Much is expected from a new government in New Delhi. This optimism is part of what is pulling money into the country, and driving the Sensex, the Bombay Stock Exchange's benchmark index, to record highs. But the truth is that the problematic legacy of the last few years cannot be simply overturned. The absence of reforms in labour policy, for instance, has been a major bottleneck to higher growth and firm steps to make the labour market flexible have to be taken by the new government. Equally worrisome has been the deteriorating fiscal balance of the Union government. There will be an urgent need to maintain fiscal discipline so that monetary policy can become effective in responding to business cycles. Mining, too, is a prominent example of the problems that have been aggravated by environmental and other regulatory bottlenecks. Although the Supreme Court has reversed some of its earlier, tough stand on iron ore mining in Karnataka and Goa, in the absence of deeper regulatory reform - and an expansion of regulatory capability and capacity - the problems and the draconian judicial reaction may recur. In any case, the price of iron ore in the international markets is under downward pressure. When the mines were shut down, China was not in the middle of the industrial stutter that it is today.
Another leading sector in which the problems go deeper than what can be solved in any 100-day agenda is construction. Real estate is linked strongly with the rest of the economy - it feeds the cement and steel industries, and provides crucial employment to many of India's semi-skilled citizens who are barely above a subsistence level of income. But the practically unregulated nature of real estate has meant that the sector is struggling with dodgy balance sheets and artificially inflated asset prices. High prices mean sales have dipped sharply - according to one estimate, by as much as 43 per cent in eight quarters. Getting construction moving again will require a painful clean-up - again, a process that will be neither easy nor quick. The United Progressive Alliance government worked for some considerable time on a law to regulate real estate. It is an unfortunate consequence of the legislative paralysis of the last few years that it is still stuck in the Rajya Sabha. Another legislative logjam will surround any attempt to modify the recently passed land acquisition law, which is excessively bureaucratic. And, of course, much of the infrastructure sector is bogged down by questions concerning the resolution of disputes between the government and the private sector in the absence of efficient and speedy regulation.
The essential lesson is that India must commit itself to fixing its labour as well as fiscal policies. It should also work towards increasing regulatory capacity in a wide range of leading sectors. The institutional change will naturally take months, perhaps years. Hopes for a speedy industrial recovery in the interim are quite certainly overblown.