Why policy paralysis and slow decision making are detractors

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Paralyzing growth

Policy paralysis has been a real threat to the development of India and has affected business and investments. Bad decision making or inordinate delay makes for a poor image in the international community, which results in loss of interest in the nation as a viable investment destination.

Demand for bold decision making underlay the summit panels. Viraj Mehta, WEF’s India and South Asia director, believes that bold decision making from Indian leaders is at the heart of India’s progress as an economy and a society.

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Poor project execution

A Flash Report from India’s Ministry of Statistics and Programme Implementation (or MOSPI) is indicative of this ineffective decision making. Its 342nd report showed that out of 727 infrastructure projects on its monitor, 317 had no information on commissioning dates.

Projects with Maximum Cost Over-runs

The cost of all 727 projects, with an outlay of 1.50 billion rupees, or ~$25 million, each stood at nearly INR 9.45 trillion rupees, or ~$158 billion, on May 1, 2014. The anticipated cost was estimated to be 11.34 trillion rupees, or ~$191 billion, over 20% higher than the original cost.

Of the remaining 410 projects that did have a schedule, only five were ahead of time, 123 were on time, and 282 were delayed. The above graph displays five projects with the maximum cost over-runs and is arranged from the highest to the lowest.

This report was significant as it came at the time of the Indian general elections, in which the electorate voted for change. Fractured election results, which led to coalition governments, also had a major role to play in this paralysis. “What’s good for you, isn’t good enough for me” is the maxim that rules coalition governments, thus making decision making and action painfully slow.

Hope for betterment

However, the domestic and international business community has a lot of hope from the current setup. The government has made some previously delayed decisions like raising the foreign direct investment (or FDI) cap in the defense sector to 49%.

With India’s defense budget standing at 2.29 trillion rupees, or ~$38.2 billion, for FY15, this presents exciting opportunities for major defense players like Lockheed Martin (LMT) and Boeing (BA). Textron (TXT), the conglomerate that produces Bell Helicopters and Cessna aircraft, incorporated its Indian entity in 2004, and can be a beneficiary on the civil aviation side.

Though it is too early to analyze, if the government is successfully able to give infrastructure, energy, and manufacturing a push, then ETFs like the EGShares India Infrastructure ETF (INXX) and the PowerShares India Portfolio (PIN) can be in for a treat.

Apart from policy paralysis, India also faces challenges from macro factors which can dent its economic growth. The next article focuses on two of these factors that were discussed at the summit.

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