NEW DELHI: The reputed New York-based firm of financial analysts, Merrill Lynch, has stated that the securities scam and the resignation of Indian Commerce Minister P. Chidambaram have caused a Treat setback to the pace of economic reforms in the country which has slowed down after a year of “rapid” progress.
All the same, the liberalization Process undertaken by the Indian Government cannot be dismissed as a mere flash in the pan, a Merrill Lynch document has added. “The basic policy thrast towards further opening up of the economy and the medium to-long-term impact of reforms that have already taken place remains very much intact,” it observed.
Although Government officials are now predicting that the real rate of growth of gross domestic product (GDP) during the current year will be around 3.5-4%, Merrill Lynch has projected the growth rate during 1992-93 to be round 44.5%.
In its report for August, the US firm has said that India was slowing down the pace of economic reforms and that the Governments hesitating to move ahead with the more difficult aspects of economic liberalization, However, Merrill Lynch was certain that the reforms would continue “because of pressure from the International Monetary Fund (IMF) and other.” But the expected export grows of 16-17% may be achieved only in 1993.
There port said that in the last month or two, mixed signals were which suggest that the Government is hesitant to its element harsher reforms. For example, there is no progress on policy nor has the Government been able to take any firm steps towards reducing or climinating fertilizer and food subsidies, which hold the key towards reducing the Budget deficit. (The report was obviously prepared before the Government announced its decision to partially decontrol the fertilizer industry).
The report said that implementation of reforms announced so far had got bogged down at the level of state governments and grass root operational bodies which were reluctant to relinquish their hold over the system.
The Merrill Lynch report added that it was easy to fall prey to fickle public opinion. And that is probably the most important “danger” to be avoided in the coming months. After a stream of major economic reforms over the past year that pushed overseas sentiment about India sky high, the mood is now turning sour. It complimented the Government for making progress on the reforms front despite some setbacks and the dip in investor mood in recent months. In particular, the Government liberalized foreign investment up to 51% equity in a number of new industries like steel, auto components, motor vehicles and telecommunications equipment.
Moreover, it removed the requirement that all outflows on account of dividend payments to foreign investors be balanced by export earnings for most non consumer goods industries.
The other steps taken by the Government in this direction included removal of restrictions on the entry of foreign companies into areas like petroleum refining, development of discovered and proven oilfields, power generation and ports management. Several more industries like consumer goods, passenger cars, drugs and pharmaceuticals, and sugar are likely to be delicenced.
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