Manufactured slump

The third-quarter GDP data,coming as it does just a fortnight before the budget for 2012-13,puts the burden of reviving sentiments on Finance Minister Pranab Mukherjee. It will also prompt the Reserve Bank of India to reconsider corporate Indias demands to cut interest rates besides easing the liquidity situation by lowering the cash reserve ratio the quantum of deposits banks have to keep with the RBI. RBI Governor D. Subbarao has buttressed the point that rate cuts can happen only after the government commits itself to serious fiscal discipline in the budget for next year. The governments finances have slipped significantly over the last three years despite the windfall from 3G spectrum auctions. But instead of consolidating the gains,the government has frittered them away by not pushing through other reform measures such as a time-bound phasing out of petroleum subsidy or increasing urea prices. Such profligacy has brought India close to the economic mess it had landed itself in two decades back in 1990-91,when it was forced to write a new chapter in economically engaging with the world.

While it is logically expected that Mukherjee will bite the bullet on fiscal reforms on March 16,what is worrying India watchers is the outcome of the Uttar Pradesh elections that will be known 10 days before the budget. Who takes charge in Lucknow should not decide whether the government in New Delhi moves forward on reforms or stays in the current mode of drift. It must set the ball rolling on the fiscal front to bring back private investment that continues to languish. Otherwise,it might be difficult to salvage investor confidence.