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Monday, June 4, 2012
Government Still Considers POISON as AMRIT to Cure Sick Economy
Indian government has lost lacs of crores of rupees due to ill-motivated decisions taken by minister of Manmohan Singh’s cabinet and due to faulty actions of UPA government. If one takes into account of all CAG reports of last two three years and make a total of all losses caused by wrong policies of the government, loss caused due to fraudulent acts of Ministers, loss caused due to tax defaults and tax evasion, loss due to bad assets in banks, loss due to write off of bank loans, loss due to tax concessions given to business houses in the name of stimulus package during last three to five years, and unethical rise in black money and exodus of Indian money into foreign banks.
It will come to billion of billion rupees.
Now government has announced some austerity measures to curtail expenses. It is nothing but a drop in ocean.
Billions and billions of rupees have been lost or sacrificed to please a few thousand of business houses and now the corrupt government is pondering over saving a few lacs of rupees on foreign trips and conferences or a few crores of rupees by stopping employment. Pain of poor men will become more painful whereas a few lacs of rich and elite class families will continue to live lavishly.
India’s economic growth has been consistently falling from quarter to quarter, rupee is weakening, fiscal deficit is continuously increasing, inflation is going up and up, price rise is beyond control and so on. Current Financial data indicates that cloud of crisis is looming large on Indian economy. Crisis of economy is worse than that of 1991 when the then government led by learned Chandra Sekhar had to sell gold. Foreign currency reserve can postpone the crisis for a few months but cannot solve the crisis permanently.
Now the question is whether such petty savings earned on account by forcing austerity measures will be able to cope with the critical position of economy of the country.
The answer is simply NO.
There is proverb in Hindi "Gau Mar ke Juta Dan" ( donating shoes after killing cows). Corrupt ministers and politicians in general have caused unprecedented loss to the exchequer and have themselves become billionaire during last five to ten years. On the contrary pain of common men has reached and crosses the level of tolerance.
Government has advised all departments to stop fresh recruitment. It means problem of unemployment will be aggravated and crime will rise day by day.
Can government stop price rise or inflation or fiscal deficit by merely stopping foreign trip of ministers or by curtailing expenses on conferences or by reduction in oil subsidy?
Of course such steps should have rather been the part of permanent policy, but these policies cannot cure the cancer of corruption and cannot mitigate the pain of common men already caused by faulty policies of Manmohan Singh during last two decades.
It is pity that bad policies which have resulted in alarming sickness of economy are still considered by veteran economists as best diagnosis to cure the sickness of economy. Government should at least learn lesson from leaders of sixties and seventies when government used to create job opportunities by adding more and more projects, more and more industries, by adding educational institutes, by helping farmers to increase agriculture output etc.
On the contrary present government always talks of disinvestment and running their current expenses by selling assets created by governments of sixties and seventies.
Policies of liberalization , privatization and globalization has simply and undoubtedly helped only a few lacs of elite class families who have become billionaire and who figure in list of top 500 richest families of the world.
Politicians invariably use to commit blunder and people of India always have to suffer the pain .It is bad luck for Indians and that in India ,politicians change the policies frequently to suit their whims and fancies but do not change their attitude and do not change their culture and intention. Common men are always punished for the fault of politicians.
Lastly even if it is assumed that policy of reformation and that of LPG may help in curing the disease of the country , I hope government failed to ensure that proper and adequate dose of anti-biotic medicines are injected into the blood of sick economy .
Obviously reputed economists like Manmohan Singh, Pranab Mukherjee , Montek Singh Ahuliwalia will do nothing but fuel to fire by their austerity steps taken at a time when common men is already frustrated with current government. Austerity steps announced by the government has now made it clear that the policies announced in 1991 in the name of reformations were not either properly executed or policies were not fit for Indian economy .
Now at least people of India will understand whether they committed a blinder by electing Congress Party to power and by giving unregulated power to person like Manmohan Singh and his cabinet.
