It's not surprising now that Morgan Stanley has joined the chorus of foreign investors, who have voiced skepticism over India's GDP growth and policy inaction. It's a long list of foreign and domestic investors who are worried and exasperated as the rupee breaches successive lows, fiscal deficit mounts and current account deficit heads for historic lows.
Here is a list of the problem and the tired sounding statements and excuses from the government.
1) Falling rupee
The Excuse: "The rupee fall is arising out of the weakness in Euro ” - Pranab Mukherjee
The reality: The rupee is not falling because of weakness in the Euro, but weaknesses in the Indian economy.
Pranab Mukherjee will never admit that the rupee is falling because of the current account deficit, which has touched a eight year high. That in turn is because of an inability to attract foreign flows, which fund our current account deficit or inability to attract FDI like China. The rupee is also falling because of high fiscal deficit, which Pranab Mukherjee has not been able to control.
2) High food inflation
The reaction: “"Food inflation is a matter of concern, particularly it has reached the double digit... State governments have to take appropriate steps, I will also discuss with them.” - Pranab Mukherjee.
The reality: A report by Vale Columbia University Center on Sustainable Investment, written by Nandita Dasgupta says, "around 50% of fresh produce in India rots and goes to waste between the farm gate and the market because of inadequate cold storage facilities and a poor distribution network." Dasgupta says that the problems indicate "an inefficient supply chain in agriculture".
Now, if the above is true, then we produce enough, but cannot store and distribute. Pranab Mukherjee will never admit it. The government has failed to convince Mamata Banerjee that 100% FDI in multi brand retail would have bought in chilled freezing trucks and chilled freezer equipment that the we lack.
Even as we write, CNN IBN reports that 80,000 sacks of wheat rot in the open in Haryana, which are to be distributed to villages through the public distribution system.
Pranab Mukherjee will never admit that pilferage, siphoning and FCI godowns catching fire are all ingredients in raising prices of food items.
3) Fiscal deficit
Reaction: “A critical element of the strategy is to implement an ambitious but realistic fiscal consolidation road map.” - Pranab Mukherjee.
Reality: Where is the fiscal consolidation? In the 2011-2012 budget, Pranab Mukherjee had predicted that fiscal deficit would be 4.6% of GDP, it has ended with 5.9%. The reason of course is mounting fuel and fertilizer subsidies. Pranab Mukhejee cannot admit that he is incapable of taking hard decisions like deregulating diesel and increasing fuel prices to curb the fiscal deficit. He is not capable of tinkering with fertilizer subsidies, and cannot do away with populist measures for fear of coalition partners.
The excuse: “Delays are inevitable in a coalition-run government as it has to take on board views of different ruling partners and the process is time-consuming.” - Pranab Mukherjee.
Reality: Various reforms like the GST, pension reforms bill, increase in FDI in multi-brand retail, and the Direct Tax Code are in a limbo. The government recently petered out when it was likely to hike FDI in the insurance sector.
Government's apathy and indifference can be summed up in the words of Kaushik Basu, Chief economic adviser to the Union government who admitted that economic reforms in India were unlikely to happen before the next Parliamentary elections in 2014.
As for the rest of the excuses for a deteriorating economy you can blame it on Greece. In the meantime we can patiently wait for the next general elections, even as we see investors lose billions in the stock market, rupee sinks, current account deficit soars and fiscal deficit balloons.