Bidding adieu to 2070

A year that saw animal spirits revive

As they retire their old account books and open those for the new year, stockbrokers and investors will remember Samvat 2070 with affection. The year, which began in fear and uncertainty, has ended on a happy note, with optimism and capital gains. Last Diwali, a little less than a year ago, India was in the middle of a crisis. Growth in gross domestic product fell in successive quarters. Inflation was in double-digits and seemed uncontrollable. The rupee had been pushed below 65 to the dollar. The fiscal deficit and the current account deficit were ballooning to unsustainable levels. There were fears of external default by companies. Credit rating agencies were threatening sovereign rating downgrades. Worst of all, the United Progressive Alliance government seemed to have lost all urgency to tackle the problems, mired as it was in scams and scandals.

However, faced with a crisis, the government did start hiking diesel prices in small doses. It also cut expenditure and placed import restrictions on gold. The central bank did its bit by taking innovative measures to boost foreign exchange reserves. The Reserve Bank of India also raised interest rates in a determined bid to tackle inflation. True, it would be stretching the truth to say that the economy has turned full-circle. It has not - there are major problems visible in many directions. However, both sentiment and numbers, particularly after the installation of the new government at the Centre, have improved substantially. The major stock market indices are up by 26 per cent from last Diwali. The rupee has strengthened and stabilised. Inflation is down. The current account deficit is below 2 per cent and the fiscal deficit has also been controlled.

Some of this is fortuitous in that lower crude oil prices in particular, and lower commodity prices in general, have helped reduce inflation and rectify the trade balance. The formation of the new government, led by a prime minister with a reputation for being business-friendly and efficient, has made a big positive difference to sentiment. Animal spirits have revived. The new government has a majority in the Lok Sabha; it is showing the will to push through some economic reform. There have been attempts to reduce red tape and accelerate processes related to clearances for infrastructure projects. This could help in the award of new projects, and the restarting of stalled projects. There have also been some attempts at easing the impact of restrictive labour laws. Diesel has been decontrolled. Legal hurdles in the way of commercial mining by the private sector have been removed. In short, there is a new momentum in the government for taking policy decisions and fixing problems in a wide range of areas.

But growth still seems to be a challenge. Public sector banks are struggling to contain restructured loans, and to provision for record levels of non-performing assets. The energy and power sector are not yet out of the woods. Land acquisition remains an expensive and time-consuming process and the law urgently requires review and amendment. The commercial environment is still not completely free from red tape and archaic policies that shackle enterprise. The government must tackle many of these issues, sooner rather than later. More broadly, it must also face the challenge of creating a million new jobs every month if it is to make a dent in unemployment rates and start cashing in on the oft-cited demographic dividend.

This is a daunting "to-do" list and only time will tell how many of these items the government can check off. It has not yet completed six months and it still has goodwill on its side. Better days should indeed come to pass in Samvat 2071, if those animal spirits can be harnessed.