Economic Highlight
New Delhi, 17 May
2021
Deficits
& Debt
MODI
GOVT MUST RETHINK
By
Shivaji Sarkar
India is profligate. Its economic policies
are away from realism, dependent on only one aspect of development – build,
build and build more. The real estate has virtually busted with little activity
anywhere else at a time when the fiscal 2020-21 touched Rs 14.1 lakh crore
deficit, 76 per cent of revised estimates of Rs 18.5 lakh crore, 31 per cent
more than last year’s corresponding level of Rs 10.4 lakh crore.
It is a grim situation. The government is on
Charvak philosophy of borrowings without a thought how, who or when repayments
would be made. It will impact many future budgets – generations - and the expectation of a recovery merely
through GDP projections, is fraught with risks because most projections are
unreal. The government through its extravaganza like the Central Vista, roads,
rail corridors, temples, and statues wants to create an illusion of boosting
economy through doses of impractical expenditures. History abounds with many
misadventures, including the Alai Minar in Delhi, which could never be
completed.
The real estate across the country is in deep
crisis. The companies have invested billions in acquiring land but projects
could not even take off through slowdown in 2019-20 and consequent lockdowns,
job and wage losses and stoppages of work. It is hit by falling property prices
except in Ayodhya, where land prices are shooting up as 40 more acres of land
is being acquired to make an auspicious figure of 108 acre. The prices have
been jacked up by speculative projects around a supposed new tourist city.
The unprecedented scale of the impact of Covid-19
on Indian real estate can be gauged from the fact that the sector has incurred
a loss of over Rs 1 lakh crore since the pandemic broke out, according to a
KPMG report. The credit shortage brought down the residential sales from four
lakh units in 2019-20 to 2.8 lakh units in 2020-21 across the top seven cities
of India.
The work from home has given a boost to
Google, Amazon, Facebook, Apple and Micorosoft (GAFAM) tech companies turning these
into money minting machines. Amazon alone is said to generate $80,000 revenues
every minute. But it has ruined the real estate as work from home has hit
demand for workspaces of about 38 million square feet. These companies are
siphoning off funds from India leading to another revenue crisis.
Amid such scenario the latest GDP figures are
a misnomer. The figures say industrial output rose 22 per cent in March, on the
back of a 19 per cent decline a year ago. In reality, factory output shrunk
almost 10 per cent in 2020-21 because of Covid-19 lockdown, the biggest shock
to manufacturing activity since 1982-83, according to Index of Industrial
Production (IIP). The March spike needs to be seen in the context of an 18.7
per cent contraction in March 2020. In the following months IIP numbers
underwent large contractions.
Retail inflation figures as per consumer
price index (CPI) slowed to 4.3 per cent as food inflation comprising 39 per cent
weight has come down. Food inflation “slumps” as vegetable prices came down to
2 per cent from 4.9 per cent in March 2020. Veggie prices fall by 14.2 per cent
in April, cereals and products contracted by 3 per cent, biggest ever since
January 2012. Crash in veggies possibly reflect fall in purchasing power and
supply disruption due to lockdown curbs. The cereal and veggie price crash will
have adverse impact on farm incomes and possibly further consideration for more
cash doles.
It is a reflection of the agriculture policy
that is not serving the growers. How the three new farm bills would impact farm
health should be a matter of concern. But retail inflation is to see additional
headwinds in May and June as fuel prices, after a thaw during the State
elections, are being spiked every day. Another concern is the rising prices of
edible oils of all sorts. Latest to be added after mustard, groundnut and soya
oil is the palm oil used by bakery and other processing units.
The rising fuel prices are also reducing
consumption leading to distress for petrol pump owners as their overall income
slumps. But it is to increase commodity prices, fare and freight continuously.
A lopsided argument that for revenue generation tax rises on fuel are must. The
governments forget that they are the largest owners of vehicles in the country
and each rise drains large sums from its coffers though it adversely affects
the economy. Is that a wise decision? Let the political leaders rethink.
Another “achievement” is the record $589
forex reserves. It is rising week by week as imports, including petroleum
slumps. Crude oil import is at a 20-year-low as it falls 12 per cent. Export
figures do not show an encouraging trend. The pandemic has also led to a
suspension of several businesses of Tatas and other IT companies. Wipro, TCS, and
Infosys have deferred pay hikes. Reliance and Oyo have cut wages.
The nation’s response to correction is not
being seen. The Congress-ruled Chhattisgarh is the only State to stop
construction of the new governor’s house, the Legislative Assembly, chief
minister’s house, residences of ministers and senior officers, new circuit
house. It saves over Rs 500 crore.
The Centre too needs to consider such
wasteful expenses on various unnecessary constructions and pride in heritage
buildings like Parliament House. These may be symbolic but send sharp messages
of caring for the causes of the people, particularly the Covid-19 hit and
severely-hit economy.
The rating agency Fitch Solutions in a
statement says the spiraling crisis has dented support for the ruling BJP “but
voter support for Prime Minister Narendra Modi and his will remain strong over
the coming quarters through this humanitarian crisis”. A small gesture by Modi
will be a great public relations exercise and show his concern for the poor.
The proposed stoppage of capital expenditure
of Rs 33,000 crore now would go a long way to refurbish the image, save from
going into a debt trap and possible boost to economy. It is a big expectation
but a small step to redirect the energy. ---INFA
(Copyright,
India News & Feature Alliance)
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