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Inflation & Govt Regulators: HOLISTIC APPROACH CRITICAL, By Shivaji Sarkar, 4 April, 2016 Print E-mail

Economic Highlights

New Delhi, 4 April 2016

Inflation & Govt Regulators

HOLISTIC APPROACH CRITICAL

By Shivaji Sarkar

 

The Government needs to pursue policies that ease inflation and reduce prices to lubricate the economy. This is so because the trap laid by previous regimes is seemingly tightening. It is just not the fuel prices that firm up prices. Though it remains the base, there are other factors such as continuous increase in insurance premia, toll taxes, banking, parking, airport charges, tuition fee, dynamic railway fare, high taxi and bus fare apart from high commodity prices which lead the country to a phenomenon of price rise.

 

For example, why Mumbai airport should demand transit passengers to pay more? Nobody wants to stay at an airport even for an extra minute, if he gets his connecting flight. It is strange that airports built with passengers’ money could think of punishing him more.

 

Each of the sectors functions independently of the other and increase their prices or fees. Each justifies it saying their cost of operations have increased and “have to pass on the burden to the common man”

 

The flak for this is borne by the Government as it is blamed for not controlling the situation. It also has to bear the cost by paying its staff more to sustain unhindered profiteering of the unscrupulous. The Government has taken a view that it would not intervene to facilitate business. It calls for a review.

 

The business in this country is thriving on the poor man’s money, easily available through the questionable bank practices. More the inflation, higher the charges, more they gobble up public funds, their coffers grow and so does their exploitative practices grow. All the same the private reserves remain intact or increase. Who suffers? Obviously, the common man and the Government he elects.

 

The Government has sealed itself out through a system of regulators. They, whether in insurance, electricity or telecom sectors act in favour of the perpetrators and care less to protect the consumers. The logic seems to be “the consumer has to pay more and more to keep business profitable” – or stated differently consumer can be exploited at all times and if he seeks a relief it is denied being “unsustainable”.

 

Should we really have such regulators or go back to the earlier system of people’s (government) control? This needs to be pondered seriously. Regulators are primarily responsible for higher power bills, insurance premia and most other hikes.

 

Just go to any city, parents are found fighting with schools which arbitrarily raise fees, force students to buy books and stationery, uniforms and what not. Refusal to do so would cost the students dearly including refusal to hand over their results, cancellation of admission and many other retributive practices.

 

Is there any remedy? The State governments have expressed their inability on many counts to help the parents or students. The officials may say it is not part of the economy. But that is the fallacy.

 

High education cost is causing severe stress among the middle class. They have stopped going to the bazaar for buying anything except that is utterly necessary. Even there they have been reducing necessary consumption of essential items. This affects the Prime Minister Modi’s concept of ‘Make in India’. Such reduction in demand affects production. The nation needs to seriously reconsider whether cost of education should be low or not. Institutions at all levels have devised methods to pay less to the teachers – even they are asked to refund a part of their salary credited to their bank accounts – and increase the profits of institution operators.

 

The insurance companies and IRDAI have been raising premia every year from third party motor vehicle claims to health, fire property and what not on unjustifiable pretexts. The claims in this country are at their lowest but IRDAI allows insurance companies enormous increases forgetting that it finally hits the industry and individuals alike. It increases their cost of operations and leaves them with less spare money to sustain the market.

 

The IRDAI has itself stated that “incurred claims ratio of the motor segment came down by two per cent in 2015 against 2014”. Then why has it hiked third party premium? It hits the transport sector heavily and they make it up by raising freight several fold.

 

Similarly, there is little rational in increasing premium for housing, health, fire and other sectors. There is also little rational for charging higher premium for someone who has staked a claim. It is becoming an unsustainable and unnecessary system.

 

Let us make insurance in all sectors voluntary. The Government or the regulator appointed by it should not support or sustain a business that per se is unsustainable. The companies do not reveal the percentages of claims it declines. It is a highly profitable business and is bleeding everyone.

 

No less illogical is the decision to disallow registration of high-powered diesel vehicles in Delhi. The courts are supposed to go by the provisions of the Motor Vehicles Act that allows all vehicles to ply all the 24 days – provision that helps production of new vehicles and creation of jobs. The so-called National Green Tribunal (NGT) is playing havoc with the production process.

 

If everything is to be banned, then let us start with banning the illogical NGT. In no country vehicles are junked as the NGT suggests. It hurts the economy and wealth formation. The Tribunal forgets that the junked vehicles also add to pollution. Besides, it has a financial cost apart from causing disturbance to ecology and economy.

 

The NGT is also ignoring the suggestions of Modi to make the country a hub of activity. The NGT seemingly has only one aim --to take the country many centuries behind. It is oblivious that its quixotic suggestions add to costs and is inflationary. In short, organizations such as NGT are anti-development else it would have come down heavily on unsustainable odd-even car system.

The NITI Ayog and the Government have to consider various aspects that are hitting, hindering the economy and creating an inflationary process. It also needs to look at how it can keep wages and business expenses low – an essential condition for ease of doing business. A new holistic look at economy and those adding to inflation is needed. A stable and judicious pricing system is required to keep the economy on rails and cut fiscal deficit. ---INFA

 

(Copyright, India News and Feature Alliance)

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