Start of a downfall era for the Indian Economy,
Political reforms is foremost needed for the smooth
operation of our economy
By Manohar Manoj
By Manohar Manoj
The decade of 1990's was understood to be a period of transformation for the Indian economy, when the new bunch of policies in form of New Economic Policy (NEP) were initiated by then finance minister Dr. Manmohan Singh in Narsimha Rao govt. At the time of launcheon of NEP in July 1991, nobody would have even imagined that first decade of 21st century will witness a very high growth rate era for the Indian economy and will bring the country among the top ten economies of the world. But at the same time, people also would not have estimated the arrival of 2010's would convert the success of Indian growth story into a sad saga and will present a downward projection for the Indian economy on many counts.
The fact is that the present growth rate of economy has fallen down to around 5 percent, which was touching around 10 percent at one point of time. The rate of inflation has been continuously on rise for the last 4 years and it is still just an inch below to the double digit mark, in a way not allowing apex banker RBI to go for cheap money policy. The current account deficit is at alarming height. The fiscal deficit has been above 5 percent for many more years. The Indian currency Rupee is on verge of record depreciation crossing 60 marks. The rising trade deficit has made rupee a very weak currency against the US dollar. Foreign debt is growing in skyrocketing manner. The growing import has put our FOREX reserves on danger mark. And last but not the least the investment climate is going through a very lean patch bubbled with severe disappointment on behalf of both domestic and foreign investors. The FDI inflow is not catching the desired speed and FII are withdrawing their investment from the capital market of the country.
Seeing all these bad things occurring in the economy, one can easily assume, the Indian economy which was achieving great strides few years ago, why, all of sudden various ailment arises on many counts. When we diagnose the all macroeconomic indicators of Indian economy, we find, that the three decisions made by this UPA government in year 2008 to ensure its victory in 2009 Loksabha elections, our economy have had to pay heavy price. It is attentionable here, till the year 2008, the health of Indian economy was so good that it faced even the shock of worldwide recession in a very strong manner and hence our domestic strength of economy successfully ducks the heavy recession.
But, for ensuring the victory in the elections the UPA-1 government took those decisions which were very bad for the economy. The decision of waiver of farms loan of around 70 thousand crore, the non asset creating MNREGA scheme at the cost of 40,000 crore and implementation of sixth pay commission award, the fiscal deficit which was brought from almost 9 percent to around 4 percent mark in year 2008, just nosedived to 6.5 percent of GDP in very next year 2009. Though, these populist decisions ensured UPA's victory in the elections, but it was the defeat for the Indian economy. Our democratic tradition have been such which always allow existing government to go for the populist economic decisions, whether the health of economy permit them or not, because there is no bar from the constitution for such kind of things, so the sad story of our economy starts very much from here. The immediate effects of these decisions erupted in form of rising inflation. Though the UPA-1 was following boom oriented economic policies very from its inception, so once fiscal deficit started to rise, it immediately aggravated the inflationary pressure over the booming economy. And this inflation continuously rose and reached at the level of 18 to 20 percent. It resulted in higher food inflation which even gone up to 22 percent, well supported by our perennial faulty agriculture policies. So the higher fiscal deficit, higher inflation followed by higher current account deficit, these all brought terrible situation for the economy.
The current account deficit which has been centered around 2 to 2.5 percent, it is just doubled now. The fiscal deficit and current account deficit are going neck to neck in the economy. The ultimate affect came in terms of depreciation of rupee which fallen around 22 percent in last 12 weeks time. The depreciation of rupee has not been matched by better export performances, so the trade deficit is soaring around, the RBI has already echoed siren over this. The rising import followed by depreciation of rupee has immediately affected our petroleum prices. The imported crude oil has become costlier and it has compelled petroleum marketing companies to hike petrol prices for more than 3 times. So these external imbalances have made our domestic front very vulnerable also and we must be ready for restart of soaring inflation rate in the coming future.
Seeing these circumstances, the finance minister and prime minister both are making decision and bringing correcting measures. The government wants to raise internal revenues to meet out the fiscal deficit and allowing more and more foreign investment to meet out current account deficit. Earlier this govt. acted on both front, first it started to slash all kind of petroleum subsidies barring kerosene in order to lower the burden of revenue expenditure and on the other side it allowed FDI in many areas to invite more and more foreign investment. Not only that, P Chidambaram toured thoroughly in both eastern and western investment blocks, appealing investors there to make more and more investment in India. But on contrary to Chidambaram and Manmohan, the real governor of UPA, Sonia has some other idea. She is still relying over populism and like last loksabha elections, she has brought a new game changer plan of 'food security act' for the next 2014 loksabha elections.
