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On May 22 the United Progressive Alliance (UPA) government completed one year in power. It is pertinent to take stock of what it has achieved in relation to the public's expectations of it and examine some of the challenges ahead. The economy, although growing fast by international standards, is not growing fast enough for India's needs. Prime Minister Manmohan Singh said in April that the economy would not reach 7% average growth for the remainder of the Tenth Five Year Plan (2002-07) as established by the Planning Commission - a government body that sets out long-term growth strategies and plans. The Planning Commission says growth needs to become sustainable at around 7% in order to absorb the annual increase of new entrants into the country's labour force. Singh thus undermined his own Congress Party-led government's chances of reaching the average growth target that it set after coming to power last year. The government now expects growth to slow to 6.9% in 2004-05, though the Asian Development Bank has estimated that it will slip to 6.5% and will slow further to 6.1% in 2006-07. The current slowdown in the business cycle and, since the end of last year, sustained high levels of inflation have also hampered efforts to raise the rate of investment - particularly in agriculture and infrastructure. Thus February data on the Index of Industrial Production show a marked deceleration in growth, while the infrastructural index experienced a year-on-year decline.
In the area of privatization no radical new initiatives have been planned. In Finance Minister P Chidambaram's budget speech, any plans for privatization during 2005-06 were conspicuous by their absence. The omission suggests that political pressures continue to constrain the government's reform plans.
Furthermore, the government has been able to achieve only four targets envisaged in the Common Minimum Program (CMP), which formed the basis for the outside support of the Communist Parties to the UPA government. The long list of targets not achieved includes the following. (i) A primary education fund has not yet been established although a two per cent cess on income tax meant to finance it was imposed in UPA's first budget (2004-05). (ii) A bill to reserve 1/3 of the seats in Parliament and state assemblies for women has not yet been presented to Parliament. (iii) The deadline for the introduction of the Lok Pal Bill to combat corruption has passed. (iv) The much-flaunted Employment Guarantee Act has not been presented to Parliament. (v) Similarly, the government has not been able to introduce promised legislation on agricultural workers, and the Tribal Land Rights Bill.
As a consequence the Communist Parties have become publicly critical of the government's performance. They have also been critical of government's pro-reform moves such as increasing the FDI component in Indian banks. Consequently one would expect a slowdown of the economic reforms process as more attention is paid to the social component of the CMP during 2005-06.
WATCHPOINT: The Congress led government will be under pressure to meet its CMP commitments before crucial state elections in two states where it will be contesting in 2006 against the Communists, West Bengal and Kerala, and in Tamilnadu.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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