The Reform Controversy

First thing first, I applaud the PM for coming out on national television in support of his policies and clarifying them to the public. In my memory he is the first one to do so breaking the long line of PM's who have found it suitable to address the nation on television only on republic days. This is in spite of the fact that he is not a very good speaker and we have had some very eminent speakers in past as PM. This may be a political rhetoric but, I hope it starts a good tradition of communicating with the public through the most mass form of mass media on policy issues.

Now to the questions that have been focus of all debates in the country for past one week- the reforms. The question is are they too little, too late, why did the govt. rush for them in two days, are they going to hurt aam aadmi and so on so forth. 

Are the Reforms Too little- Too Late:

They definitely are too late but, better late than never. Indian economy has been slowing down for past 3-4 quarters. Fundamentals like fiscal deficit, current account deficit have been weaker for many years now. A no. of policy logjams and red tape has kept contribution of industries in GDP stagnant when they should be growing to take over the space agriculture is vacating so that they could shoulder agriculture's responsibility of employment generation. So, what have been done now should definitely have been done earlier. However, politics has its own compulsions and keeping aside populism is a tough call resorted to only when stakes are as high as make or break situation. This definitely is one such situation.

Now the question, if they are too little. Compared to the restructuring Indian economy requires the reforms definitely are minuscule but, lets hope they are just the beginning. As is being anticipated, reforms in pension scheme, FDI in insurance, land reforms bill are all round the corner. With the ever 'NO' saying 'Didi' out of picture the hopes are that govt. will push for more reforms as presently political logic says that for a change economics is the one dictating it. Govt. can escape fire only if it puts economy back on track before next general elections which at present seem to be held on their scheduled  time in 2014 only.

Why the Rush:

The way govt. introduced these reforms in a span of two days put the question: what target as the govt. chasing with these reforms. Although the reforms are too late but, for the time being the timing couldn't have been apt. Rupee depreciation was a major issue hurting India. Both our exports and imports are inelastic which means while depreciation raises our import bill it doesn't boost our exports much. Hence, it is adding to our current account deficit. With QE3 announce in US few days back and ECB ready to make unlimited bond purchases to help Euro Zone liquidity is ample in international market. This is the time when revived investor confidence can do wonders. Govt. just took a small step in reforms front and the Rupee strengthening is seeming round the corner with sensex already soaring high. 

Apart from this we were staring a sure downgrade in sovereign rating which would have meant further exit of FIIs from India not only because they would have turned bearish but because their domestic regulations would have mandated this. This would have led to further depreciation and a much larger current account deficit. So, this rush is just an attempt to avert a crisis that would have followed. 

Are They Going to Hurt Aam Admi:

It definitely hurt when you taken out of your comfort zone even if you can afford it. Most of Indian middle class can afford to buy its own cylinders and I doubt that Indian poor even use LPG forget about 6 LPG a year. Apart from this, diesel price hike of Rs.5 will definitely fuel some inflation in short run but, if this means shrinking fiscal deficit then in the medium run it can be one factor actually curbing inflation. Although there is a big doubt in it because the subsidy oil subsidy bill will still be around Rs. 160,000 crore. FDI in aviation is not much of common man's concerns although if it improves the industry and creates job it will definitely help common man. FDI in retail, the magical policy that has been stealing the show as if it is a magical wand that will make all Indian problems disappear ( the pro view) or make all Indian kiranawalas disappear (the con view). The logic says it will do none of the above. It definitely is one of the steps that will help infrastructure creation in Indian agriculture but, it will take time to bear fruit. On the other hand since approvals will be made on case to case basis and that too only big cities are eligible makes sure Kiranawalas will stay. Anyways Kiranawalas are the ones knowing to do business the Indian way and they are here to stay. So, their disappearance is an equally distant dream. So, apart from diesel price hike that will be a definite hurt but, seems a bitter pill that needs to be taken the reforms are not going to be much hurtful.

The Verdict

Since the govt. seems pretty comfortable with its majority intact the popular verdict will be out in 2014 only. However, till then it is a definite thumbs up to the govt. from economic point of view with a hope that they continue.The Indian economy needs a lot more than piecemeal reforms to grow at a rate that will actually pull out its masses from abject poverty.