Nothing to say, this scheme will carry our economy from bad to worse. The total cost of this scheme is around 1,20,000, crore ,which is budgeted out of non plan or revenue expenditure. This money would be provisioned on food subsidy front. The most amazing point is that this govt. which earlier gave a clear message to slash all kind of subsidies, which even tried to abolish LPG subsidy, (the item which has no presence in open market, a complete controlled items).
But, UPA-2 is going to provide subsidy on items like rice and wheat, which is already abundantly available in the market, because this govt. has to grab votes, so it is going to sell rice Rs. 3 per KG and wheat Rs. 2 per KG. But this government does not think, what will happen of 16 crore farming community of the country. Their produce is already underpriced, because of faulty policies of the governments, now their produces will have no buyers in the market and if they will be sold, they will have no price more than Rs 8 or 10 per KG. Second this scheme will promote black marketing of food grains; it will promote the corruption of PDS, which was already corrupt. And at last, the huge subsidy amount will bankrupt the Indian economy.
Now the time has come when these things let tried to be solved through constitution. The prevalence of identity politics along with populist economy should be banned for ever, so no govt. can take this easy route to win over their voters. Only competitive politics based on good governance should be allowed.
After all politics is for what, if it is for the betterment of the society, then why it is against good economics. The thing is that the prevalence of identity politics and populist economy is not for the sake of public or for the well being of nation; it is just a tool either for getting power or to be remain in power. That is why our govt. takes these kinds of decision, but if constitutional provision is there, no govt. or political party will dare to do these kinds of things.
In last few week our supreme courts and some high courts of the country gave landmark decisions regarding political reforms. It said that if MP and MLA are charge sheeted and imprisoned, they have to lose their position of MP and MLA. In the same way Allahabad high courts banned all kind of caste rallies, organized by the political parties. In the same way Supreme Court cautioned political parties of the country, especially the party in government, not to take resort of populist economic decision. A month back CIC gave its ruling that great step towards bringing political empowerment of the common public. But these all decisions made by our courts were negated by our political parties, because they had vested interest and they do not want to leave identity politics, which is very easier for them to do in comparison to doing competitive politics.
So in conclusion, if we want to do good economics, we have to allow many political reforms for the smooth operations of the country's economy as well as for the dynamics of our society. Not only that, it is also necessary for achieving the long term socio economic goals of the country.
The decade of 1990's was understood to be a period of transformation for the Indian economy, when the new bunch of policies in form of New Economic Policy (NEP) were initiated by then finance minister Dr. Manmohan Singh in Narsimha Rao govt. At the time of launcheon of NEP in July 1991, nobody would have even imagined that first decade of 21st century will witness a very high growth rate era for the Indian economy and will bring the country among the top ten economies of the world. But at the same time, people also would not have estimated the arrival of 2010's would convert the success of Indian growth story into a sad saga and will present a downward projection for the Indian economy on many counts.
The fact is that the present growth rate of economy has fallen down to around 5 percent, which was touching around 10 percent at one point of time. The rate of inflation has been continuously on rise for the last 4 years and it is still just an inch below to the double digit mark, in a way not allowing apex banker RBI to go for cheap money policy. The current account deficit is at alarming height. The fiscal deficit has been above 5 percent for many more years. The Indian currency Rupee is on verge of record depreciation crossing 60 marks. The rising trade deficit has made rupee a very weak currency against the US dollar. Foreign debt is growing in skyrocketing manner. The growing import has put our FOREX reserves on danger mark. And last but not the least the investment climate is going through a very lean patch bubbled with severe disappointment on behalf of both domestic and foreign investors. The FDI inflow is not catching the desired speed and FII are withdrawing their investment from the capital market of the country.
Seeing all these bad things occurring in the economy, one can easily assume, the Indian economy which was achieving great strides few years ago, why, all of sudden various ailment arises on many counts. When we diagnose the all macroeconomic indicators of Indian economy, we find, that the three decisions made by this UPA government in year 2008 to ensure its victory in 2009 Loksabha elections, our economy have had to pay heavy price. It is attentionable here, till the year 2008, the health of Indian economy was so good that it faced even the shock of worldwide recession in a very strong manner and hence our domestic strength of economy successfully ducks the heavy recession.
