Undoing the damage

No one expects the good reforms to come through,just avoid the bad and the ugly

The stock market is by far the best aggregator of news,good and bad. Expectations were running high on Dalal Street that the Union Budget 2012-13 would help clear the web of uncertainties surrounding Indias economy. All eyes were on Finance Minister Pranab Mukherjee to revive business sentiments and kick-start the economy that was slowing down to sub-7 per cent growth levels. But he ended up further straining the nerves of India Inc by proposing new elements such as the General Anti Avoidance Rules and a plethora of other amendments to tax laws. The between-the-lines interpretation of the proposed changes spooked the markets. The Sensex lost 1,382.87 points or 7.8 per cent since Mukherjee presented the budget on March 16. And the underlying trend gives no reason for cheer anytime soon. Replying to the Lok Sabha debate last week,the finance minister did roll back some of the proposed amendments and also deferred the implementation of GAAR by a year. But the damage had been done.

In fact,the fund flows into India during the calendar year 2012 pre- and post-budget present an interesting nugget of information for Mukherjee. Foreign institutional investors pumped Rs 42,879 crore into the Indian markets between January 1 and March 15. Since then,FII inflows have reduced to a trickle. After March 16,the total FII inflows have been a paltry Rs 1,217 crore.

A regressive budget and poor governance have taken the sheen off the India story. To top it all,the government has started diluting key reform proposals,including those on banking and insurance. This has accentuated the manifest downturn. The index of industrial production for March contracted by 3.5 per cent,largely due to a 4.4 per cent deceleration in manufacturing. The fear of the GDP growing slower than the earlier estimate of 6.9 per cent in 2011-12 looks real now. The 1991 crisis forced India to undertake a blitzkrieg of reforms. Todays crisis can be resolved by avoiding retrograde moves and showing humility in consensus-building for reforms.