Reforms, the Only Solution

Cut the subsidy burden, go after economic reforms, and that is the only way forward. This was, to my mind, the big message that came from the Indian finance minister Pranab Mukherjee's Union Budget 2012-13 budget. Such measures are badly needed to take India to the next growth stage, or shall I say, to steer us away from the path of slowdown.

India's fiscal deficit has only been growing and is likely to exceed the target of 4.6% of GDP, primarily because oil subsidy bill got bigger, and sale of state assets was not very successful.

This government badly needs to bring down India's fiscal deficit, at a time when the economy seems to be slowing down and we could possibly be heading for another recession. And more than that this government must now take politically tough but economically wise decisions.

Without getting very specific, things like India's subsidy for oil which is now about 2.5% of GDP, or the various badly leaking schemes to generate rural employment, or for rural health, which are becoming a huge burden on the country. A huge price to pay to keep voters happy, though in reality it neither helps the people nor the government.

The Finance Minister wants to bring down oil subsidy to less than 2% of GDP. I think it is a courageous intent. Another good move was the announcement to try and sell `300 bn worth of PSU stakes in the next fiscal year. The debate will always remain if we should sell off stakes in good performing units or not, but I believe, that emotions apart, our state companies will greatly benefit from the induction of fresh funds, talent, and technology.

Similarly, the government's move to hike railway fares for the first time in 8 years is a very good decision. The message must go out to all-rich as well as poor-that this government's job is not to dole out cheap railway tickets, but to ensure that our trains are efficient and safe. The government must convey the message that with railways and railway station modernization there can be huge opportunities for all.

The time is right, the opportunities are there, but we have messed everything up, and seem to have got stuck in a quicksand. It is critical that this government talks sense. It is a different matter how this will translate into action because of the pull-and-push compulsions of Indian politics.

Remember, the Indian economy grew by over 8% last year. If our target is to grow from the current 6.9% to 7.6% next year, then fast reforms, and subsidy reduction is the only way. If Manmohan Singh and the Congress party believe that populist measures will get them support and votes, then the recent 2012 Assembly Elections should be a big eye-opener.