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LATEST NEWS UPDATES | FDI decision a miscalculation:Yashwant Sinha

FDI decision a miscalculation:Yashwant Sinha

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published Published on Dec 3, 2011   modified Modified on Dec 3, 2011

-The Times of India

 

Terming the government's attempt to allow foreign direct investment in multi-brand retail as a miscalculation that lacked political consensus, BJP leader Yashwant Sinha has warned that a looming slowdown needs urgent measures to remove supply side blockages.

The former finance minister, who heads Parliament's standing committee on finance, said unlike in 2008, the government has no room to increase the fiscal deficit that is already above 5% while inflation remains stubbornly out of control.

"There is no leeway in the deficit, rate hikes have failed to curb inflation, the Eurozone and US economies are in trouble and the government is gripped by a policy paralysis. The picture is complete and the Indian economy is looking vulnerable," said Sinha.

He contested the claim that retail giants will not disrupt local business. "It is not the unpopular sahukars alone who will be hit. People operating markets and transport chains that keep the rural economy running will also be hit," Sinha said.

He said in 2008 the government took decisions that pumped more than Rs 2 lakh crore into the economy and this is not an option in the current situation. "The government did not learn the lessons of 2008. It believed growth of 9%-10% is a permanent feature," he said.

He said apart from economic cycles, the government did not utilize the post-2008 period to quicken address the spurt in demand but seemed to depend on encouraging the Reserve Bank of India to hike rates. "Investment has been killed. An increase of 350 basis points and 13 hikes has not solved the problem," he said.

Calling the government's previous stimulus as "unproductive expenditure", the BJP leader said the cost was now manifesting itself. "In a sense, finance minister Pranab Mukherjee is paying the price for the sins of his predecessor P Chidambaram," he said.

Sinha said the move to allow FDI in multi-brand retail was deeply flawed as an economic prescription to boost investor confidence as also because it lacked political consensus. "I do not recall being approached on this. Without consensus, the move was doomed from the start."

While sounding a warning that the growing crisis is of much larger proportion than the 2008 situation, the former finance minister said there was still time to help India's domestic economy if the problem of supply shortages is addressed. "Industry is crying out as cost of money is so high with rate hikes. What is needed is managing supply," he added.

The Times of India, 4 December, 2011, http://timesofindia.indiatimes.com/business/india-business/FDI-decision-a-miscalculationYashwant-Sinha/articleshow/10975057.cms


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