The word, originally coined by writers of a satirical television show The Thick of It, has been used in the UK to describe-everything from government PR blunders to crisis-ridden preparations for the London Olympics. But those blunders pale in comparison to those closer home.
The best example of its misadventures is undoubtedly the telecom sector, where through a series of blunders, a sector that was once an outstanding example of the India shining story, tele-density up from less than 10% to more than 70% in a decade, even as telecom companies made money hand over fist- has been brought to its knees.
And how! Couple of months back, auction of 2G spectrum found takers for only 101 of the 176 blocks on offer. Circles like Delhi, Mumbai and Karnataka, where one would have expected huge interest, elicited no bids at all.
Sure, the “market in 2012 is different from the market in 2008 and 2010”, as argued by communications and IT minister Kapil Sibal, in defence of the paltry amount of 9,407 crore raised in the auction. However, if the market has turned adverse, the main responsibility for this lies with the government, with the mess it has created by constantly shifting goal-posts. Business is about taking risks.
Corporates the world over are constantly taking risks and are quite willing and happy to do so; provided they can gauge these risks, however roughly. What they cannot, and will not, do is take risks that simply cannot be assessed because the underlying policy is constantly changing, as in the Indian telecom sector.
Unfortunately, the telecom sector is only one of the more glaring examples of how government has shot itself in the foot, over and over again. There are many others, such as the volte face on retrospective taxation to bring overseas transactions involving underlying Indian assets into the tax net where the government is now caught in a bind.
Or the decision to phase out the subsidy on liquefied petroleum gas(LPG) where, after first announcing its decision to limit the number of subsidised cylinders to six per household, then increased to 9, the government is dithering over its implementation. The net resultis that, today, India, alone among the four original Bric countries, is an outlier when it comes to the two key parameters that really matter in any country: growth and inflation.
While growth has fallen sharply, inflation is much higher than among our fellow Brics. Not surprisingly, international rating agencies have accorded India the lowest rating in the group. One could argue that rating agencies have lost a great deal of credibility and ratings don’t count for much.
And, while that is true up to a point, the fact is that ratings still have a powerful influence on two factors that matter greatly to India. One, the rate at which corporates can raise funds overseas . And, two, the quantumof capital flows to the country. Both have a critical bearing on the country’s external sector sustainability and, hence, its economic performance.
With exports falling for the sixth month in a row in October, pushing the trade deficit to a 12-month high, it is clear our efforts to rein in the current account deficit have failed. The deficit is likely to remain in the danger zone of close to 4% of GDP, well above the safe level of 2-3 %. In such a scenario, even the threat of a possible rating downgrade is enough to keep investors away. This leads to a catch-22 situation.
The threat of a ratings downgrade makes access to capital dearer for corporates and reduces the attractiveness of the Indian market for overseas investors since many flows are guided by country ratings. At the same time, lower capital inflows make financing of the current account more problematic, raising the possibility of triggering the very events that could lead to a ratings downgrade.
With GDP growth projected to slip below 6% in the current fiscal year – the IMF puts calendar year growth at 4.9% – the latest numbers for index of industrial production showing industry barely grew in the first half of the year and consumer price inflation is still hovering close to 10%, a ratings downgrade is a luxury we cannot afford.
But, instead of focusing on the problems on hand, the government is squandering its energies on taking pot shots at the CAG. In short, wherever there was scope to mess up, we have, and right royally. Meanwhile, there seems to be no end to revelations about corruption, both in the ruling party and the opposition.
Any doubts about why ‘omnishambles’ wins hands down?
(Varanasi -City of Myths)