Policy paralysis not over yet

Criticism may have pushed the govt out of its lethargy, but the list of Bills is rather long.

Ever since the government has been hit by a spate of scams late last year, key ministries and government functionaries have been busy spending time with foreign investors and research houses to convey all is well. In fact, top-notch bureaucrats routinely convey the government’s progress on most policy issues to FIIs.

It’s almost as if the foreign investors are playing a game of brinkmanship with the government, forcing the establishment to act on key policy issues. It has evoked the desired response from the government, as one report by a foreign brokerage firm says sharp criticism seems to have shaken the government out of its lethargy. While FIIs are excited by the government’s decision on fuel prices, it is widely believed they consider the draft bills for mining and food security to be rather populist in nature.

The shift of Jairam Ramesh from the ministry of environment to the rural development ministry has been termed the only “significant” change. Macquarie Equities Research, in a note, says: “His strict actions as the environment minister had almost brought the whole investment cycle to a standstill; we would be interested to see what he has to offer in his new role.”

However, the pile of pending decisions has built up over the past few years due to the government’s inaction and various disruptions, including corruption charges and a political overhang from an unyielding opposition. This is well reflected in the number of bills pending in Parliament. They have built up particularly under the UPA government’s rule. Of the approximately 80 bills pending, three-quarters have built up over the past two years alone, says Macquarie.

Considering the government is spending much time reassuring foreign investors, it should note that while the implementation of GST seems unlikely by 2012, this one tops the wishlist of most investors. Land acquisition is another issue that has come to be a major hurdle for the progress of many infrastructure activities.

The government’s inability to bring about any changes to the current law, governed by the Land Acquisition Act, 1894, is a big negative. Financial sector reforms (on banking, insurance and pension) and the direct tax code (missed its deadline in April 2011) are some of the other key reforms the government should act on fast, if it wants the world to stay interested in India.