Economic Highlights

New Delhi, 9 January 2009

Economic Package-II

ELECTORAL MOVE, WON’T PEP UP DEMAND

By Shivaji Sarkar

The Government’s second monetary and economic package is unlikely to lift the economy. The prescription is inadequate, faulty and does take into account a holistic view of the situation. Sadly, the package ignores agriculture and labour, the key components of growth.

The package itself is a recognition that the first dosage announced last month has not worked. The steps taken are unimaginative and try to address only the short-term slowdown.  It does not acknowledge that it is recession – long-term slowdown and requires a different approach.

Worse, there is complacency too. The Government seems to have a feeling that it has been able to contain inflation. The truth is far from it. Essential commodities remain expensive and industrial and manufactured items are losing their sheen owing to lack of demand. Both the packages do not address the basic issue. They neither are able to create a demand nor add to the purchasing power – something the situation demands.

Simultaneously, the Reserve Bank’s move of cutting short-term interest rates by one per cent and the cash reserve ratio (the amount banks have to retain as cash reserve) by 0.5 per cent to free Rs 20,000 crore of lendable funds is no good. This is so as it does not take into account that neither the industry has the capacity to borrow more nor the banks are willing to lend more. Previous such moves by RBI have too largely fallen flat.

It should have spurred the Government to delve deeper and chart out the road map for Government investments to spur demand. Instead of announcing packages in a hurry, ostensibly to beat the Lok Sabha election deadline, the Government should have studied the situation in detail. Mere electoral political considerations should not have overshadowed the real concerns.

Besides, the finance part of the economy is unreal. Nor is it possible to depend on this instrument alone to pep up the economy. The Government’s concern had been the real estate sector, exporters, large corporates, and bus and truck makers. They depend on finance to further their business only if there is a demand. That is the vital oversight.

The present package, like last month’s Rs 35,000 crore economic stimulus, is misdirected at whetting demand. Besides, it ignores many essential aspects of the economy. Labour and agriculture have not found any place in both the packages. In short, it ignores the consumers, who can give the real boost to the demand.

Labour is in jitters. Huge job losses – five to 12 lakh as per different Government estimates – have severely affected demand. Jobs are being lost almost everywhere and in most sectors. Alternatives for creating jobs are not seemingly being considered though there is hushed concern. When people are losing jobs how would easier finance and low interest rate help them?

It raises yet another vital question: whether banks, which have become too stingy for obvious concerns of return of the capital, will be able to lend freely? If they do, it is likely to increase their non-productive assets (NPA), euphemism for losses. So freeing up of money by the RBI is of little help at this stage. The banking sector instead of lending has parked Rs 2 lakh crore in Government securities recently.

The real estate sector and corporates have been allowed to access overseas borrowings. It looks like a progressive move. But is fraught with two big “ifs” – global meltdown has made external borrowings difficult and even if funds are available the housing prices have been pegged so unrealistically high that buyers are difficult to find. Unfortunately, no step has been proposed to bring prices down. Possibly it is not an easy task for the political masters in an election year. Both the sectors are known to be hefty donors.

The Government has in fact thrown the nation into yet another crisis. The Reserve Bank has stated that the external debt increased by $ 51.5 billion, 30.4 per cent, to $222 billion at March-end 2008. Most of these are corporate debts and have grave ramifications on the national economy.

Many commercial vehicle makers have temporarily shut production. Raising the depreciation benefit on commercial vehicles to 50 per cent from 15 per cent looks a good move. It is again subject to the demand by the transport sector. When all sectors are facing a slowdown, it is not easy to comprehend how demand will be generated.

Pessimism is seen in the Planning Commission itself, with its Deputy Chairman Montek Singh Ahluwalia saying that “We should expect, from all the global projections that the next year is going to be a very difficult one,” while announcing the measures.

He is right. It calls for drastic measures to boost the essential engine of growth – demand. Importantly, it calls for giving the neglected sectors - agriculture, infrastructure, small and medium enterprises – a major push. This is not only necessary to increase production but also create more jobs, which would empower consumers with disposable cash. The Government is well aware that household consumption pattern is on the decline since October last.

The Government finances are also reaching a critical position as the revenue accruals are coming down. This puts pressure on the crucial decision-making whether to reduce taxes. If the Government does so, it fears its kitty would become thinner. On the other hand, if it does not, it would put pressure on the market, as consumers would be left with little cash for high tax liability.

