Business
Contracting Indian Economy
... reminder of its pseudo-Socialist Days
Even as a layman uninitiated in economics I get an unmistakable sinking feeling, the same which I used to get during the days of our pseudo-socialism. Prices would rise relentlessly while the incomes would by and large remain stagnant. Whether it was the essentials, the utilities, services or whatever – the price of everything would every year register a rise making survival difficult for us ordinary folks. Despite the progressive enlargement of the government it would seem as if it was helpless; the absence of governance was all too palpable. The financial squeeze was mostly on the vast numbers of poor and the slowly developing middle classes, whereas the politicians, commanding the country’s resources and with their nexus with business and industry, made merry.
A similar scenario has again been unfolding for some time. Driven, inter alia, by the oil price hikes and high fiscal deficit of 5.1% due to the profligacy of the government in the social sector, the inflation remains unchecked at a high of more than 12%. The government claims that the wholesale price index has since fallen to around 6% which is meaningless as what affects the people is the consumer price index and that refuses to climb down. Food items, in some cases, have registered around a 15% rise.
Economics and politics have a close inter-relationship and, hence, the current political instability is going to inflict more hardships on the people. The miraculously galloping GDP growth is currently not even on a trot. The growth rate during the last calendar year hovered below 6% with the last quarter registering a mere 4.5% growth – chillingly close to the abysmal “Hindu Rate of Growth” of around 3.5% that persisted for decades during our pseudo-socialist phase. Although reports of emergence of “green shoots” of revival (of the economy) have appeared in the media one cannot put much stock on them as these are all officially engineered to play down the gravity of the economic distress.
One fears the worst for the next fiscal. The parties supporting the ruling coalition - the United Progressive Alliance – from outside are likely to arm-twist the government to nurse their own constituencies. The government will have to play along sacrificing vast sums of money just to remain in power. Fiscal prudence or bold economic initiatives cannot be expected from an anaemic, virtually a minority government. Growth is likely to suffer and the deficits may increase and so will the difficulties of the common man.
As it is, investments in the manufacturing sector have dried up. Leave alone foreign direct investments, even the indigenous investments are not forthcoming. The climate in India was never attractive for foreign investors. On top of that the March 2012 budget with its proposal of retrospective taxation and General Anti-Avoidance Rule (GAAR) made the foreign investors apprehensive of the government’s intentions. Investments from abroad dried up accompanied by flight of capital. Dollars became scarce and the Rupee declined against all currencies and about 18% against the Dollar. Imports became expensive and the problem got compounded by slow-down in exports. The current account deficit ballooned to around a massive $35 billion.
Unsurprisingly India Inc. finds investments abroad to be attractive. It claims that apart from the policy-paralysis that has set in, the dispensation is utterly opaque. Besides, the cost of capital has climbed sky-high and the extant labour laws are forbidding. Predictably, investments abroad by India Inc. during the 2012-13 have surpassed those made in India. Industrial plants are being set up in Asia, Africa, Latin America and Europe where mergers and acquisitions, too, have become common. Indian manufacturing base is progressively shifting abroad, especially to China, depriving the country of the benefits of creation of jobs and augmentation of product base. Besides, China is flooding our markets with cheap products which the country surely has the capability to produce.
The already depressing environment has become more depressing for want of jobs. The nine months of 2012 saw a measly 1% growth in the core industrial sector providing hardly any scope for creation of jobs. Even during the period of rapid growth only about a quarter of 12 million joining the labour force every year had been accommodated. The manufacturing sector had shed 5 million jobs between 2004-05 and 2009-10 but was unable to create jobs for the rural migrants. In absence of significant job-creation one fears social unrest in the future as the “demographic bulge” will pump in ever increasing numbers into the labour markets. The much-touted “demographic dividend” might in fact result in an extended era of crises of joblessness, crimes and social disorder – the “green shoots” of which are already perceivable in the shape of robberies, thefts, snatchings, rapes and murders. The “overarching” goal of 2013-14 budget “to create opportunities for our youth to acquire education and skills that will get them decent jobs or self-employment” will take some time to materialise.
Despite a spate of cases of corruption involving billions of rupees, the government has determinedly not taken steps to institute a strong and independent Lokpal (ombudsman) - quite understandably, as otherwise most of the ministers would find themselves behind the bars. Rampant corruption in high places has encouraged even lower level petty district officials in amassing millions by illegal means. Describing the pervasive corruption the Apex Court very aptly observed recently that it “...accelerates undeserved ambition, kills the conscience...paralyses the economic health ...corrodes the sense of civility and mars the marrows of governance”. No wonder, even clerks and patwaries (lowest level revenue officials) have been nabbed for amassing millions.
The number of crorepaties (millionaires) has multiplied and is far more than the 48000 determined by the Finance Minister for levy of a nominal additional tax. In fact, there are arabpaties (billionaires) numbering more than 48000 whose assets are both concealed and undeclared or are located somewhere in banks abroad. Seeing so many crorepaties everyone wants to become one by hook or by crook. And, on the other hand, numbers of poor and hungry have also ballooned. As the cost of food items escalates a few millions sink below the poverty line every month. Mindboggling sums are being poured into the social sector to mitigate poverty and elevating the level of healthcare but most of it is siphoned off by unscrupulous petty politicians and bureaucrats. Though the fiscal deficit is thus enlarged people do not get respite from poverty and disease.
No efforts are noticeable for price control. While the middlemen in the cartelised mandies (wholesale markets) laugh all the way to the banks the consumers are squeezed dry and the farmers keep committing suicide. Likewise, there is no tangible effort to revive the manufacturing industry and/or bring back the invested capital from abroad. The famed Indian managerial and technical talent, surprisingly, delivers in the US, but not in the country. No effort is being made to harness them for the country’s wellbeing. Worse, the government has made no efforts to have the illegal billions stashed abroad repatriated despite the assurances of help and cooperation by various European governments, including those of Switzerland and Germany. Perhaps, that would have been of help in neutralising the fiscal deficit. But then, it is futile to expect such action from those who themselves are guilty of salting away the country’s stolen wealth abroad. Politics and politicians seem to be devouring this country.
It is such a pity that with renowned economists at the helm for almost a decade there is such all pervasive gloom from which the aam aadmi (common man) can scarcely find escape.
03-Apr-2013
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Proloy Bagchi
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