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Cotton wool

12 Mar 2012 By Jeff Glekin

Any Indian driver will tell you being ready to change direction is essential. U-turns may help on India’s chaotic roads, but they’re a menace in driving the economy. After years of policy flip-flops and broken promises, the biggest surprise the Indian government could now spring would be consistency.

Consider exports of Indian cotton. They were banned on March 5, but the National Congress Party, a member of the ruling coalition, was unhappy. Less than a week later, it seemed the ban was to be lifted. Hooray, common sense looked to have prevailed. Oops. A further clarification issued on March 12 suggests the ban may remain.

The cotton saga is reminiscent of the about-face over foreign direct investment in retail last December. Then the government’s initial plan was reasonable, offering more competition in an inefficient sector. But a threat from a different coalition partner, West Bengal-based Trinamool, scuppered it.

The Congress Party’s government may lack conviction. Or perhaps it’s just too weak and divided to follow through on its promises. On top of retail and cotton, there’s a huge list of pending initiatives which have been promised but have not yet materialised: the reining in of fuel subsides, a more efficient tax system, lifting FDI caps in insurance and banking and land and mining reforms.

Investors have come to expect weak decision making. With only two years left until the next general election the Congress party has its work cut out to revive the economy and its own electoral prospects.

But big ticket reforms and initiatives look beyond the political savvy of the current leadership. Instead of making promises it can’t deliver, the government could get to work on the nuts and bolts of doing business in India – reducing the time it takes to set up a business (and to wind one down), slashing the number of forms, permits and licences needed for SMEs.

A bonfire of the regulations which pointlessly slow down the Indian economy would bring substantial productivity gains at a low political cost to the government. Another bonus: the market’s expectations are so low that any positive actions would receive a disproportionately warm welcome.


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