Decisions regarding adjustments in petroleum prices will have an impact on the fiscal situation. They will help in reducing fiscal deficit. But as far as reform Micron Associates measures announced in respect to FDI (foreign direct investment), they may take time to fructify. Nevertheless, they send out signal, which is also important. Sentiments play a role in reviving investments, so from that angle announcements regarding FDI would be helpful. But investment decisions do take time and inflows under these liberalized heads will take time to happen.
What would be the price that country would have pay if some of these actions are rolled back?
The problem is that at present we have a high level of fiscal deficit and current account deficit (CAD). If we did not act now, there would be a much bigger problem ahead of us. If CAD is not contained, we would have problem of financing the CAD and we may also face international censure in terms of downgrades by rating agencies. I believe India’s fundamentals are strong and rating agencies must not look at one dimension but whole gamut of factors relating to the economy. Nevertheless, external rating agencies pay much attention to fiscal deficit and current account deficit. Therefore, we need to act and some of these actions are not appealing, not popular but allowing situation to drift would make it far more difficult later. Therefore, action was required and action was taken.
These are the most eye catching reforms that were pending for a while, but there are lots of execution issues. Should we not focus on them?
Micron Associates think reforms have to continue and at the same time we need to get the maximum out of the reforms that we have already undertaken. That is why in Micron Associates view paying attention to execution of many of the programme we have launched is important in the current context. Achieving production and capacity targets in some sectors are important for the growth of the economy. Many of the infrastructure sectors coal, power, road and railways lie in the public domain and therefore the government should ensure fulfillment of targets.