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BW Businessworld

A Letter To The PM

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Dear Prime Minister, when your party won 206 Lok Sabha seats in May 2009, allowing the United Progressive Alliance (UPA) to form the government with 262 seats, you were asked by Sonia Gandhi to lead India yet again as its prime minister. It was a good time to lead. The Left was decimated in the Lok Sabha. The Congress had the upper hand with its key allies, the Trinamool Congress and the DMK. People believed that after five years of doing little, often stymied by the Left, you and your cabinet would get reforms back on track. Not only the stuff that pleased corporate India, but also in physical infrastructure, social and financial sector reforms and better governance practices for higher inclusive growth.

I, too, thought exactly the same. Therefore, it is deeply regretful for me to write that after two years and seven months, you and your government have failed on most counts. We see your senior cabinet colleagues scrapping across Raisina Hill; one nasty bit of corruption after the other tumbling out; and an increasingly self-important village organiser from Maharashtra behaving as if he is the nation's ultimate anti-corruption messiah and your party bending to accommodate his whims — to little avail. We see no application of mind in either executive decisions or law making. There is no effort within the cabinet to collectively push for reforms and get back to higher growth.

There is not an iota of bipartisanship in law-making. There is not even coordination with your key allies. The executive is comatose. The legislative is non-performing. The judiciary is over-reaching like never before. There is a pervasive sense of a government that — having lost its ability to administer and deliver — is marking time. We see you as a tired prime minister harping on personal honesty, and chastising businessmen who dared to criticise your government for policy inaction.

Let me list a few gross failures in 2011. Consider the proposal to permit 51 per cent FDI in multi-brand retail. Given the opposition's antipathy to UPA-2, the timing was absurd — coinciding with the winter session of Parliament.
Inexplicably, your team did not seek the views of Trinamool and the DMK, and so suffered the ignominy of being publicly castigated by allies. There were serious divisions even within your party. Sensing the disarray, the BJP chose to bare its fangs despite having once endorsed 100 per cent FDI in retail. The Parliament effectively shut down. Your government capitulated in 13 days — a perfect case of loading a double-barrelled shotgun to shoot one's feet off.

Now, to the depreciation of the rupee against the US dollar. On 28 July, the dollar was ruling at Rs 44.05 and all was well. Then the crash began. By 29 December, it had changed 20.3 per cent to Rs 53.01 — as if India was struck by a fatal disease.

Please don't say that the RBI is an independent body like the US Federal Reserve. It is not. Your finance minister and you have considerable de facto say. Yet, thanks to the influence of a grey eminence who once tried to shore the rupee and lost some $3 billion in the process, the RBI was hands off. Two deputy governors aided the process — one stating that exchange rates may not be defensible, and another saying, "If the country has high fiscal deficit and high inflation… and high current account deficit, I don't see why the currency will not depreciate". Would anyone in the People's Bank of China have made such a statement? No. Even if it had only $305 billion as reserves.

The depreciation will severely hurt the exchequer due to a burgeoning crude oil and fertiliser bill. My estimate is that the Centre's fiscal deficit for 2011-12 will be between 6 and 6.2 per cent of the GDP, versus the budget estimate of 4.6 per cent. In three years, your government has meticulously shattered all notions of fiscal probity. And it will get worse as your party insists on spending its way to the next general election.

Finally, the Lokpal Bill. If your party was serious about it, you and your cabinet colleagues ought to have sincerely reached across to your allies and at least the BJP. Clearly, you did not — not even to Mamata Banerjee. And if you were not convinced, you need not have bent the way you did to pacify Anna Hazare, who only wants things his way. What happened in Parliament was a disgrace. The opposition did not cover itself with glory. But neither you nor your colleagues knew how to pilot this contentious legislation. Although axiomatically 2012 must be better than 2011, your government can always snatch defeat from the jaws of victory. How we have blown it! But then, you are an incorruptible man.

The author is chairman of CERG Advisory. omkar(dot)goswami(at)cergindia(dot)com

(This story was published in Businessworld Issue Dated 16-01-2012)