But, for ensuring the victory in the elections the UPA-1 government took those decisions which were very bad for the economy. The decision of waiver of farms loan of around 70 thousand crore, the non asset creating MNREGA scheme at the cost of 40,000 crore and implementation of sixth pay commission award, the fiscal deficit which was brought from almost 9 percent to around 4 percent mark in year 2008, just nosedived to 6.5 percent of GDP in very next year 2009. Though, these populist decisions ensured UPA's victory in the elections, but it was the defeat for the Indian economy. Our democratic tradition have been such which always allow existing government to go for the populist economic decisions, whether the health of economy permit them or not, because there is no bar from the constitution for such kind of things, so the sad story of our economy starts very much from here. The immediate effects of these decisions erupted in form of rising inflation. Though the UPA-1 was following boom oriented economic policies very from its inception, so once fiscal deficit started to rise, it immediately aggravated the inflationary pressure over the booming economy. And this inflation continuously rose and reached at the level of 18 to 20 percent. It resulted in higher food inflation which even gone up to 22 percent, well supported by our perennial faulty agriculture policies. So the higher fiscal deficit, higher inflation followed by higher current account deficit, these all brought terrible situation for the economy.
The current account deficit which has been centered around 2 to 2.5 percent, it is just doubled now. The fiscal deficit and current account deficit are going neck to neck in the economy. The ultimate affect came in terms of depreciation of rupee which fallen around 22 percent in last 12 weeks time. The depreciation of rupee has not been matched by better export performances, so the trade deficit is soaring around, the RBI has already echoed siren over this. The rising import followed by depreciation of rupee has immediately affected our petroleum prices. The imported crude oil has become costlier and it has compelled petroleum marketing companies to hike petrol prices for more than 3 times. So these external imbalances have made our domestic front very vulnerable also and we must be ready for restart of soaring inflation rate in the coming future.
Seeing these circumstances, the finance minister and prime minister both are making decision and bringing correcting measures. The government wants to raise internal revenues to meet out the fiscal deficit and allowing more and more foreign investment to meet out current account deficit. Earlier this govt. acted on both front, first it started to slash all kind of petroleum subsidies barring kerosene in order to lower the burden of revenue expenditure and on the other side it allowed FDI in many areas to invite more and more foreign investment. Not only that, P Chidambaram toured thoroughly in both eastern and western investment blocks, appealing investors there to make more and more investment in India. But on contrary to Chidambaram and Manmohan, the real governor of UPA, Sonia has some other idea. She is still relying over populism and like last loksabha elections, she has brought a new game changer plan of 'food security act' for the next 2014 loksabha elections.
Nothing to say, this scheme will carry our economy from bad to worse. The total cost of this scheme is around 1,20,000, crore ,which is budgeted out of non plan or revenue expenditure. This money would be provisioned on food subsidy front. The most amazing point is that this govt. which earlier gave a clear message to slash all kind of subsidies, which even tried to abolish LPG subsidy, (the item which has no presence in open market, a complete controlled items).
But, UPA-2 is going to provide subsidy on items like rice and wheat, which is already abundantly available in the market, because this govt. has to grab votes, so it is going to sell rice Rs. 3 per KG and wheat Rs. 2 per KG. But this government does not think, what will happen of 16 crore farming community of the country. Their produce is already underpriced, because of faulty policies of the governments, now their produces will have no buyers in the market and if they will be sold, they will have no price more than Rs 8 or 10 per KG. Second this scheme will promote black marketing of food grains; it will promote the corruption of PDS, which was already corrupt. And at last, the huge subsidy amount will bankrupt the Indian economy.
Now the time has come when these things let tried to be solved through constitution. The prevalence of identity politics along with populist economy should be banned for ever, so no govt. can take this easy route to win over their voters. Only competitive politics based on good governance should be allowed.
After all politics is for what, if it is for the betterment of the society, then why it is against good economics. The thing is that the prevalence of identity politics and populist economy is not for the sake of public or for the well being of nation; it is just a tool either for getting power or to be remain in power. That is why our govt. takes these kinds of decision, but if constitutional provision is there, no govt. or political party will dare to do these kinds of things.
In last few week our supreme courts and some high courts of the country gave landmark decisions regarding political reforms. It said that if MP and MLA are charge sheeted and imprisoned, they have to lose their position of MP and MLA. In the same way Allahabad high courts banned all kind of caste rallies, organized by the political parties. In the same way Supreme Court cautioned political parties of the country, especially the party in government, not to take resort of populist economic decision. A month back CIC gave its ruling that great step towards bringing political empowerment of the common public. But these all decisions made by our courts were negated by our political parties, because they had vested interest and they do not want to leave identity politics, which is very easier for them to do in comparison to doing competitive politics.
So in conclusion, if we want to do good economics, we have to allow many political reforms for the smooth operations of the country's economy as well as for the dynamics of our society. Not only that, it is also necessary for achieving the long term socio economic goals of the country.
(Writer is an
Editor with Economy India)
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