On June 27, 2012, when Prime Minister, Manmohan Singhfamously told his officials to “revive the animal spirit”, the economy was downin the dumps. It was no longer one of the world’s fastest growing economies.GDP growth had slipped to below 6 percent, rupee had slid considerably, foreignand domestic investment had dried up, industrial production had hit rockbottom, international rating agencies had threatened to downgrade the economyto “junk” status, fiscal deficit was high and so was inflation.
Singh took a series of steps thereafter. The first was tobring back P Chidambaram as the finance minister (Pranab Mukherjee had resignedto contest the presidential election). Drastic changes followed: diesel pricewas hiked by Rs 5 per litre; the number of subsidised LPG cylinders was cappedat a yearly six (which was to be raised to nine) and FDI for civil aviation,multi-brand retail and broadcast sectors cleared despite internal and externalpressures.
Next came the decision to put on hold Pranab Mukherjee’sgeneral anti-avoidance rules (GAAR) that threatened to tax Vodafone for itsacquisition of Hutchison. GAAR was amended to make way for “non-adversarial taxadministration”, though not operationalised. PSUs were threatened to investsurplus fund with them (to the tune of Rs 2.5 lakh crore) or “lose it”;disinvestment of Hindustan Copper, Nalco, MMTC, NMDC was approved; a nationalinvestment board (NIB) was proposed to clear mega-infrastructure projects(though later settled for the conventional cabinet committee); the Rajiv Gandhiequity savings scheme was launched to give tax concessions to first-timeinvestors to revive mutual funds and finally, the big game-changer: handing outcash for subsidised food, fertiliser, oil and other welfare programmes likepensions, scholarships etc from January 1, 2014.
Many of these moves are yet to kick in, and hence bring thedesired results. Many more crucial ones are pending too: reforms in pension,insurance, banking sectors; land reforms and direct tax code and goods andservices tax regime. Inflation and bank rates continues to be high, affectinginvestment. Nevertheless, by the yearend, there were indications that theeconomic downturn might have bottomed out. Business and market sentiments wereup, and for the first time in a long time, the industrial growth (for October)had touched 8 percent. The PM may not have risen to expectations but he hadsurely managed to “reverse the climate of pessimism” he had set out to on thatday.
in association with Governance Now
