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The Indian Economy seems to be having a free fall without
any bounds…None of the vital parameters like IIP numbers, Inflation figures,
Rupee stability seems to be doing good and now comes the worst fears of
lackluster GDP numbers…The aggregate demand function seems to be clinging on
only by the consumption spending which is a scary proposition in the medium
term simply because of the fact that any growth rate which Is not supported by
Investment function could lose its trajectory sooner or later. We are sitting
on burgeoning fiscal deficits, higher inflationary trends, low investment
sentiments, widening current account deficit, perhaps feeding to the twin
deficit…Am afraid that the consumption spend in itself could be highly driven
by autonomous spending rather than the marginal propensity to consume as the
disposable income component tends to shrink - attributable to the high
inflation and uncertainty in the job sector..
Next comes the G – the government
spending – the less we talk about this the better we are – simply because of
the fact that the G is always driven by political posturing, lacking any
direction, accountability and hence not reaching the needy – there is little
hope that the G contributes to the sagging GDP in the near future, unless there
existed visionary leadership. The various macro economic problems of the
current regime at the centre is of its own making – the awful mismanagement of
the economy by the UPA leadership. The observers always believed that UPA was
the best shot to the country given the stability it could give despite the
coalition/khichdi team. The PM for every other instance now sights the
coalition compulsions.
The political analysts also gave thumbs up to Sonia –
Manmohan model – vis a vis – a differentiating line between the political drive
and governance drive..it looked all hunky dory, admin team rolled out ambitious
schemes after schemes, to keep the political leadership happy – without any concern
for strengthening the economy without any reforms whatsoever. In retrospect, I
would like to give thumbs up for Sonia Gandhi as she had her way… and at the
same time cry a foul against Manmohan – for giving a damn care about economic
fundamentals.
Infact, he may have been extremely overrated as a capable
economist – given the liberalization story of 1991 that is eulogized around
him. Infact, again in retrospect, the 91 story must be attributed to the
political leadership of then PM Narasimha Rao. Truly, the division of powers
between Sonia and Manmohan has not worked. This UPA regime is driving the
country into inexplicable and implausible straits! Loss of business confidence,
no effective G spends, high on corruption, Aam Admi reeling under high
inflation etc has made things worse and will worsen. We are easily staring at
stagflation – a structural economic failure which the government is not ready
to accept – this is clearly not a cyclical downturn, there is something more to
it, perhaps global macro-economic scenario is one factor (lowered exports
scenario), but not all - as the govt is trying to make it..
Manmohan Singh must
clearly know from his 91 experiments that the structural issues needs
structural solutions and not mere political lip services..The time has come for
stronger fiscal measures…given that the monetary policy making body of RBI has
given its best shot – trying to support the fiscal situation, salvaging the
liquidity, controlling the Re depreciation, the interest rates and the
inflationary trends to an extent.. Clearly, the ball is now with fiscal policy
making mandate of the country – the finance minister and the PM. From my
economic science knowledge, I believe that the macro economic parameters are
self correcting with time, but only if there is no intentional blunders to harm
it – unfortunately seems to be the situation today. Am ok with the hike in fuel
prices – given that fuel and gold imports easily attributable to the high
import spends, the widening current account deficits and the pressure on Rupee
thereof. High subsidies on fuels will take this country nowhere. But again,
there is more to it than what meets the eye – given the fact that crude import
to usable fuel costs Rs 42 or so and rest for the various taxes! High fuel
costs only means translated higher prices and hence inflation in the medium
run…again adds to the lowered purchasing power, negative sentiments, perhaps
aiding to the low investment mindset. I think India story may still be living
its last few breaths and its time that the govt comes out of policy paralysis –
the lowest of political fallout like FDI in civil aviation itself seems to be a
hot potato, God save the FDI in multi brand retail, other economic reforms like
lowering subsidies, introducing Direct tax codes, uniform GST policies…The
current FDI seems to be too liquid in the form of equity FIIs and hence not
sustainable. India needs to attract long term FDIs. Key policy measures, enhanced
Investor confidence holds the key to the revival. The periodic slump in IIP
always had a message and the fiscal policy makers ignored it and here we are
today. Add to it the low investment confidence and suicidal amendments like the
one with telecom policies, the corruption there of and things of such kind will
only make the mood negative. Again, Fiscal prudence is paramount as they are
viewed extremely sensitively by investors. Increasing the tax base may not be a
bad idea, but G Spend aligned only with political gains with little impact on
either the much needed thrust to infrastructure or the societal cause could
only be termed Criminal..Fiscal consolidation (and hence better ratings for the
country and hence the capital inflows), the bold reforms, check in corruption
are some of those measures which is the need of the hour! In Economics, the ‘effects’
always comes with a lag. It looks like that UPA 1 may have inherited the growth
story partially from NDA and some from good global outlook then and if so, the
current mess of UPA 2 is derived from UPA 1! Any inaction to take decisive
steps in the short term may be fatal for the country in the long term – perhaps,
as with all the macro economists, Manmohan Singh being one, believes that all
are dead in the long run!