Despite the pressures, reduction of taxes, including income tax would be pragmatic. Though it would create an immediate problem for the Government, in a year’s time its revenue accrual would also increase as the manufacturing and industrial sectors pick up.  It’s a bitter pill alright but the Government needs to swallow it. 

It must realize that without Government expenditure, the economy cannot be lubricated. Its decision to inject Rs 20,000 crore in an additional plan “in the remaining three months” is in the right direction. However, the Government machineries don’t run that fast. In 2005, Rs 60,000 crore spending plan to improve ports was presented. But the road map for the expenditure is yet to be prepared. The golden quadrilateral highway project was to be completed three years ago. Only the Delhi-Mumbai stretch is nearing completion. Simply put, the Government must think deeper if it is keen to keep the country on the right growth trajectory. ---INFA

 (Copyright, India News and Feature Alliance)

Economic Highlights

New Delhi, 2 January 2009

Of Job Losses & Food Prices

HOW ABOUT A PACKAGE FOR THE POOR?

By Shivaji Sarkar

When the going gets tough, it’s toughest for the weaker sections of society. Not considered creditworthy, the poor remain the worst sufferers as economic growth slows down. After all, they are the most vulnerable in terms of unemployment, homelessness and malnutrition. Worse, the present crisis has accentuated their troubles.

It is thus imperative to evolve a protection package for them this New Year. If not turned into an asset in the growth mechanism, the poor have the capacity to affect the overall well-being of the country. This crisis is seeing more poor losing their jobs. In the textile sector alone, Commerce minister Kamal Nath says that 65,000 jobs have been lost. The Chairman of the Parliamentary Standing Committee on Finance, Sudhakar Reddy, says “our information is that five lakh workers lost their jobs in the last two to three months. The situation is alarming”.

The job cuts are in both private and public sectors. In the latter, those on daily wages or contract are being denied extension. However, no unemployment figure is final. According to AITUC General Secretary Gurudas Dasgupta ten lakh workers have become jobless in the past two months. The parliamentary committee has asked the Government to come out with a report.

Fewer the jobs mean less consumption and more malnutrition. The recent Mid Year Review (MYR) projected lower GDP growth. Industrial and manufacturing production declined. It has also reduced the growth rate to 7 per cent from last year’s 9 per cent.  Clearly, this would have a more serious impact on the economy rather than just lower income. It is bound to affect the living standard of people and their consumption pattern.

As per statistics, inflation based on wholesale price index (WPI) is stated to be coming down. It is not being reflected in food prices, which remain at a very high and unaffordable level. And, when people spend more on food, it affects their spending on other necessities. This is further being reflected in the manufacturing and industrial sectors. But for the poor it is more serious. With food at unaffordable prices, the poor cut down their consumption which leads to malnutrition.  

According to the Global Hunger Index of the International Food Policy Research Institute, India is home to the world’s largest food-insecure population with 20 crore people facing hunger out of 88 countries. Both the World Bank and the Asian Development Bank have estimated that 41 to 58 per cent people live below the poverty line in India. This only indicates that the high growth rate has not benefited the poor. In addition, it also means that the market reforms have not considered the poor as its integral part and though they remain out of the market, they are not insulated from its ills.

Even the projected 7 per cent growth seems a dream for who it matters. Since it does not address the twin problems of growth and equity, it is unlikely to save the country from the morass that has set in. The Planning Commission, in its own assessment, has found the going to be tougher and may further slowdown the growth process. Would it come down to 4 per cent? Nobody says a no either.

Regrettably, the fiscal packages announced since October are not addressed to the workers but are specific to just the industry and banking sectors. The packages are supposedly expected to boost demand in 2009. But the poor again aren’t the target, at least as direct beneficiaries. This apart, the National Rural Employment Guarantee Scheme (NREGS) is learnt to have not given even seven days of wages to the rural poor in some cases.

Clearly, the Government needs to prioritize empowerment of the rural poor so that they could partake with some benefits of the market economy. The WPI has dropped to below 7 per cent, but food inflation is yet to be controlled. It has gone up to 10.43 per cent from 8.4 per cent in August 2008 when inflation was at 13 per cent. Important food items such as cereals, vegetables, fruits, eggs and meat have become more expensive.

Though the market may not feel the necessity to give a thought to the plight of the poor, it must realize that less disposable income, particularly in the rural areas, means it would sell fewer goods to them. An average poor family spends almost 70 per cent of its income on food items and higher prices have seen direct fallout on purchases of goods such as textiles and cloth. Besides, job loss in the textile sector has a bearing on higher food prices.

