Wednesday, November 30, 2011

Fragility of Reluctant Reform

Dichotomy of reform and progressivism represents the India’s policy maneuvering since 1991. Long way back, then Indian sensed a “déjà vu” to move for a “remodeled tryst with destiny” which was essentially bounded to delinking Nehruvian ties and ushering herself into a new world of unrestricted and aligned competency. Its first major impact on macro economy was felt in terms of multipolar evolution of economic interests…no longer, prioritization of national economy remained a trend. The inbound competency that came with the reluctant liberalisation programme didn’t create niche for the healthy operation of government, public and private sectors. Instead it given leeway for mushrooming of “clicks supremacy “and forced a “Democratic, Secular, Socialist” state as hub of crony capitalism. Underneath the swift processing of forward capitalist agenda, India produced the record numbers of billionaires {both in rupees and dollar terms} and worst positional status in Human Development Index {HDI}, which is ofcourse any longer averses a thinking mind to be in good humour!

The second big casualty after the misplaced wave of reform is the, state of reform? Until few years back, India’s regulatory institutions with their cautions approaches were doing great services by maintaining normalcy in business. Its effects led India to avoid the bubble burst like scenario during the peak of traumatic recession and when banks were falling on Wall Street, our Mint Street was still keeping jubilant mood. Alas, same friendly atmosphere is no longer persists now…RBI, which holds the pulses of Indian economy seemingly losing its earlier touch in market intervention and taking forward the growth of Indian financial sector.

In last few quarters, RBI has failed to control the spiraling inflation and its policy responses as interest hikes leaving extra adverseness on the anticipated growth agenda. Here, contradiction between market sentiment which is naturally consumerist now and policy stances are looming large and enforcing uncertainty. Sidelining the ideological convictions and routing through the same reform debates, it disappoints to note that the gulf between finance ministry and nation’s central bank was never so wide. In the last Union Budget, declaration was made by the finance minister for further opening of Indian banking that was a long due since 2003 but under the new unwarranted redtapism of RBI-licensing of few new banks are taking too long and perilously injuring the sentiments of near about stagnant financial market. Under the uniform set of regulations, RBI must shoe its trust to allow atleast six new banks to join the fray besides focusing more on compliance to the nuanced recommendations of Basel-III norms.

It appears a paradox that new Indian corporate private sector banks, Regional Rural Banks {RRBs} are in better shape with their standard quality of assets than the peers of leading Public Sector banks, turmoil Co-operative banks and narrowly motivated foreign banks. In such case, policy framing must enable these existing banks and prospective banks for pursuing the advanced banking in the days ahead. Withstanding the truth of global financial condition, RBI must lend unwavering support to the prospective banks and should keep the profile of global integration on equilibrium. Today, another haunting challenge is of financial inclusion, still majority of Indians are not banking…here, strict adherence to compliances shall be streamlined for making rural and untapped area as priority zone for every banks operating in India.

Capital markets in India often cited as dynamic and sound out of confused euphoria, which is completely false as Indian equity market is one of the most crisis ridden in the world. Insider trading is frequent here and still surprises to not get a Galleon type case like in U.S or finding few spoiled icons like Raj Rajaratnam or Raj Gupta. Years back, Harshad Mehta and Ketan Parikh rocked the party here and got bad tip from regulators but since then SEBI seized to be angry and moralistic institution. SEBI’s second hammering fallen on rapidly growing Indian mutual fund industry which through bad regulatory step {scrapping of entry load etc.}, left it in hibernated state and in comparison of the past, we find it only as shadow. The weak confidence among the top management of SEBI is another matter of grave concern…things have still little changed with its new chief, U.K.Sinha. Finance ministry and RBI must end their slumbering and India’s capital market is on the verge being a show piece.

It remains a silent convention to priorities Public Sector entities by the regulators but recent stances of IRDA is awkwardly mimicking on those soft forgone traditions. Atleast two Chairmen of Public Sector insurers have recently expressed their anguish over the partiality of IRDA-that’s shocking and henceforth unsustainable as well. Questions arises, in last twenty years what made regulation a stodgy business? And do the true spirits of reform could ever touch the Indian commerce and trade?

The only conclusion could be drawn from the last two decades that the shape of Indian economy has indeed grown up in mid years with making selective few obscene rich, few crores of population as empowered consuming/middle class and rest the paupers. And big dilemma is, we even today can’t figure out the exact numbers of poors in India, leave alone any over expectation of level playing approaches from authorities.

More or less, similar are the cases of regulatory mismanagement in every sector. The last and most vicious happened with the opening of single brand retail for hundred percent FDI and multi brand retail to 51%from existing 26% without making any strict clause which could assured the certain percentage of procurement from Indian domestic market. That could have helped better to farmers, SMEs by cutting their overhead cost and appropriate inventory management. Unfortunately in present frame, it’s unreliable to expect anything positive from this legislation and chances would be likely of Indian market as the junk box of cheap Chinese manufacturing. Opposition is doing series of ridiculous acts by logjamming Parliament instead channelizing proper debate to alter this horrific FDI arrival in retail. At this juncture, regulation is maintaining its fragility and people will be forced to lead a Walmartian life with deep holes and no money in their market..!
Atul Kumar Thakur
Wednesday, November 30, 2011, New Delhi

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