Economic Times Report

Jun 2, 2012, 01.36PM IST

Indias GDP growth dropped to a 9-year low of 6.5% in 2011-12. Getting back to 9% is not going to be easy this time, but a few things can be done to pull the economy out of its current troubles: 1) What is the problem: Leadership Crisis What is the reason: Absence of coherent, coordinated, determined behavior at the top. What can be done: Change of guard in key roles; Sonia Gandhi's backing to tough policy reform measures 2) What is the problem: High Fiscal Deficit What is the reason: 200% rise in subsidies since 2007-08 What can be done: Speed up Aadhar pilots; use study results to shift to direct transfer of subsidies across India Scrap diesel & urea subsidies, decontrol diesel 3) What is the problem: High Current Account Deficit What is the reason: Likely at 4% of GDP in last fiscal year What can be done: Controlling fiscal deficit will curtail current account deficit Restore distribution margins on financial saving products, to curb demand for gold 4) What is the problem: High Inflation What is the reason: 7.23% & rising; still above comfort level What can be done: Ease supply constraints by removing APMC Act and opening up retail sector to FDI 5) What is the problem: Rupee Depreciation What is the reason: 20% drop in rupee against dollar since early 2011 What can be done: Overseas bonds are an option Clear FDI decisions quickly 6) What is the problem: Stalled Reforms What is the reason: Politics What can be done: A few bold reforms can turn sentiments quickly, the govt must appear to be in charge Goods and services tax (GST) can change the game 7) What is the problem: High Interest Rates What is the reason: 8% repo rate against 5% in March 2010 What can be done: Strong commitment to fiscal consolidation will help the Reserve Bank cut rates 8) What is the problem: Drop in Investments What is the reason: 29.5% of GDP, gross fixed capital formation, lowest in seven years What can be done: Clarity on coal can kick start power investments

Get cash-rich PSUs to fast-track plans Switch from subsidy to investment; step up investment in roads, towns, broadband infrastructure 9) What is the problem: Power Sector Crisis What is the reason: 30000MW Rs 47,738cr power plant idling or underutilized What can be done: Supply coal to plants working at sub-optimal capacity Revamp state electricity boards to ensure power producers can sell to them without payment worries 10) What is the problem: Decline in Portfolio Inflows What is the reason: Rs 47,738cr portfolio inflow in 2011-12 against Rs 110,120 crores in previous year What can be done: A general improvement in sentiment will help Allow employees to migrate from EPF to NPS for long-term savings to be deployed in stocks