The Hindu Business Line : Stress is showing

THE REPORT CARD on the Indian economy could have been a lot better. An inflation rate of around 7 per cent punctured the virtues of a probable 6 per cent growth. The Finance Minister, Mr P. Chidambaram, sounds a duty-bound optimist when he contends that the rabi prospects will neutralise a poor kharif crop to keep growth prospects "bright". The Mid-Year Review of the Economy by the Manmohan Singh Government, like many from regimes past, continues to harp on the fiscal and revenue stress when it should be pushing the economy on a 10 per cent per annum sprint (a target now all but misplaced). This could be the best curative for many of the problems. But everyone knows that such a sprint is not possible with all the legislative and political shackles on investment in the infrastructure sector.

Extant subsidies and add-on schemes such as the Food-for-Work programme and the Sampoorna Grameen Rozgar Yojana, however well-intentioned, do not (will not) reach the needy; their only virtue is the little money that may trickle into these projects. Financial investments in power plants (or most other infrastructure areas) cannot be expected till the regulatory issues are sorted out; the financial system is shying away from funding State electricity boards even as non-existent power is being promised free to farmers. An infrastructure investment has to earn its way to be attractive for banks to place funds and this basic rule of business most government initiatives on infrastructure seem to ignore. The Union Budget provided for raising foreign stake in insurance companies to 49 per cent from 26 per cent but that has not become law as the Government is unsure of getting legislative majority to amend the Insurance Act. The 10 per cent voting cap on banking shares violates every norm of corporate governance, yet the Government does not want to hurt partisan interests in amending the Banking Regulation Act. The Reserve Bank of India wants banks to consolidate but persists with a 5 per cent and 10 per cent limit on shareholding in private banks.

There is an element of Dostoevsky in the depressing series of recent events and the sole bright spot is the continuous flow of dollars into the bourses bent on breaking every Sensex mark set the previous day. That will keep the financial market easy and banks from raising interest rates. Most banks have marked up their sub-Prime Lending Rates by about 2.50 percentage points to about 8 per cent (against the average prime lending rate of 10.25 per cent) in recent months even as fierce competition is making it hard for them to hold on to their decision. There is a bit of good news for corporates in the farm sector with banks setting the price of funds at 10-11 per cent. A few government banks pocket profits lending to small-scale units. If the Centre and the State governments can amend farm laws including those on marketing crops, banks need not sponsor just the credit needs of a few triple-rated corporates as every other sector will be worth placing funds in; also the credit targets for the banking system can go. When will New Delhi perform or will it be like waiting for Godot?