Reforms must not remain top-driven

Written by Sushim Banerjee | Sushim Banerjee | Updated: Jan 30 2013, 08:29am hrs
Last week we had discussed that a lack of faith by global analysts on the ability of India to continue with economic reforms is responsible for regular downward forecasts on the economy.

In its latest assessment of global economic outlook, the IMF highlights supply bottlenecks and policy uncertainty in India to cause a downgradation of GDP growth by 0.1% to 5.9% in 2013.

The IMF has put Indias GDP growth at only 4.5% in 2012. The country has grown by 5.3% in Q1 (Jan-March12), 5.5% in Q2 (April-Jan) and 5.3% in Q3 (July-Sept) which means a 2.9% growth in Q4 (Oct-Dec). This can be ruled out.

While the next Budget would be eagerly watched for a host of small but effective reform measures and a roadmap for 2014, the country needs to strategise in a number of areas.

A latest report in Economist indicates that outsourcing in the manufacturing and service sectors adopted by advanced countries due to cheap wage costs in India that has contributed to growth of these sectors in the last few years, has since been replaced by reshoring.

Fresh assignments are being given to the existing units located in the US or to the new units set up there, resulting in creation of jobs and earning opportunities in the country as wage differentials between the two countries in specific jobs are substantially reduced. No wonder, our IT and a part of manufacturing sectors are hard hit.

At a time when all countries are too conscious to preserve the precious natural resources, a section of our people laments over reduced export volume of iron ore meant to feed the steel units in China. Now that facilities are gradually being created to utilise fines and low grade iron ore by beneficiation, export must get low priority. Rather, all steps must be adopted to cater to the requirements of the domestic steel and DRI producers.

In matters of preservation of natural resources, Chinese strategies are to be keenly watched. During 2012, China imported 743.6 million tonne of iron ore, while its domestic production of iron ore concentrates were of the order of 1309.6 million tonne.

With grades of iron ore as low as 20-30% Fe, China has gone for large scale beneficiation facilities to convert its indigenous production of iron ore suitable for blast furnaces and has not tried the easy option of exports.

China imported 53.5 million tonne of coking coal supplementing its domestic production and restricting exports to only 9.1 million tonne. It has also cut back its coke exports, limited to 1.0 million tonne only in 2012. Chinese exports of 55.6 million tonne of steel in 2012 primarily comprised of 11.8 million tonne of bars and rods, 26.7 million tonne of flat products and 9.6 million tonne of pipe products.

Chinese imports of 13.6 million tonne consisted of 11.6 million tonne of flats where it has little domestic availability.

The need for reforms must impact the mindset which has to be made ready to face the challenges. If it remains only top-driven, the implementation becomes hazardous and risks appear insurmountable.