What is the special bond between the UPA and Europe? Over the past two years especially, the policy has been framed and implemented in a manner designed to improve the competitive position of the European Union (EU), and throttle any Indian challenge to their current primacy in international markets.
When it became clear that major Indian corporates were attempting to take over companies in Europe, a Competition Act was passed last year that placed severe curbs on the business flexibility needed to effect foreign takeovers. Under the new Act, which is a throwback to the business-stifling Industrial Development & Regulation Act of the 1960s, the Indian corporates will need to pass through layers of Governmental oversight and control to make bids, thus dooming the majority to failure.
The European companies can now breathe easier, for the (misnamed) Competition Act can destroy the ability of the Indian corporates to snap up foreign companies, rather than the depressingly familiar story of alien companies gobbling up Indian ones. The latest threat has come to Rajya Sabha MP and industrialist Vijay Mallaya's United Breweries, which is facing the threat of a takeover by a foreign beer manufacturer. In times past, the Indian managers of ITC fought back against efforts by Imperial Tobacco to control the company. Today, they would not have had a chance in the Europe-favouring environment within the UPA.
While the other slant, which panders to China's interest, is explainable in terms of the leverage that the China-friendly CPI and CPM have over the Manmohan Singh Government, the reasons for an even more severe tilt to European interests is less clear. The public are still clueless as to who is the EU's hidden patron within the UPA.
Using the excuse of fighting inflation, a transparent untruth, the various organs of Government have systematically sought to snuff out growth within the Indian economy. Rather than boost the "Narasimha Rao" rate of growth (of 9%) to a fresh level of 15%, the UPA is likely to hand over to its successor an economy that may reduce its growth rate to 6%,and be on course to return to the "Nehru" rate of growth of 3%.
A primary reason has been the increase in the bank interest rates. From around 12% during 1999, the NDA was able to bring it down to 7% by 2004, but four years later, it has gone back to 12%. This has saddled the Indian entrepreneur with higher costs, which push up domestic inflation while reducing international competitiveness. Small wonder that the UPA's period in power has witnessed a huge increase in the trade deficit and a deceleration of key exports, such as textiles. The higher interest rates as well as the rise in the value of the rupee (caused by the Reserve Bank of India policy) are helping to demolish one of the largest employers of labour and sources of foreign exchange in India, the textiles sector.
The Finance Minister P Chidambaram is no longer popular in Tiruppur or Coimbatore, as he will find out during the next Lok Sabha polls. The reason for this is his support to the policies that are killing the competitive advantage of the Indian textile industry enjoyed from 2001-2005.
Besides, he has stood by as the SEBI, RBI and other agencies viciously shackle the Indian entrepreneurs, thus giving an advantage to their foreign competitors. Both China and the EU have benefitted substantially from the policy of restrictions on market investment and higher interest rates implemented by the SEBI and RBI.
The Congress Party has two alternative economic models before it. The Nehru model saw India as a juvenile, needing guidance and control the way the colonial Administration acted. Thus, the myriad restrictive and rights-destroying laws and procedures that were enforced during the British Raj largely remained during the Nehru era, only getting (partially) dismantled from 1991 onwards, when P V Narasimha Rao sought to free citizens of India from the fetters placed on them by a colonial-style Administration.
Despite their political weaknesses and missteps, this process of reform was continued till 2004, when the "reformer" Manmohan Singh took office. Since then, the citizen has once again been seen as a child or a criminal. Whether it is the Income-tax department or other wings of the Government, the UPA's Government's approach has been to bring back the arbitrary and harsh methods of the earlier period of statistic control, despite lip service to public interest and economic reform. As the RBI Governor Reddy knows well, it is the profligacy of the UPA Government that is putting the risk of inflation into the economy. As much as Rs 12,000 crores has been deployed for the National Rural Employment Guarantee Scheme and experts estimate that as much as 97% of this is squandered in ways that line the pockets of the corrupt politicians and officials without benefit to the poor.
This year, such elements will get a windfall, for the outlay on NREG is expected to cross Rs 40,0000 crores. The odds are very high that the Government will fail the fiscal responsibility standards mandated by law in the FBRM, with a subsidy outgo of over Rs 20,000 crores on PSUs and more than Rs 100,000 crores on fuel, fertiliser and food subsidies.
As both Manmohan Singh and Chidambaram know, the bulk of this goes into dirty pockets. And as for India competing with China in developing SEZs, that avenue is being choked, together with other restrictions on the Indian corporate sector. After nearly four years of a policy that favours the interests of the EU and China over that of India, will the UPA succeed in killing the India Growth story?
MD Nalapat, INFA
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