Events & Issues
New Delhi, 23 September 2013
Politics Of Votes
BANE OF INDIAN
ECONOMY
By Proloy Bagchi
Finance Minister
P Chidambaram recently announced a slew of austerity measures such as banning
meetings in 5-star hotels, purchase of new vehicles, creation of new jobs and
filling of vacant posts, restriction on foreign travels and sizes of
delegations going abroad. Besides, Ministries have been asked to reduce 10% of
their respective non-plan expenditure. Inconsequential per se. These are mere
tokenisms and are not likely to make a dent on the current economic disaster.
Indeed, it
would be naïve for the Government to think that austerity measures, or the
temporary breather of the slight gain in the rupee or the FIIs buying stocks,
would give confidence to the people that it is serious about bringing an end to
their misery. Already in election mode 2014, its report card so far is poor.
Remember earlier this year, when the the rupee hit 58.78 against a dollar Chidambaram said there
was no need to panic as the currency would regain the losses and then
stabilize. Among various other issues he talked on was “I am looking forward to
more reforms…I expect a number of decisions in the next few days and weeks.”
Among the decisions that he expected were on coal and gas
pricing, coal allocation to power plants, FDI limits to various sectors
including defence, etc. Ruling out any hike in import duty on gold, he appealed
to people to resist the temptation to buy gold as that would immediately have
positive effect on CAD. Expressing satisfaction over the decline in the fiscal
deficit to 4.8 in 2012-13, he said inflation had moderated and the economy was
stronger than what it was last year. He ruled out any expenditure compression
in the current fiscal and said Government investments would continue.
While he tried in vain to put up a brave face it all seemed
to be hollow. His efforts and those of the Government proved to be futile as
things kept sliding out of their hands. The rupee kept losing against the
dollar and other major currencies, the current account and fiscal deficits kept
mounting and the consumer price index spiraled out of control.
As the rupee declined and the stock market tanked the
foreign capital in debt and equity tapered off, the country lost the confidence
of foreign investors. Added to this was
the big blow of foreign money just gushing out of the country depressing the
stock market hitting the rupee further. More bad news came in with the GDP
registering an alarming 4.4% growth in the first quarter of the current fiscal
– slowest in four years. All the sectors including agriculture, manufacturing,
power, etc grew only at around 3%.
In the pervasive gloom, France’s biggest listed bank BNP Paribas SA
pegged down India’s
growth in 2013-14 from its earlier prediction of 5.7% to 3.7% - perilously
close to the pre-reforms much disparaged Hindu rate of growth of 3.5%. The
brave front put up by the FM melted away in no time and the man who was asking
the country not to panic, seemed to be in the midst of a panic attack.
As things became desperate, he admitted that
fiscal deficit and CAD were getting out of hand and exports had tapered off and
the rate of inflation refused to climb down – putting a great squeeze on the
poor and middle classes. Despite declaring himself earlier against expenditure
compression there was talk of austerity in the Government – without any signs
of it anyway.
Playing the unusual ministerial blame-game, the
FM blamed his predecessor, who is now the President of the country, for certain
wrong decisions taken between 2009 and 2011 hinting at his Budget speech of
2012 proposing amendment to the Income Tax Act enabling taxation on off-shore
mergers and acquisition of Indian assets with retrospective effect (Raghuram
Rajan termed it a “capricious” decision) to overturn Supreme Court’s judgment.
Foreign investors became suspicious of India’s
intentions and avoided entering the country with investments big or small as
established laws and policies could be changed overnight because of one man’s
whims. Curiously, the Prime Minister failed to foresee the implications and did
not intervene.
Repeating ad
nauseum that the fundamentals of the economy were sound and that the rupee
would soon regain its loss did not help and the currency rolled down fast and
hit the 68 mark. As it did so the three economists in the Government went into
a huddle to parley with the Prime Minister’s economic adviser. In the meantime,
however, desperate actions like hiking of import duty on gold was taken
simultaneously imposing a ban on sale of gold coins, medallions, etc. was
imposed. Desperately looking for foreign investments, the Government relaxed
(with unwise conditions) FDI caps in 13 sectors including telecom, whose shares
promptly registered a rise.
Inheriting a fast growing and robust economy
from the NDA in 2004, the UPA, attempting something different, squandered the
opportunity of taking it forward and messed it up by virtually taking a U turn
in going in for “inclusive growth”, which did not materialise in its nine-year
rule, anyway. By its own admission, 87% of people need subsidized food in 2013.
In 2004 the CAD was in surplus and the forex reserves were in surplus vis-à-vis
net external debt.
Today, while the reserves have shrunk to around
$270-280 billion the Government has run up an external debt of $390 billion.
The consumer price index (CPI) was around 3-4% and today it has hit 11% with
food inflation at 18%. Many have been tempted to relate the current economic
situation to that of 1991 with high fiscal and current account deficits, high interest rates and CPI,
capital flight due to waning investor confidence, trade imbalances, burgeoning
external debt etc.
The Government played around with the riches it inherited in
2004 and indulged in profligacy. Not only it launched the MNREGA and JNNURM
involving billions of rupees with nothing much to show for asset-creation –
giving fillip to corruption. It also waived off farmers’ loans and bailed out
the sick Air India.
It even permitted massive outflow of dollars for buying property abroad by the
rich.
Experts see the current economic predicament as the
consequences of high profile corruption scandals involving mindboggling sums of
money, eventual policy paralysis slowing down many key economic decisions and,
of course, political gridlock. With nothing much achieved, the Government continued
to dither ruining the once-promising economy.
With coffers full, it took the socialistic path to win votes
forgetting that 50 years of socialism did not take the country anywhere –
regardless of “garibi hatao”
campaign. Poverty and hunger cannot be removed overnight by opiates. Only
industrialisation can remove these as it did in the West two centuries ago, in Japan a century back and now in China. Even in India, millions
were lifted out of poverty during the years of high growth after its economic
reforms in 1991.
Sadly, Chidambaram and Co.
are too obsessed with votes and building vote banks. Country’s economy requires
hard decisions keeping the country’s future prosperity in view and not the
votes the ruling combine can muster at the hustings. Political manipulation of
the economy has been the bane of the country and, unfortunately, one hasn’t
seen the last of it yet. --- INFA
(Copyright,
India News and Feature Alliance)
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