UPA-II, after its initial triumphalism, was overtaken by complacency and it has paid heavily for the attendant lack of efficacy of governance, and more particularly for its cynical disregard of the inflationary grip on the economy, which is now total. To the extent this critical issue of price rise affecting the daily lives of the people of India has been repeatedly ignored over the last two and a half years without tangible actions upfront, the Government can only deserve condemnation.

The policy-makers with prized economists at the top have been far removed from ground realities and they merely peddled price index data, drawing all wrong inferences mostly, without realising the severe hardship for millions of consumers struggling to cope with unaffordable prices of food and other basic products as well as manufactured articles with producers passing all costs on to them. (They are outside the charmed circle of corporate sector doling out bigger compensation for rise in cost of living and the ten million government babus who get their indexed DA revisions).

But for the Reserve Bank of India tightening monetary policy with limited effect on the demand-supply mismatches, Government has drawn blank on inflation front. RBI has repeatedly referred to the structural character of food price inflation, suggesting a de novo approach to agriculture, but for New Delhi, it is something to be tackled, if at all, “over the medium or long term”.

The architect of modern India, Mr Jawaharlal Nehru said anything can wait but not agriculture. In the era of economic liberalization, agriculture was left behind and all that has been done is to make available increased rural credit and to offer higher minimum support prices of cereals, pulses and oilseeds every year. This would have no doubt increased farmers’ incomes and served a political purpose but no sustained efforts had been made over the UPA years (2004-11) for increased investments and securing higher productivity and improved post-harvest management facilities.

The Second Green Revolution envisioned more than six years ago remains on paper. Government also seems to have put in cold storage the series of reports on agriculture and farmers presented by eminent agricultural scientist Dr M S Swaminathan in 2006. Undoubtedly, food price inflation on double digit since 2008-09, accentuated by monsoon shortfall in the following year, played havoc with the economy. India’s elevated inflation evoking international concerns would get worse with the new oil price shocks in the wake of the Middle East turmoils and might pose risks to both growth and the planned deficit reduction.

The Prime Minister contends that measures in the 2011-12 Budget would “sustain growth while reducing inflationary pressures”. Apparently, he and the Finance Minister Mr Pranab Mukherjee expect the thrust on fiscal consolidation and the intended moderation in growth in expenditure in the new fiscal year would help to ease inflation and create space for revival of private sector investment to achieve the targeted 9 per cent growth. Faced with mounting criticism of Government’s economic policies, the Prime Minister may justifiably feel that the “marvel” of India’s resilience through the global crisis and rapid growth earning international appreciation is not given its due at home .

Unfortunately, unsavoury developments of the last six months in India have caused a dramatic shift in investor perceptions abroad with Government management drawing flak from all leading newspapers and journals. The steep fall in foreign direct investment in 2010-11 is one pointer of some disenchantment with India as investment destination. There is skepticism whether India could attract the needed investment with its worsening inflation outlook and the rise in the cost of capital.

In the unenviable circumstances, it is understandable for UPA-II to fall back upon the “astonishing” economic accomplishments of the post-liberalisation era, launched by the Prime Minister himself in 1991. In a celebratory refrain in two recent speeches, Prime Minister Manmohan Singh said he had his finger on “the pulse of India today” and hinted at “a new wave of reform” to make the economy more competitive, help diversify manufacture and create jobs. “We will grasp the nettle once again in the summer of 2011”, he has said. He also understands the “impatience and irreverence” of youth whose energies he wants to be channeled into constructive actions.

Be that as it may, the Prime Minister and the Finance Minister should not be grudged the credit in putting through the boisterous session, along with completing all stages of the budget consideration, a few pieces of legislation on way to reforms in the financial sector. The Constitution (115th) Amendment Bill to facilitate the Centre and States move in tandem to usher in a nation-wide Goods and Services Tax was introduced with provisions ceding more power to states such as in the matter of taxing Services so as to secure the necessary two-thirds majority for its passage in the monsoon session of Parliament. With Centre-State divergences over certain aspects of the bill narrowed, Mr Mukherjee hopes that all states, including BJP-ruled, would support the legislation so that this major reform could be ushered in during 2012-13, along with the Direct Tax Code at the Centre.

The long-delayed measures on financial sector are now expected to be enacted during the new fiscal year through consensus-building with the opposition (BJP). These include the Banking Laws Amendment, the Insurance Bill and the Pension Fund Regulatory and Development Authority bills which would incidentally open these sectors for greater foreign participation, the levels of which are yet to be determined. These along with further liberalization under consideration in FDI form part of the Government’s reform agenda which would send strong signals of Government’s commitment in opening up the economy to attract larger and durable foreign investment flows.

The raising of ceiling for foreign investments in infrastructure bonds to 40 per cent, expected to be made operational in the coming months, the guidelines being finalized for opening of banks in the private sector, and a new policy statement on Manufacture which, according to globe-trotting Commerce and Industry Minister Mr Anand Sharma will make India “the workshop of the world in new technologies” will all be part of the reform agenda of Government.

Mr Mukherjee’s budget announcement of introducing a cash transfer system in lieu of subsidies for fertilisers and kerosene is designed to better target beneficiaries and reduce non-food subsidy outgo. Given India’s imports of 80 per cent of its oil requirements, the international crude oil prices already in the range of 100-110 dollars a barrel and the inevitable revision of domestic retail prices of petroleum products could undo Mr Mukherjee’s tight fiscal arithmetic. (IPA Service)