Govt weakest link in India's economic rise: CLSA

The government is under attack again for its handling of issues such as inflation, corruption scandals and other economic worries. Financial services firm CLSA has come out with open criticism against the government as well as the banking regulator of the country. It said the government is the weakest link in India's economic rise.

“On a bad day, one often wonders how it (India) functions at all, let alone how it evolved to be Asia’s second-fastest growing economy,” CLSA Asia Pacific Markets said in its report ‘Different track: India’s Unique Rise’.

Further, it voices the major political controversy that the country has a selected and not popularly elected prime minister. “India has no effective visionary reformist-politician who can ably negotiate political consensus on reforms. PM Manmohan Singh, who is in office but does not seem to be in power, is an accidental reformer at best,” the report said. Terming the persistently high inflation in the country as a “multi-headed dragon”, the report puts the blame on government policy. The higher minimum support prices (MSPs) and higher spending on social programmes like MGNREGA have been termed as reasons for higher spending capacity of rural India that has resulted in greater consumerism.

This, the report says, while emphasising on the claim that interest rates alone cannot fix India’s inflation.

The Reserve Bank of India also came in the criticism sweep. The RBI failed to give proper forecast of inflation in the country. Moreover, it terms the RBI’s choice of Wholesale Price Index (WPI) for setting interest rate policy as “idiosyncratic”.

“Almost all other central banks use the consumer price index for deciding and communicating their monetary policy stance,” it says mentioning that India does not have a Producer Price Index.

However, the report praises the recent National Manufacturing Policy. “The government seems to have finally waken up to the multi-pronged importance of the manufacturing sector, and the renewed emphasis is an important initiative,” it says.