Economic Year-End
New Delhi, 30 December 2013
Economy 2013
MORE SLOWDOWN IN NEW
YEAR
By Shivaji Sarkar
Yet another year passes. It causes more concern than happiness. Despite all
fundamentals not being weak, the Indian economy has not performed well through
2013. The concerns are not just the galloping inflation and a falling rupee but
also a slowdown in all spheres – industry, manufacturing, FDI, education and
even domestic savings. The natural corollary is the sub-five per cent growth, the
lowest in recent years.
So 2014 begins with a heavy baggage, despite Finance Minister P Chidambaram
having us believe otherwise. He states that India’s economy is on its way to
recovery and will grow at 5 per cent in the financial year ending March 2014. Experts
say that the economy has bottomed out and by simple logic has only to move up.
The nagging question is whether it would really be so.
The economic data that the Government put out
at the year-end, some say, bears hope. Economic output for July-Sept 2013
quarter was an unexpected 4.8 per cent (compared with 4.4 per cent in the
previous quarter, India’s weakest in recent years), partially because of
healthy farm output, a revival in exports and some narrowing of the current
account deficit.
But a former Finance Minister Yashwant Sinha says that statistics could be
shown to be attractive by making it “manually” move a few points. Thus, the optimism
Chidambaram exudes has to be seen in this context apart his political
compulsion of “projecting” a “revival” as the Congress party prepares for General
election in April-May 2014.
Neither Planning Commission Deputy Chairman Montek Singh Ahluwalia nor the rating
agency Moody’s agree with Chidambaram. The UN too has lowered India’s growth
forecast along with many rating agencies to 4.9 per cent.
The latest data shows growing disenchantment among the youth as
unemployment surges to 11 per cent. Each year almost 10 million i.e. one crore
youth join the job queue. With an all-round slowdown, it is not only that the
youth are not getting jobs, many in their early forties are also joining the
bandwagon of the jobless as all industries, and including the supposed growth
engine, the services, are sacking employees for a slimmer workforce.
According to RBI Governor Raghuram Rajan consumer inflation is the grave concern.
At 11.24 per cent rise in consumer inflation, and almost another 18 per cent in
food and vegetables, the combined average inflation in three years surpassed 41
per cent. It means the poor are taking the worst hit forcing a worried Government
to come out with the food security law and admit that over 67 per cent or 81
crore of the 121 crore population remains hungry.
The National Consumer Spot exchange has turned out to be one of the biggest
culprits in this sphere with prices being manipulated at all levels and
repeated defaults in payments. It recorded 19 defaults. A mere Rs 276.14 crore
was realised against a due of Rs 5600 crore to 13,000 investors during over a
year.
This has not only raised the subsidy bill of a weak Government but has also
led to direct confrontation at the World Trade Organisation’s Bali
meet. India
did not acquit well as it signed the peace clause to get a reprieve for four
years. Contrary to its claim of being tough, the weak approach of the UPA-II would
have serious repercussions on the future Government. India
lost the fight on many international concessions as it accepted the
quantitative restrictions under pressure from the West at Singapore in
1996, when Chidambaram was the commerce minister. In fact, it is feared that the
Bali meet is likely to lead to another
abyss.
Consumer prices index (CPI) are typically the key to gauge inflation in
most developed economies but in India in the 90s it was changed to wholesale
index that camouflages the real economic woes. The RBI is now on a course
correction and trying to tailor monetary policy to the CPI.
The fuel pricing policy is another flaw. It is tailored to benefit the
corporate and not the consumers. The recent doubling of gas prices to $ 8.2 per
mmBtu for Reliance, despite large number of complaints against it of hoarding
and under-recovering gas, is an instance of how the Government is reneging on
managing natural resources and adding to inflation. It would lead to an
all-round increase in all fuel prices, industry operation and transportation
costs. Further slowdown is inevitable. With the Oil and Natural Gas Corporation
stopping operations in Sudan,
India’s
oil bill would take a further hit.
The ouster of Jayanthi Natarajan from the Union Environment Ministry is yet
another testimony of corporate dominance over Government functioning. The ‘profits
only’ approach cannot be basis of governance ignoring basic public good.
Undeniably, rising costs are impacting the nation. The high domestic
savings that had so far been fuelling the growth is plummeting. With an overall
slowdown, the Government revenue collections are bound to be hit hard.
As is known, growth figures hinge on unexpected surge in agriculture to
over 4.6 per cent. But that remains a neglected sector despite over 70 crore
people depending on it. Partly the economy has moved on because of small
increase in rural income. This increased the demand for tractors, motorcycles
and consumer goods to some extent. At the same time, this is also creating a
large divide between industrial and agricultural India with little effort to bridge
it.
The currency
too suffered a big bruise and crashed nearly 25 per cent against the US dollar
in the past year. Despite all efforts, the Rupee still remains at a low of Rs
62. Importantly, Monek Singh Ahluwalia does not exude the same confidence as Chidambaram.
During his recent address to the Indian
School of Business at Hyderabad, he stated: “I don’t think at the
moment we have signs of strong revival yet, but I do get a picture that people
think that the economy has bottomed out”.
That is the
reality. The political uncertainty linked to the General Elections is making
foreign investors wary and hampering investments. Much depends on the outcome
of the polls. The uncertainties would persist till a Government with a
convincing majority takes control and changes tack to pro-people, and not just
pro-corporate oriented policies.
“Complicated
taxes and regulations, weak infrastructure, and a weak Central Government weigh
on confidence and demand. This will turn around eventually, but not in 2014,
keeping GDP growth below potential,” rating agency Moody's stated in a year-end
report. With the heavy baggage of 2013, no sight of inflation
coming down, the first six months may continue the process of bottoming out in
2014. Little cheers then for the start of a new year--- INFA
(Copyright,
India News and Feature Alliance)
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