a period of severe global crisis. The economy registered a growth of 6.5% in 2008-09 and then grew at 7.4% in 2009-10. Among the major economies of the world, only China has grown faster. Of course, the government can take some credit for the resilience even if what turned out to be the most important fiscal stimulus measures?pay commission, loan waiver and NREG?were implemented well before the crisis actually broke. But now, in June 2010, the Indian economy ought to be aiming at double-digit growth, and not simply resting on the laurels of resilience. The global environment is, however, still bleak with the crisis still raging in Europe. The jump in growth must, therefore, come from domestic policy changes. On this count, UPA-2 has done little in its first year in office.
Important financial sector reform Bills, on insurance, banking and pensions, are still languishing, carried over from the government?s last term in office. It is simply wrong to suggest that India can do without financial reform, because that?s what landed the West in a crisis. Indian finance is too underdeveloped to even be compared with the West. And the fact is that a fast-growing economy needs access to cheap finance, something our moribund financial system simply doesn?t provide. But the government has shown little inclination to push any reform in this sector. The government doesn?t even seem willing to undertake structural reform that is required to rein in bouts of high food inflation. There is little movement on opening retail to FDI participation, and hardly any thinking on ways to ease other supply-side constraints in agriculture production and marketing. The other big challenge for UPA-2 was to pass a new law on land acquisition and rehabilitation and resettlement. But pressure from Mamata Banerjee has put this reformist legislation into cold storage. That is hardly encouraging news for the many investors who want to set up new factories. It is also bad news for the industrialisation process in general, which needs to be speeded up to achieve double-digit growth. All these bottlenecks will begin to act as real constraints on growth very soon. It simply isn?t enough for the UPA to rest on the laurels of a time that has now passed.
