The benchmark 30-share sensitive index’s steepest single-day crash of nearly 1,700 points in India since 2009 on Monday last reflects not only the effect of the free fall of the Chinese yuan due to the inherent weakness of the Chinese economy but also the cold reality that the holding up of Indian reforms is affecting investor confidence in our economy grievously.
We cannot be blind to the hard reality of India’s failure to bring about necessary economic reforms due to hard positions being taken by the Congress-led opposition and the BJP government’s lack of diplomatic skills to bring the ego-driven opposition leaders to agree on measures that are potentially good for the Indian economy.
We are indeed fast becoming a laughing stock of the world for a repeatedly non-functional Parliament and a plethora of political parties that can barely see beyond their nose.
The last flicker of hope in the short run is that since the Parliament was only prorogued, the monsoon session of Parliament can be brought back to life to pass the GST Bill, if not also the Land Acquisition Bill.
On Tuesday, Parliamentary Affairs Minister Venkaiah Naidu especially called on Congress leader Mallikarjun Kharge in the Lok Sabha to seek the party’s support to the GST Bill if the Rajya Sabha were to be called into session. But it is ironical that Kharge or anybody else in that party cannot give any assurance because Congress is a party in which only the will of its president, Sonia Gandhi, or of her heir-apparent son Rahul Gandhi counts. Any other person’s opinion or assurance is inconsequential.
It is a travesty of justice that the party which won the parliamentary elections in 2014 with an impressive majority has to plead for support to a party that won less than 10 per cent of the seats in the House of the people. This is because the Congress has so much support in the indirectly elected Upper House that it can frustrate any effort by the ruling party at the Centre to pass an important piece of legislation.
Sonia is breathing fire so the implication is that in her thinking, national interest can wait. That this bill, in substantially the same form, had been introduced in Parliament by the erstwhile Manmohan Singh government but could not go through because of BJP opposition at that stage is unfortunately true and reflects poorly on the BJP too but it is time this politics of tit for tat be halted in the larger national interest.
The triumph of the BJP and the abject defeat of the Congress in the municipal polls in Madhya Pradesh, Rajasthan and now Bangalore city should be a lesson to the Congress party that such negative tactics are not helping it. Though municipal elections are not fought on national issues, somewhere at the back of the mind, the electorate is angry at the virtual boycott of Parliament and the obstructionist attitude of the Congress.
It is not too late. The Congress must return to pass the crucial bills in the Rajya Sabha which have been hanging fire. It must respect the mandate of the people in the 2014 Lok Sabha elections and await its turn to return to power by exposing the BJP through well-argued stand in both houses of Parliament.
By sabotaging growth, it is not only striking at the roots of the economy but also distancing itself from the people who can bring it to power in the 2019 elections if they are happy with its record, while in the opposition. Mercifully, the negative effects of the yuan crash in China are not expected to be long-term for India beyond a point. As Finance Minister Arun Jaitley rightly said in the wake of the Chinese free fall, all economic parameters in India are on a sound footing and therefore the fallout cannot last long.
But reforms to bolster investor confidence must come sooner than later. Investors who look out for alternatives to the Chinese markets must look towards India by reflex action. This is not beyond the realm of hope and achievement.
With the devaluation of the yuan, China would naturally look for higher exports. It should be India’s endeavour to ensure that the stepped-up Chinese exports are not at the cost of India which in any case has been seeing a continuous decline in exports for the last few years.
The sustained weakness of the Indian currency against the US dollar is an issue to worry about for India. The reassurance of the Reserve Bank Governor Raghuram Rajan, that the country has US$380 billion in forex reserves that can be used to quell rupee volatility is a sound basis for some comfort but does that presage that the rupee is not vulnerable to the external environment?
The limited bouncing back of the Indian sensex on the day after the mayhem that the Chinese free fall led to does not mean that India is out of the woods. The volatility in the Indian stock markets may well continue for some more time, eroding the net worth of millions of investors. Also, a slowdown in European Union, India’s biggest export market, may force orders to dry out with an unnerving effect on exports.
A volatile and falling stock market could also upset the Indian government’s plans to sell shares in state-owned companies. The government had listed to sell five per cent stake in oil marketing and refining major Indian Oil Corporation (IOC) for last Monday, which was expected to fetch about Rs 9,500 crore. A choppy market could also jeopardise the ambitious Rs 69,000 crore disinvestment target for Rs 2015-16.