Forget reforms or passing Bills, you need to coordinate the functioning of 5 critical ministries
The reform momentum generated by a slew of measures to contain the fiscal deficit and liberalise FDI in multi-brand retail, insurance and aviation has waned and the market is thirsting for more measures to revive the investment climate. There is apprehension that, following these measures taken in September, the government has reverted to the ‘pause’ mode. The problem of ensuring adequate coal production to generate power in a sustainable manner remains and there are no measures in place to ease the bottlenecks for transporting coal from the pitheads and ports to the power plants. Land acquisition issues continue to be debated. Railways are yet to unshackle themselves from the political bandwagon they have been on for several years. The environment ministry does not seem to see any urgency in correcting the policy reversal it has generously indulged in. The impact of these measures has been to steadily erode the health of the financial system and, with the ever-greening of loans, the magnitude of NPAs threatens to destabilise the financial system.
In the meantime, worries about the twin deficits have only further deepened. Current account deficits have continued to widen due to continued sluggishness in exports arising from poor global recovery and continued increase in oil imports. Even as the finance minister has put out a revised fiscal adjustment plan, there are questions about the feasibility of adhering to the revised target of 5.3% of GDP due to the possibility of significant shortfall in revenue collections. The growth of direct taxes so far at a little over 7% over the actual collections last year falls well short of the 19.5% estimated in the budget over the revised estimates. In the case of indirect taxes, the growth up to October at about 17.5% has been impressive and though it is short of the 22% estimated in the budget, it may catch up in the coming months mainly due to the expansion in the base of the service tax.
On the non-tax revenues, with additional disinvestment planned in companies like NTPC, it may be possible to achieve the target of R30,000 crore for the year though the proceeds from auctioning the airwaves will only be a fraction of the budget estimate of R40,000 crore. It is not clear why the government is shying away from divesting in a number of companies