In sum, the situation calls for a revision in policy. The present scenario is an offshoot of neglecting food self-sufficiency and creating a policy of food imports. This apart, the Government needs to rethink its policy of doing away with the public distribution system (PDS). All through the 70s and 80s, the PDS had indirectly aided the manufacturing and industrial growth. It had acted as an interventionist system to protect the poor from profiteering of the private cartels and kept the food prices under check.

The present meltdown world-over has put governments under pressure to ensure its control to protect its people. In India too, the Government needs to not only revive the system but maintain it too. Most fiscal initiatives so far announced are for large enterprises. But the poor are mostly employed in small and medium enterprises (SME) that include construction, handicraft, gems, jewellery, handloom and small textile units. The slowdown has led to closure of most of these units and the poor have lost their jobs.

A policy for helping the SMEs is yet not in place. It is so because, in an era of multi-nationals, the SMEs are not considered good bait for investment. Thus, a policy focus and change is required not only to revive the jobs but also as a futuristic tool as the SMEs provide employment to the uneducated and less skilled people, i.e. bulk of the poor. Besides, SMEs work in backward areas. Properly utilised they could become the engine of growth in the backwaters. As a result, it would raise rural income and a proper food policy could keep the prices in check to save the poor from sliding into the trap of hunger and malnutrition.--INFA

(Copyright, India News and Feature Alliance)

Events & Issues

New Delhi, 13 January 2009

Challenges Before Omar

HALT  REGIONAL & RELIGIOUS DIVIDE

By Sant Kumar Sharma

Once the euphoria of Government formation settles down, Chief Minister Omar Abdullah will have to take things head on to prove his credentials in Jammu and Kashmir. Clearly, it will be a tough call, tougher than anything he has done so far.  

Undoubtedly, the chief ministership of the trouble-torn State has never been a crown of roses. Additionally, at this juncture it is even more cumbersome due to events of the recent past. The sharp division that the whole State witnessed just a couple of months ago in the wake of the Amarnath land row has not vanished. Worse, the divide is not only regional, but deeply religious too.

The slogans of `Bam, Bam Bhole’ in Jammu and separatist `Azaadi’ slogans in Kashmir are sharply etched in the memories of the masses of the respective regions. Reconciliation between the all-powerful Kashmir region and newly-assertive Jammu has not taken place after the bitter fight so far. It is, however, an absolute must for any meaningful movement forward in the State. Or else, the fear is that eruption on another emotive issue could tear the social fabric of J&K asunder yet again. Thus, effecting reconciliation is the first and foremost challenge before the new Government.

As of now, the signals emanating from the National Conference and the Congress that the two simply want to leave the bitter memories of the Amarnath land row behind them is worrisome. Without even attempting or doing something substantial to bridge the regional and religious divide. They must remember that the sharp polarization is not just a bad dream, but a bitter reality that cannot be wished away.

More so, when the right-wing Bharatiya Janata Party (BJP), with 11 legislators in the newly-constituted Legislative Assembly, will be more than a handful for the new Government. As will be the 21-members of the Peoples Democratic Party (PDP), which paddles `soft separatism’ as its USP and targets the NC.

In all likelihood, in the coming days the BJP agenda in the State will become more hardline Hindu, just as the PDP is all set to take diametrically opposite and radical postures to garner support in the Valley. Sandwiched between these two extreme positions, with top class legislators sitting in the opposition, it is anybody’s guess as to how comfortable Omar’s position will be in the Assembly. Or even in the day-to-day functioning of the Government.

In fact, his entry into the Assembly could well be a baptism by fire, as the fiery Mehbooba Mufti is unlikely to give any quarter to the new chief minister. She will of course, be ably guided by her father, Mufti Mohammed Sayeed, considered (and not without good reasons) a past-master in intrigue. Besides, the two will be supported by ‘brilliant’ Muzaffar Hussein Beigh, Basharat Bukhari and others. 

Amidst all this, the big challenge of reconciliation cannot be wished away. Omar seems to be aware of this pitfall and has already made an announcement to set up an inquiry commission to look into allegations of discrimination voiced by the regions. Playing safe, he has declared that the commission will be headed by a retired judge of the Supreme Court, from outside the State.

