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Rediff News  All News  » Business » Economy needs action, but govt is sleeping

Economy needs action, but govt is sleeping

Last updated on: April 5, 2012 12:05 IST

Image: Prime Minister Manmohan Singh.
Photographs: B Mathur/Reuters T N Ninan in New Delhi

Troubled airlines are to be rescued from their follies, and power stations are to be assured supply of coal, while new policies have been announced for manufacturing, telecom, fertiliser... The frustrating result: solutions that look suspiciously like non-solutions, like the Railway Budget that has managed to do what no train does (go in reverse gear), and the opening and then quick slamming shut of doors for foreign investment in retail trade.

The latest in this list could be power projects, whose promoters faced coal linkage problems and met all the important people a few weeks ago, in a "See the Delhi Bhavans" circus.


Economy needs action, but govt is sleeping

Image: Coal India has decided not to import coal.
Photographs: Rupak De Chowdhuri/Reuters

Then, in a 1970s-style solution, Coal India was asked to supply the coal, import it if needed. But Coal India is not in the import business, and its board has now decided to not do as ordered.

In any case, the ports can't handle that much imported coal, and pithead power stations cannot use imported coal because it is costlier even without the transport costs.

End result: the power stations are where they were before their promoters met the prime minister.

The rescuing of airlines has been a similar story. The government has allowed the direct, duty-free import of aviation fuel, opened up the sector to investment by foreign airlines, and given loan guarantees to Air India.


Economy needs action, but govt is sleeping

Image: Kingfisher is likely to go under.
Photographs: Vivek Prakash/Reuters

It may even have nudged government-owned banks to lend more to Kingfisher, but public outrage stopped the banks from throwing good money after bad (they bought Kingfisher shares over a year ago at about three times the current market price).

And yet, both Kingfisher and Air India are in a mess; aircraft are grounded, employees have not been paid salaries and are asked to stay at home, staff unions are stirring, and travel agents are withholding bookings.

Since neither airline has a survival strategy, it seems only a matter of time before one or other goes the way of East West and ModiLuft.


Economy needs action, but govt is sleeping

Image: Passengers walk inside the T3 terminal of Indira Gandhi International Airport in New Delhi.
Photographs: B Mathur/Reuters

And since Air India has a shareholder who believes in permanent life-support, the betting must be on Kingfisher justifying its name and diving into the water.

Passengers will pay, as fares have started edging up. If the cost of flying goes up, there will be fewer air passengers, and the big new airports that counted on a certain level of traffic will see their calculations coming unstuck.

Meanwhile, no aviation fuel has yet been imported by the airlines, and no foreign investors have come knocking. As for the new manufacturing policy that was unveiled last summer, anyone heard of it since?

Or of the new telecom policy that was unveiled shortly afterwards?


Tags: Air India

Economy needs action, but govt is sleeping

Image: A Kashmiri schoolboy waits for a bus in Srinagar.
Photographs: Danish Ismail/Reuters

And, any bets on whether the latest urea investment policy will end the decade-long famine in greenfield fertiliser investment?

The highways people have tom-tommed the increase in road project clearances (6,200 km this year, up from 4,500 km last year); but a quarter of all road projects are stuck because of land acquisition problems, so some of those "cleared" projects aren't really moving.

Too many patchwork solutions are being attempted. The LIC bailout of the muffed ONGC share sale is but one example. There is no examination of the fundamentals (for example: why would anyone invest in bankrupt airlines?).


Tags: ONGC , LIC

Economy needs action, but govt is sleeping

Image: A woman sells vegetables at a roadside stall in front of a beauty salon in Mumbai.
Photographs: Danish Siddiqui/Reuters

Follow-up work is not in evidence: manufacturing cannot be given impetus unless a broad swath of measures is taken, and no single "policy" announcement can work the trick even if the industry minister claims modestly that his is the most important announcement since the industrial de-licensing of 1991.

An economy that has lost momentum desperately needs solutions that work. The government has to deliver them, not indulge in action for the sake of demonstrating lack of paralysis.

Source: source