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Delhi, 31 July 2013
“Situation
Under Control”
BUT NO
GLIMMER OF HOPE
By Nikhil
Gajendragadkar
The first quarter of the new
financial year brought grim news for the UPA Government at the Centre. There is
no good news for the people either. Industrial production has declined, exports
continued its downward trend, and inflation, which we all want to decrease, has
increased. On top of it, tax collection
also has missed the mark. Still the Manmohan Singh-led Government remains calm
and unmoved.
Industrial production or factory
output has shrunk. According to statistics released by the Government, its
growth rate was minus 1.2 per cent. Sub zero rate cannot be called as “growth
rate”. In April this rate (or IIP) was just 1.9 % according to “revised”
estimate; earlier it was fixed at 2.3 %. These results are declared by the
Government itself.
Decline in the growth rate of
Capital goods is more disturbing. It shrunk to -2.7 %. Capital expenditure is
an indication of the investment by the industry. In 10 out of last 14 months
this rate is below zero, which means the Indian industry (or India Inc. as
popularly known) is avoiding new investment or it is incapable to do so. Either
way it also tells that the Capital Goods Industry is in a bad shape.
This quarter had a surprise in the
store (besides large inventories) for Consumer Goods industry too. It
(including “Durables” and “Non Durables”) saw a negative growth rate. By June
end this industry shrank by 4 %. This came as a shock for the industry as a
whole and the Government too. Lack of demand - both domestic and international-
led to stockpiling of goods. Costly Input forced producers to increase price,
which is driving the consumers away. Thus industry is in a fix.
The auto industry bears testimony to
the fact that economy is slowing. In June, car sales plunged by 9 % with sale
of commercial vehicles dropping by 13.45%. For the past eight months this is
the trend for auto sector. Increase in input cost is one reason and costly fuel
the other. If transporters cannot get enough business, who will invest in
purchasing a new truck or a bus? In other words transporters are not getting
enough work. Negative growth of industry and slump in the transport sector are
directly related. If there is no demand then where the hell will producers
transport their product?
The other tragedy is exports. June
saw a decline by 4.57% in exports. Last month, India could export goods worth only
$23.78 billion. Though it saw a decline by 1.11% in May, latest is the largest
in past eight months. But imports have not come down proportionately. In May
balance of payment (BOP) rose to $20.1 billion. Compared to April and May
import of gold reduced considerably, thanks to steps taken by the RBI and the
Government, and BOP or Current Account Deficit (CAD) came down to $12.2 billion
in June. Still overall CAD is as high as 4.8 % of GDP.
The same quarter gave another jolt
to the Government on the tax front. Growth in its collection sank to only 8.7%.
Slide is prominent in indirect taxes. Of course it is not unexpected. Indian
economy in the last two quarters of last year (2012-13) grew at meagre rate of
4.7% and 4.8% respectively. Numbers of the first quarter for GDP growth are yet
to come but going by the trend, they will not be encouraging, feel many
economists. Excise duty is a major source of income for the Government. It is
reduced by 5 %. Corporate Tax comprises one-third of total tax collection. It
has grown only by 7.8%. Budget forecast
was 16.9% growth in this segment. Service tax has risen dramatically in last
few years, so the Finance Ministry relies heavily to boost its finances. The
Budget estimated growth of a whopping 35.7% growth in service tax, it
registered 15.2% growth in the first quarter.
Excise tax and corporate tax are
directly connected with the performance of industrial sector. Auto, textiles,
manufacturing, consumer product; nearly every sector is doing badly for last
one-and- half year. When industry as a whole slows down, one cannot expect
growth in tax collection either. Some vehicle producers have already started
reducing production by halting it for few days. This will affect employment.
On one hand production and tax
collections are dwindling, inflation is showing no signs of abetting. Retail
inflation rate touched 9.87% in June. Preceding three months it did not rise,
but was not below 9%. Food inflation was up to 11.84% in June. All varieties of
grain, vegetables, fruits, milk and all other food articles are getting
“dearer” every week for last three years. One cannot comprehend how the
Government can claim that inflation is on decline? Even inflation based on WPI
(wholesale price index) in June has inched to 4.86 from 4.70 earlier months and
food inflation based on WPI is 9.74 in June from 8.25. Supply crunch is the
main reason behind this situation and the Government is doing precious little
to rectify it.
Rupee’s depreciation against US
Dollar has deprived our economy to gain from lower crude price in international
market. This has also led to increase in fuel prices in the domestic market.
Costly fuel starts a vicious cycle of more inflation. High cost of essential
commodities has forced common people to spend more on these items, naturally
they cannot think of a home loan or loan for buying a vehicle. Inflation has
eroded demand for almost all goods.
Prime Minister Manmohan Singh
announced opening up of many sectors for FDI, but there are no takers. High
inflation coupled with huge fiscal and current account deficit are major
hindrances in attracting foreign investment. In the past four years the
Government did nothing to boost domestic investment and saving. It is spending
on so called “social programmes”, but that expenditure is not creating assets
for the economy and country. The Government’s publicity campaign “Bharat
Nirman” (Rebuilding India) is actually a proof of such spending. What happened
to Mid Day Meal scheme is now in the open with the Bihar
tragedy.
Agriculture sector is in dire straits
for decades. The UPA government is paying lip service to farmers for the past
seven years. Neither industry nor agriculture is good health, then who will
create 10 million jobs needed every year?
This Government‘s quest of “inclusive growth” is in reality pushing many
groups away from it
June saw a decline by 4.57% in
exports. Last month, India
could export goods worth only $23.78 billion. Though it saw a decline by 1.11%
in May, latest is the largest in past eight months. But imports have not come
down proportionately. In May balance of payment (BOP) rose to $20.1 billion.
Compared to April and May import of gold reduced considerably, thanks to steps
taken by the RBI and the Government, and BOP or Current Account Deficit (CAD)
came down to $12.2 billion in June. Still overall CAD is as high as 4.8 % of
GDP.
On any front there is no glimmer of
hope. But Congress and its allies in the UPA are obsessed with next year’s
General elections. The politicians want to win their seats. That is why they
are proclaiming the “situation is under control”...But we know the
reality.---INFA
(Copyright,
India News and Feature Alliance)
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