On ground zero, such a declaration or pious intentions will have little meaning if they are not carried through with due diligence and devotion. As far as the Jammu region is concerned, it does not have any good memories of such commissions. Omar’s latest announcement is already being dismissed cynically as an attempt to hoodwink the `Jammu people’.

The second big challenge before the new Government is the highly-emotive issue of delimitation of Assembly as also the Lok Sabha constituencies. It is an extremely divisive subject as both the NC and the Congress had a diametrically opposite stance during the Assembly elections. The latter had in its manifesto said that it will work to set up a delimitation commission and accused the PDP, as also the NC, of blocking its efforts for a fair process.

This is so, because there is widespread disparity in the distribution of voters in the Lok Sabha constituencies of the State. In an area of 26,293 sq km, the Jammu region has only two Lok Sabha seats, whereas the geographically far smaller Kashmir, with an area of 15,948 sq km, has been electing three MPs.

During the 2004 Lok Sabha elections, the Jammu region had about 32 lakh voters, more than Kashmir region’s below 30 lakh. The Jammu and Udhampur parliamentary constituencies in the Jammu region had 18.5 lakh voters and 13.5 lakh voters respectively. The Lok Sabha constituencies of Srinagar, Anantnag and Baramulla (in the Kashmir region), on the other hand, had 10.50 lakh, 9.98 lakh and 9.40 lakh voters, respectively.

Incidentally, the area of the Jammu and Udhampur Lok Sabha constituencies is 7,401 sq km and 18,892 sq km respectively. As against this, the constituencies in the Kashmir region are far smaller: Srinagar (3,599 sq km), Anantnag (5,382 sq km) and Baramulla (6,967 sq km).

Given these stark inequities, the leadership in the Jammu region is now trying to stir the pot and work towards a more even and equitable distribution of voters and areas among various constituencies. This is something the Kashmir leaders are firmly keen to avoid and delay. In the run-up to the ensuing Lok Sabha elections, these facts may come into sharper focus, which have the potential of polarizing the regions once again.

If that happens, the two regions are likely to see hardening of postures. Worse, resultant disturbances could greatly impinge on the stability of the Government, which in turn could affect the already fragile economy. It is no secret that the economy and State’s finances, are even at the best of times precariously poised. Trying to stabilize the finances, (dependent on the Centre’s largesse), in the midst of an all-round meltdown, will be a Herculean task. Remember, a reduction in the flow of tourists last summer had led to colossal economic losses. 

In the midst of all its priorities, the Government has no choice but to call a budget session soon and spell out its priorities, in black and white. Simultaneously, reconciliation between the Jammu and the Kashmir regions, Pandits and Muslims and mainstream politicians and the separatists will need to be undertaken.

All the more, because following 26/11, it is politically incorrect to even consider improving ties with Pakistan. However, the down side is that without any perceptible and abiding improvement in relations with its neighbour, not much good can happen in J&K. If only, the new Government could take an initiative, immediately or in the foreseeable future. Sadly, it can’t. ---INFA

(Copyright, India News and Feature Alliance)

Open Forum

New Delhi, 9 January 2009

Tackling Terror Attacks

TIME TO SHUN PARTISAN POLITICS

By Proloy Bagchi

(Former Civil Servant)

Ever since Liela Khaled of Popular Front for Liberation of Palestine hijacked a TWA flight in 1969, many planes have been hijacked around the world. India, too, has had its share. But the one which is never allowed to remain buried in the sands of history is the hijack on Christmas Eve, 1999 of IC 814, the Indian Airlines flight from Kathmandu to Delhi. What distinguished this hijack from the others is that at the end of the tortuous hard bargaining, the then External Affairs Minister, Jaswant Singh, travelled to Kandahar Airport with the three terrorists, the Government agreed to release in exchange for the freedom of the passengers held hostages.

With 177 passengers and 11 crew members the hijackers forced the pilot to fly to Kandahar via Amritsar, Lahore and Dubai. The passengers, one of whom was killed on the way and his body unceremoniously dropped off the aircraft at Dubai, became objects for a trade-off against 36 terrorists held in Indian prisons. Unless that was done, the hijackers threatened, they would blow up the plane. The lengthy negotiations that ensued eventually ended with the Government agreeing to release only three, though dreaded terrorists, viz. Mushtaq Ahmed Zergar, Ahmed Omer Sheikh and Maulana Masood Azhar. While Masood Azhar was later the mastermind of the attack on Parliament in 2001, Ahmed Omer Sheikh was widely perceived to be responsible for the kidnapping and murder of Daniel Pearle, Mumbai correspondent of the Wall Street Journal.

