Finance Minister Pranab Mukherjee has said it cannot be denied that some reforms have slowed down in India due to "pressure of coalition politics." His comments came a day after a controversy over the government's Chief Economic Advisor Kaushik Basu's remarks that economic reforms in India may continue to remain slow till 2014.
"While there can be no denying that due to the pressures of coalition democracy, some reforms have slowed down over the past year but we have taken several steps to shore up the short and medium growth prospects," Mr Mukherjee said. He was speaking at Peterson Institute of International Economics in Washington.
Mr Mukherjee's party, the Congress, leads the UPA government at the Centre. It has often been arm-twisted by its coalition partners like the Trinamool Congress. The Trinamool is the Congress' biggest ally. But its chief Mamata Banerjee has kept it on tenterhooks, challenging the government on a number of critical issues, and often forcing policy rollbacks.
Mr Mukherjee and Dr Basu are in Washington to attend the Annual Spring meeting of the International Monetary Fund (IMF) and the World Bank.
At a meeting at the Carnegie Endowment for International Peace, an eminent Washington-based think tank, Dr Basu said relatively less important bills might go through Parliament but major economic reforms would hit the road block and are unlikely to happen before the next Parliamentary elections. At the same time, he said there are some reforms that need to go into fast gear and identified the opening up of the retail sector as one key reform in waiting. India, he said, also needs to address the issue of massive subsidy leakage and that of poor infrastructure.
Post 2014, Dr Basu told the gathering, "you would see a rush of important reforms" and after 2015 India would be one of the "fastest growing economy of the world". The new government, if in majority, would start with the reforms in a big way because there is a sense that it needs to pick up, he added. "We are going through a difficult year," Dr Basu said, adding that India is trying to go back to fiscal consolidation.
He was addressing the concerns expressed by the US corporate on some recent decisions of the Indian government and its reluctance to initiate the series of next phase of reforms.
After his remarks on economic reforms sparked off a major political row back home in India, Dr Basu told NDTV that he was quoted out of context. He said his remarks were pegged to the possible European crisis in 2014 and that he believes some reforms will happen quickly. "There is no divergence of views with Montek Singh Ahluwalia... My remarks were pegged to the possible European crisis in 2014... I believe some reforms will happen quickly."
Dr Basu also issued a clarification in which he said he was quoted out of context, "juxtaposing" his comments on Europe in 2014 with the Indian election of 2014. "This is unfortunate because the central message of my talk was the possible European crisis of 2014 and India's major rise thereafter, likely overtaking China," he said.
In a written statement released by the government, he also said, "As the Chief Economic Advisor I have often expressed opinions which are not necessarily that of the Ministry of Finance or of the Government of India. This is one of the strengths of India that it allows us to generate and discuss new ideas without the Government having to first endorse them... I mentioned also, as I have done several times in India, that, thanks to coalitional democracy, there is some slowdown in economic reforms and decision-making."
Dr Basu's remarks presented the Opposition with another opportunity to embarrass the government. As the Finance Ministry hastily set up its defences, Montek Singh Ahluwalia, the Deputy Chairman of the Planning Commission, was among the first to say he does not agree with the Dr Basu's assessment of a policy deadlock.
The Congress also tried to explain Dr Basu's statement. "No, I do not think Mr Basu has at all talked about any policy paralysis, he may only have had in the back of his mind what happened in the last two Parliament sessions," said Ambika Soni, the Minister of Information and Broadcasting, and a member of the Congress Working Committee. She added that he may have been referring to the Opposition (which) "were not cooperating in allowing any discussion in any of the 40-50 bills which are pending, discussions and clearance to be passed."
But the BJP didn't buy that argument. "I am not at all surprised at what the Chief Economic Advisor of the government of India Mr Kaushik Basu has told the foreign investors in Washington," said former finance minister Yashwant Sinha. "The fact of the matter is that this government is suffering from paralysis in decision making. Today it is on a ventilator and Basu has merely stated the truth when he said that we cannot expect any movement on the economic front until the next elections are over in 2014," Mr Sinha said, adding that the present government does not have the strength or the will power to take India's potential forward.