The million dollar question is why the great economist failed to visualize the consequences of their so-called good policies ,why did they fail to achieve their goal , why did they failed to predict correct GDP growth, why did they fail to decouple the Indian economy from the pain of global recession and so on.
Will they accept their moral responsibility on growing economic sickness?
Are they not punishable for poor performance and for cheating the common men in the name of reformation?
Top business houses or ministers or corrupt officers will face no trouble even if their expenses are curtailed or reduced to zero. It is only common men who will suffer by so-called harsh measures undertaken by government in the name of curing the economy.
Government has to have an investment-driven strategy to boost growth
The weak GDP growth of 5.3% year-on-year for the quarter ended March 31, 2012, was a major downside surprise. Despite weakening growth, headline wholesale price index ( WPI) inflation remained at a significantly higher level than the RBI's comfort zone.
The data confirm
s our view that India is now in a stagflation-type environment and we expect this environment to persist over the next two to three quarters.
Even as we expect GDP growth to remain at sub-6% levels, inflation is likely to remain above 6.5-7% over the next few months. This is diametrically opposite the high growth-low inflation environment of 2003-07.
How did we get here? An adverse global environment in the form of weak global capital markets and relatively high oil prices has contributed to the weak macro environment.
But we think the domestic policy environment has been a more important contributing factor. Over the last four years, the government has been relying on a bad growth mix, characterised by a high level of national deficit in the range of 9-10% of GDP (excluding one-off telecom revenues), while private investment (as a percentage of GDP) has been declining steadily.
A number of factors are liable for the weak domestic policy environment. First, national savings have declined by 6.4% of GDP from FY 2008-12 primarily due to higher government deficit. This, in turn, has become the key constraint to investment growth, slowing the pace of capital accumulation and attendant productivity boost.
Second, some of the policy decisions have not only resulted in higher deficits but also distorted productivity. For instance, the national rural employment scheme has been one of the key factors pushing rural wages up without matching gains in productivity.
This scheme has had a significant negative externality on rural labour supply and demand.
Third, a systematic slowdown in administrative decisions has slowed the process of harnessing natural resources and overall investment project-related approvals. Fourth, a delay in implementing indirect tax reforms.
Tough, not austere: Anaemic expenditure cuts will achieve nothing, we need bold reforms
The government is reportedly preparing for a 10% cut in non-Plan expenditure. These kind of rituals will serve very little purpose. To make a real difference either to government expenditure and borrowings or to public confidence in the government's ability to make an impact on the economy, we need something more than a little cutting, pruning and flower arrangement.
Gross fixed capital formation is sharply down, from a peak of 38% to below 30% now. But it is not just investment that is down. Consumption has also slumped, from the traditional close to 60% of GDP for the non-government sector as late as in the first quarter of 2011-12 to a lowly 52.2% by the fourth quarter.
This is a double whammy. What can sustain economic activity if both consumption and investment dry up? People are hoarding their savings as gold and silver: a completely unproductive form of storing value for the economy as a whole.
There have to be proactive measures to kick-start investment, restore consumer confidence and access to financial savings, stabilise inflation so that banks start lending and consumers start spending.
Acting on the fiscal deficit is a key task. While the size of the fiscal deficit is an issue, what these borrowings, which appropriate the private sector's savings, are used for is even more important.
If these are used to subsidise consumption, the result is egregious. And that is precisely what the government does with its plethora of subsidies and transfer payments. The most sensible subsidies to cut are the open-ended ones on fuel and urea.
These are counterproductive, dictated by global crude price movements and of relatively minor benefit to the individual recipient. But removing these subsidies calls for political courage of a high order. If the government musters that courage, it will both improve the quality of government expenditure and restore investor confidence.
Along with measures to speed up clearances of all kinds, a display of political will to take tough decisions will bring investment back. Investment in rural supply chains will do a lot of curb inflation. The point is to act, not stop short at feeble announcements.