This hijack has been flogged ad nauseam by the Congress Party to run down and denigrate its opponent, the Bharatiya Janata Party. In the dog-eat-dog world of Indian politics, politicians cannot let go of an opportunity to snap at each other. In the last session of Parliament, no sooner had the leader of the Opposition accused the Congress-led United Progressive Alliance Government of being soft on terror, Congressman Kapil Sibal harked back to the 99 hijack. In a classic instance of one-upmanship, he wanted that the Opposition, the National Democratic Alliance (NDA), should apologise to the people for not only freeing three terrorists, some of whom later perpetrated even more vicious acts of terror, but also had them shamefully “escorted” personally by the country’s External Affairs Minister. As is their wont, regardless of their assurances to the contrary given earlier, politicians started growling at each other.

Later, claiming firmness in handling of the Mumbai terrorists, Digvijay Singh, another Congress biggy, a general secretary to boot, asserted that his party-led Government refused to negotiate with the Mumbai attackers. He went on to claim that yielding no quarter to the attackers, the Government had them eliminated. The innuendo was clearly directed at the NDA. However, the question of any negotiations with the attackers never arose because they had never made any demand. During his interrogation the captured terrorist, Ajmal Amir Qasab, has also asserted that the mandate given to him and others did not include putting forth any demand.

In the highly competitive politics, truth is often the casualty and bluff and bluster occupy centre stage. That the then fledgling NDA Government was faced with an extraordinary situation was never so much as mentioned. The unseemly demonstrations by the relatives of the passengers, covertly stoked by some of those in the Opposition, sustained right through the better part of the week asking for total surrender, including ceding of Kashmir (to Pakistan), and the inexperience of the Government, which had just assumed power, have never been referred to. Curiously, even Jaswant Singh’s unpleasant trip, undertaken only because of his keenness to ensure safe release of the hostages, was also given a malicious twist.

Moreover, the fact that terrorists had been released in exchange for hostages earlier is conveniently forgotten. In the early 90s, five terrorists were released from Kashmir jails to free the abducted Rubaiya Saeed, daughter of the then Home Minster, Mufti Mohammed Saeed. Sibal (or others of his ilk) have never made a mention of it as his party until recently not only ran a coalition government with the Mufti’s party in J&K, but the latter was also one of its allies in the UPA. Sadly, this is precisely what politics is all about – to obfuscate, dissemble and misrepresent to keep the opposition down.

In their petty squabbles, politicians tend to forget that the misfortune that befell the NDA Government can chance upon any regime. Given our lackadaisical way of functioning, a bomb blast, a terror attack, a high profile abduction or a hijack are eminently possible. A number of terrorists, including the one captured alive on 26/11 and another in the death row, continue to languish in Indian prisons. An attempt to free them is very much on the cards. Recall, there were several attempts to get Masood Azhar out of the Jammu prison. Their failure led to the IC 814 hijack as we never woke up to the threat his incarceration posed.

Clearly, the Jihadis and their promoters in the Pakistani establishment do not distinguish between this or that regime. They seem to have an unqualified antipathy for India, an entity that they keenly desire to Islamise. India’s multi-culturalism, its pluralist society and its economic progress despite all its handicaps is what bugs them. What is more, they simply hate India and could even launch attacks out of sheer hatred for it. Already a formation for promoting hatred for India has become operational in Pakistan.

If our politicians are really interested in doing good for the people-- which they keep claiming they do-- they need to shun their narrow partisan agendas and cooperate with each other in devising ways and means to achieve what they claim. The need of the hour is ensuring security of life and property of the people. And, this is precisely what politicians of all shades have neglected while they bickered all the time. To make itself secure, the country needs to pull itself by its boot-straps. From plugging the porous land and sea frontiers to creation of a well-oiled internal security apparatus with all its concomitant paraphernalia – there is enormous amount of work lying ahead before the country’s political bosses.

With neighbours on its two flanks harbouring hostile elements, the country cannot visualise a future without terror and/or devious attempts to bleed it and retard its progress. Unflinching vigilance is necessary – a price that has to be paid to ensure to the citizens freedom from fear and anxiety. It is, therefore, time politicians stopped playing politics with national security. People want no less, for the 26/11 security disaster has made them angry – yes, at none other than the politicians. -- INFA

(Copyright, India News and Feature Alliance)