Economic
Highlights
New Delhi, 17 April, 2017
Rising Inflation
PUBLIC SECTOR ADDS TO WOES
By Shivaji Sarkar
Rising inflation, not so good
performance of the industry and not passing on the benefit of falling fuel
prices to consumers are causes of concern. But it is just not the weather,
rupee fluctuation, or rising wages that are causing inflation. Much of it is
unfortunately being led by the public sector – a legacy they inherited from the
past. The public sector has yet to contribute to the efforts of Prime Minister
Narendra Modi’s vision of making the country most business friendly.
The government has to tighten up its
expenses as inflation hits a new high of 3.85 per cent in March, and is
projected to rise further. Of course, there is no surprise in it. The country
adopted an inflation target of 4 per cent in 2016 for a five-year period with a
2 percentage point tolerance on either side.
Consumer prices rose by an annual
3.85 per cent, fastest since October 2016 compared with 3.65 per cent in
February. The inflation was not caused by food items though prices of milk and
eggs rose by 4.65 per cent and 3.21 per cent respectively. Vegetable prices
fell by -7.24 per cent though fruit prices continued to rise to 9.35 per cent
from a month’s back 8.33 per cent. The major cause is stated to be the fuel
inflation acceleration to 5.56 per cent.
The economic sector is worried about
uncertain monsoon, as the weatherman has predicted it to be erratic. If this
happens, as RBI also indicates, the food prices may again go up. A US government
weather forecaster projects possibility of El Nino factor upsetting rainfall.
The capital goods output which
reflects the real investment declined by 3.4 per cent. Decline in IIP is led by
manufacturing constituting 75 per cent of the index. It recorded meager growth
of 0.6 per cent. As many as 15 of the 22 sub-sectors recorded year-on-year
decline. Even some of the big names that came up during the last three years
recorded contractions.
The cumulative growth of the
country’s factory output for the April 2016-February 2017 period works out to
0.4 per cent much lower than the cumulative growth of 2015-16. Overall consumer
goods production contracted by 5.6 per cent and non-durable consumer goods
production fell by 8.6 per cent.
In a way it is double trouble for
economy. On the one hand, it indicates difficult days as consumer prices rise
on the other slowing down of activities indicate falling purchasing power
despite increasing salaries in the government and some other organized sectors.
It cannot be just attributed to the
recent phenomenon. It has happened during the past several years, even before
2014. Correcting it is an uphill task and may have to wait the new vision that
the Modi government is planning to unveil at NITI Ayog.
The strengthening of the rupee from
over Rs 68 tot Rs 64.43 has a benevolent impact on oil prices and other imports
though domestic oil companies are unhappy as their phenomenal profits are
lowered. So is inflation being caused by public sector behemoth, which
technically has the least political control?
Inflation is not being caused by
rising salaries. Wages are adjusted to match inflation. If despite such raise
it is unable to generate demand, it means wage hike is far less than the
inflation. What causes inflation? Many of these are listed in IIP. But many
more are not. It includes the school fees and bank charges which are eroding
the pockets of low-salaried Indians.
And unfortunately many of the
inflationary causes are happening at the public sector. The dynamic rise in
rail freight and fare is bad economics. It has a cascading effect on all
consumer goods and travel costs of trade and corporate sector. It is bad
accounting as well for which the railways have earned a reputation.
India has the world’s highest road
toll. It defies all logic. It adds to surreal profits of the operators,
including National Highway Authority of India (NHAI), delays traffic at every
toll gate and adds to the cost of transportation. The tolls are impractical
because the government also collects 2 per cent cess for central road fund.
The Government has collected Rs 69,809
crore through cess imposed on petrol and diesel in 2015-16, Minister of State
for finance Santosh Kumar Gangwar told Rajya Sabha on August 2, 2016. It
collected Rs 17,217 crore through cess on petrol and Rs 52,592 crore via cess
on diesel. The cumulative cess collection since 2006 amounts to over Rs 5 lakh
crore.
As such India should not have highway toll
as every 0.5 cc moped owner is also paying for a facility he never uses. Toll
collections are around Rs 35,000 crore a year across India. The cumulative is about Rs 3
lakh crore during the past 10 years. The recent court decision to free
Delhi-Noida toll bridge shows that highway toll is an exploitative system and
benefits only few companies, including the public sector behemoth NHAI.
If tolls are removed India saves Rs 60,000 crore a year lost because
of delays at approximately 374 toll gates, according to a 2013 report of
Transport Corporation of India
and IIM, Kolkata. Transporters suggested Rs 14,000 crore payment upfront to
stop the toll system. Each truck pays Rs 4 to 5 lakh a year as toll. But vested
interests are reportedly against doing away with it. The NHAI has also stated
that almost 30 per cent toll collected is never paid to it. Where does it go?
So if the toll is done away, India saves Rs
1 lakh crore a year. It would reduce business costs, prices, and boost demand.
If railways also rationalise freight and fare, it would add to the economic
growth. There are more reasons to do away with such irrational charges. The
central government collected Rs 64509 crore from petrol as excise duty in
2016-17 and excise duty from diesel jumped by 36 per cent to Rs 3 lakh
crore.
This apart municipal corporations
are collecting huge parking charges from each vehicle at the time of sale and
are enriching themselves by levying sky-high parking fees and that includes the
national capital, Delhi.
Public sector banks are adding to
the woes. They are collecting billions on illegal and irrational charges from
all individuals as well as businesses. The system is being forced to be made
exploitative and India
is becoming less business-friendly, if not anti-business. This has to end if India wants to
compete in the world and be the most inexpensive production destination.
---INFA
(Copyright, India
News and Feature Alliance)
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