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'New govt should be cautious of ill-advised decisions'

May 01, 2014 09:08 IST

'New govt should be cautious of ill-advised decisions'

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While the UPA government claims to have narrowed the fiscal deficit, the burden of subsidies and the suspended animation of the goods and services tax weigh heavily on the sustainability of fiscal consolidation. 

Over the past few days, there appears to have been a subtle shift in expectations about the outcome of the elections.

From the prospect of a comfortable victory for the National Democratic Alliance (NDA), there are a few indications that the needle seems to have shifted towards a somewhat more divided mandate.

First, there is the dramatic reorientation of the Bharatiya Janata Party's campaign message, which has shifted from development and governance to vituperative personal attacks on the entire spectrum of political leaders not aligned with the NDA. 

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Image: A child plays with Indian national flag while lying in hammock.
Photographs: Ajay Verma/Reuters

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'New govt should be cautious of ill-advised decisions'

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Apart from the pressure being put on the Congress by the accusations made against Robert Vadra, many others including Farooq Abdullah, Mamata Banerjee and Sharad Pawar have been at the receiving end.

Several views have been expressed that this reflects increasing insecurity about the outcome within the NDA.

On the other side, the Congress party's assessment about its own performance seems to have received a boost, based on feedback from the ground level. Of course, none of this may pan out; the outcome may well be a government with numbers ensuring relative political stability over its five-year term. But what if it isn't?

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Image: UPA chief Sonia Gandhi with Prime Minister Manmohan Singh.
Photographs: Rupak De Chowdhuri/Reuters

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'New govt should be cautious of ill-advised decisions'

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Notwithstanding the stability in the rupee over recent months, the policy establishment should harbour no illusions that this is a permanent state.

Capital has been surging in for months now, but the odds are that this is largely short-horizon investment, rushing for the exit at the first sign of trouble.

The sharp narrowing of the current account deficit has helped shore up confidence, but long-term investors are undoubtedly looking for enduring solutions to the structural problems caused by gold, iron ore and coal.

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Photographs: Jitendra Prakash/Reuters
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A fragile government may not act credibly on these. While the UPA government claims to have narrowed the fiscal deficit, the burden of subsidies and the suspended animation of the goods and services tax weigh heavily on the sustainability of fiscal consolidation.

Weak Budgets in July 2014 and February 2015 bring the risk of a sovereign rating downgrade back into play. The list of risks goes on.

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Image: A farmer sleeps next to a sugarcane field in the village of Dumchhedi in Punjab.
Photographs: Ajay Verma/Reuters
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'New govt should be cautious of ill-advised decisions'

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In this eventuality, the permanent component of the policy establishment, namely the bureaucracy, must assume a significant responsibility.

First, their message to the new government, to be conveyed in the strongest possible terms, is that there is absolutely no room to stray down a populist or cronyist path, tempting as it undoubtedly will be.

Financial sector regulators, in particular, need to be candid - if necessary, publicly - about the damage that ill-advised decisions can cause, both in the short run and in the long run.

Second, a detailed blueprint for acceptable actions, consistent with the stresses that the economy is dealing with, must be ready when the new government takes office.

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Image: A farmer ploughs his field to sow millet seeds against the backdrop of pre-monsoon clouds at Shapur village in Gujarat.
Photographs: Amit Dave/Reuters
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'New govt should be cautious of 'ill-advised' decisions'

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Of course, this is routine in government, but it takes on special significance this time around because of the very limited choices that the new government will actually have.

Third, the bureaucracy must present a consolidated public face supporting and rationalising the right kinds of decisions and actions. The adage "hope for the best but prepare for the worst" certainly applies. 

Why the new govt should rationalise right decisions, actions New govt should advocate right decision, actions 

The new govt should be cautious of ‘ill-advised’ decisions


Image: A labourer carries watermelons at a market early morning in the old quarters of Delhi.
Photographs: Ahmad Masood/Reuters
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