In the current bleak economic climate, most experts are pointing to a so-called ‘policy paralysis' as the key factor behind the growth slowdown. Ratings agencies and brokerages alike have said that a lack of economic reforms is largely responsible for the decline in investment and growth.
Ratings agency Standard and Poor's has cautioned that India could become the first among BRIC—Brazil, Russia, India and China—nations to lose its investment grade rating, citing political roadblocks to economic policymaking as a factor.
As Finance Minister, Pranab Mukherjee has seen the rollback of proposed key reforms in the face of political opposition, sometimes from the government's allies.
Here are the top 5 reforms that the government failed to push through.
FDI in multi-brand retail: On November 24, 2011, the UPA government took one of its biggest economic policy decisions when the Cabinet approved up to 51% foreign direct investment in multi-brand retail. The move would have allowed large foreign players such as WalMart and Carrefour to enter India. 10 days later, the government backed down after both its allies and the Opposition decried the move, saying they should have been consulted. The government withdrew the Bill, saying it needed more time for consultations.
Jewellery excise duty: In his Budget speech, Finance Minister Pranab Mukherjee announced a 0.3 per cent excise duty on unbranded jewellery, which accounts for most of the Indian jewellery market. Jewellers across the country went on strike for almost three weeks, demanding a roll back in the duty. Earlier this month, in his Finance Bill, Mr Mukherjee rolled back all excise duties on branded and unbranded jewellery.
Property transaction tax: In his Budget for fiscal 2013, Mr Mukherjee introduced a 1 per cent tax deduction at source (TDS) on the transfer of property, in an attempt to clamp down on unaccounted-for transactions in that industry. In early May, he rolled back the tax, after the real estate industry protested, saying it put additional burden on buyers.
GAAR: Mr. Mukherjee also announced the general anti-avoidance rules (GAAR) in his Budget speech in March. Aimed at closing tax loopholes, particularly with countries with which India has a tax treaties, the move, slated to come into effect beginning April 2012, was slammed by the markets and investors. Fearing ad-hoc tax investigations, investors started to reconsider India's viability as an investment destination. Faced with a large-scale exodus of global investors and a drying-up of future investments, Mr Mukherjee earlier this month deferred the implementation of GAAR to April 2013 to give investors more time to study the rules and become compliant.
Petrol price hike: State-run oil marketing companies raised petrol prices on November 4, 2011. Mamata Banerjee threatened to pull out of the coalition government but retreated after a meeting with Prime Minister Manmohan Singh. While not strictly a rollback, but less than a month later, OMCs effected a petrol price on December 1, 2011, saying crude prices had retreated. The same story was repeated last month, when OMCs raised petrol prices by a steepest ever Rs6.28 per litre (exclusive of local taxes). Faced with widespread criticism by political parties as well as consumers, the government was reported to be considering a partial rollback. A week after the hike, oil companies reduced petrol prices by Rs 1.68 a litre, once again citing lower crude prices.
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