Economic Highlights
New Delhi, 26 August
2019
Economy
Diseased
NEED
EFFICIENT DOCTOR
By
Shivaji Sarkar
.
There is a dilemma
and nagging policy uncertainty. Is the economy growing, in a thaw or on a downslide?
Does it need revival or should it be on a sprint? Is it spirited or dispirited?
Such doubts are many and answers as varied as the questions. In addition to
this conundrum, it’s alleged that economists are also divided --
pro-government, anti-government, Marxists, non-Marxists, pessimists, optimists
and so forth.
Does it mean that
there is no problem with the economy? Or does it mean that all discussions are
mere bunkum? Or is it a way to keep the reality in shroud or avoid discussion? India
needs an answer and it is eluding. It may be a transition that all are unable
to judge, but definitely there are issues and serious issues, with many sectors
in limbo.
The reason is
difficult to understand. The latest entrant to this scenario is the popular
biscuit industry. One of the largest biscuit-makers is contemplating laying-off
10,000 workers. This can be due to either intense competition with many new
entrants or because the company hasn’t innovated and come out with new
varieties such as cocoa-filled cookies or numerous other new tastes that are
flooding the market.
While the company’s
crisis may be affecting over 50,000 people, it need not necessarily be a
national crisis. Identifying a snack with national crisis like fall in
purchasing power is dodging the question of a full meal. A food item sale apart
from a company’s efficiency also reflects the preparedness to keep up with the
changing tastes and times.
This is to be
compared with the overall rural household-level data from four
Consumer-Expenditure Survey of National Sample Survey – 1987-88, 1993-94,
2004-05 and 2009-10, say two researchers Amit Basole and Deepankar Basu of
University of Massachusetts, US. They, say that rising expenditure, one of it
on cooking fuel caused a decline in calorie intake. The study reflects today’s
reality as well. They state that the relative price changes, occupation pattern
alteration and a 10 per cent increase on fuel between 1987-88 and 2009-10
caused 0.7 per cent and 10 per cent decline in calorie intake.
Remember, the fuel
price has increased over 13 to 15 per cent during the past about six years. It
has hit calorie intake further. And while the rupee is hitting an eight-month
low of Rs 71.80 and petrol prices are skyrocketing, this hits consumption at
every level, food included.
On the one hand, while
the officials blame it to external factors like Donald Trump engineered trade
war, on the other critical economists blame flip-flop policies of jacking up
costs or prices of government managed items and services – fuel or railways or
highway tolls or CBSE schools and higher education fees.
Each of it affects
food consumption or calorie intake. In that sense, the economy is on a roll.
Continuous inflationary situation, which the price index may not be mirroring,
limits consumption, expenditure pattern, consequently production and growth
parameters. This hits official revenue collection and government expenditure
pattern that provide the only stimulus amid a host of uncertainties in perspective
planning of industries, managing falling sales and job cuts.
Every day the figures
are becoming too stark. Direct tax collection has slowed to 4.7 per cent
between April 1 and August 15 as against a required rate of 17.3 per cent. This
shows the fallacy of projections in inflation-hit economy or is it failure
power of the reasoning.
India needs to have
dialogue on the tax system. It needs to have wit to lower the tax rates to
boost purchases, production, growth and higher revenue realisation. A
bureaucratic budget is smothering all that. Not only direct and indirect taxes
even penalties like on car speeding are aimed not at spurring growth but
revenue realisation.
Empowering the
constabulary to raise revenue historically has been disastrous. Let the nation
recall the reasons leading to the French revolution – almost same as inflation,
lower food intake, job evaporation, power of the gendarme and choking of the
economy. The government has to bring in that revolution. It has to junk
Manmohanomics and ensure free flowing economy.
The Government needs
to be an efficient manager, be impartial, allow freedom of business and leave
decision of how much tax to pay to the people. Coercion and dispossessing
people of their earnings and wealth does not ensure that needed freedom. In
fact, the government’s own arm, the Reserve Bank of India, in its monetary
policy review on August 7 has eloquently stated: “Overall there is evidence of
domestic demand slowing down further. Investment activity has been losing
traction”.
Unfortunately, its suggestions
are away from reality and contrary to the inflationary situation. It has flawed
prescription of reducing interest rates (for increasing credit) while it should
be increased to check inflation and boost savings. The UPA government did the
same mistake in the wake of 2008, global sub-prime meltdown. It led to a
situation of officially looting the banks by large corporate, now called NPA
crisis.
A doctor can
experiment and fail once. If he repeatedly fails, it would raise questions
about his education and expertise. The RBI is repeating the 11-year-old mistake
of the then Finance Minister P Chidambaram. Lowering interest rates even then
did not raise the domestic consumption.
The RBI in its policy
review accepts deceleration of private consumption, considered mainstay of
growth. It even connects fall in consumer price index (CPI) to absence of
demand that boost sales and industrial activity. It finds a slump in both rural
and urban demand. Plus, its other observations are eye-openers. Total kharif area
sowing is 6.6 per cent less than a year ago. This means an impending farm
crisis and further food price rise.
Industrial activity, says
the RBI, continues to be weak in May 2019, impacted mainly by manufacturing and
mining. It translates into what rightist and leftist economists sum up as job
losses. The slowing down of capital goods import to 5.8 per cent is summarised
as key indicator of investment activity contraction in June. It has faltered
once again on protecting savings or about its boosting. A nation that has grown
on the traditional wisdom of growing on savings unfortunately is devastated
through imposition of taxes on interest accrual – hedging against inflation. This
certainly is not income.
Repeated goof-ups
across regimes are surprising. The economy, let the nation accept, is on a
downslide and needs revival. It is looking for a professionally efficient
doctor. Longer the delay, the disease will progress.---INFA
(Copyright, India News & Feature Alliance)
|