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June 26, 1998


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BJP makes no impact on economy

The Bharatiya Janata Party-led government, which completes 100 days, has made sincere efforts to change the economic gloom of the preceding year. However, its measures are yet to make any visible impact on the economy.

As if the grossly depressed investment climate in 1997-98 -- reflected in one of the lowest gross domestic product growth, steep deceleration in industrial and export growth, continued slump in the capital market, shortfall in targeted revenue collection and increased fiscal deficit -- was not enough, the government had invited economic sanctions by going in for the nuclear tests.

With the United States and G-8 countries freezing aid, Moody's Investor Services downgraded India's credit ratings.

The impact of the aid cut to India as a result of the economic sanctions may not affect the country so much this year, in view of the huge outstanding loan disbursals which have grown over the year to $ 18.5 billion including the World Bank loan of $ 8.5 billion and the Asian Development Bank loan of $ 2.5 billion.

In addition, the political instability arising out of constant threats by the BJP's allies, particularly All India Anna Dravida Munnetra Kazagham leader J Jayalalitha, has further increased political uncertainty which has had its impact on economic decision-making.

The scenario is clearly reflected in the dilution of economic decisions because of political pressures.

The withdrawal of the hike in urea price and excise duty on motor spirit and cutting the special additional import duty by half to four per cent have resulted in a loss of nearly Rs 40 billion from the envisaged revenue collections for year 1998-99.

On the brighter side, despite all these difficulties, the government succeeded in arriving at a settlement on the Maruti dispute, thus salvaging one of the biggest car manufacturing enterprises and sending the right signals to Japanese investors.

Another major achievement has been the signing of an Indo-Russian agreement on supply of nuclear reactors.

With the Reserve Bank of India's effective intervention, the rupee has stabilised against the dollar for the time being and the country has been saved from the kind of crisis which has engulfed the South-East Asian nations.

Though inititially it appeared that the government has been isolated on the issue of nuclear blasts, there has been a change in the mindset of countries and this is clearly reflected in Indo-US relations.

US Secretary of State Madeline Albright has expressed the helplessness of the US government in the matter as the Glenn law does not provide any flexibility or waiver to the US president.

Despite advocating the swadeshi line, the BJP has decided to double foreign direct investment inflow within two years. It has announced a 90-day time-barred clearance of high value investment proposals. It has also decided to allow 100 per cent foreign direct investment in the power sector, subject to foreign equity not exceeding Rs 15 billion in a project.

The government is planning a number of legislative measures such as changes in the company law which has been overdue. This is necessary to stimulate the capital market.

The government is planning to repeal the Urban Land Ceiling Act to give a fillip to housing and construction activity. Also on the anvil is the opening up of the insurance business to the private sector.


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