policy/politics in place

My term four ends, I pick up ET and see that the policy paralysis is also getting some strokes to end. But is it that easy to take decisions and implement in India, with such a complex and unstable political structure. Surely not. The policies or steps I am referring to are, FDI permission and diesel price hike.

Lets understand the condition of government first; fiscal deficit is rising; inflation is rising; Rupee is depreciating; markets are slow;negative sentiments towards the ruling alliance; credit rating going worse; elections approaching, which will require more spending in terms of subsidies and waivers to lure voters. These are some of the issues, among many others. 

So to improve this condition government could have taken various steps. It could have raise debts, but for bad credit ratings, it is expensive and scarce. It could have printed currency, which would have increased inflation and devaluated currency further. It could have reduced its transfer spending in NREGA or other schemes, which is certainly not practical considering the political scenario. It could have used fiscal policy to somehow bring fiscal deficit down, but this would have certainly affected the growth adversely. Now a healthy option is to bring foreign money into the system. So the government played the long awaited FDI shot. 

Opening country for Foreign Direct Investment, is a solution to many aforementioned issues like increasing investment, Rupee appreciation, raising income. Clubbed with price hike of Diesel, it impacts fiscal deficit very strongly as a major chunk of the spending goes in financing the subsidies on oil and gas, diesel being prominent among them. Raising the diesel prices has to be a cautious decision always as it effects the whole  supply chain and will increase inflation with a high rate. But this will reduce burden of the govt on fiscal deficit front, which is reaching to levels of 70% of GDP. 

FDI in retail is open to states at their own discretion and the stores could be opened only in cities which have a population of 1 million or more. Along with this 30% of sourcing to be done by local manufacturers. These terms emphasis the fact the govt is wary of the decision and wants it to be thoroughly thought over decision at every level. Some states are apprehensive and have passed the option while some are embracing it. For reference, in China, even with lesser restrictions, Walmart is losing money even after a decade of presence.

All this said and discussed, the much needed policy changes are not panacea to Indian economic condition, but also not detrimental to Indian people. 

Lets look where does the Politics Policy takes it...