TRYING TO CURE THE FEVER WITHOUT DIAGNOSING THE CAUSE
By Ruma Dubey
The Govt seems to be living in a la-la land. The FM is busy trying to soothe nerves with his empty statements on TV; the PM is busy trying to cover up one scam after the other – while no one has any doubts about his personal integrity, when it comes to UPA, he is a different person. And then we have Sonia Gandhi who is trying her best to protect her son-in-law while promoting her son as India’s next PM.
And while these three continue to live in denial, we the people suffer. We are paying Rs.100/kg for onion. Getting through the monthly expenses itself has become a tight rope walk over a dark hole. We today buy almost everything which is made in China; right from a needle to the plane you fly out of the country (within too), everything is imported. Little wonder then that we do not have much to be proud about as ‘swadesh’. Today, FIIs rule the stock markets and FDI rules the economy. Are we really an independent country with so much foreign stake?
By the way, a quick truth – the markets on Friday crashed 769 points and it was largely blamed on FIIs. But the truth is that on that day, FIIs sold only Rs.563 crore worth of shares. So how could that have caused this massive fall? Net institutional selling activity, which includes FII and domestic institutional investors was at a paltry Rs.73 crore. Does this not mean that our very own traders, retail investors and domestic brokerage houses were the ones who pressed the one-way sell button? Can you imagine what could have happened if FIIs had indeed sold on Friday?
Coming back to the Govt, it seems to have got the entire picture wrong. It is trying to treat a symptomatic fever without even trying to diagnose the true cause. A quick look at the facts which the Govt got all wrong.
1: FDI is the only way to boost economic growth
It is ‘one’ of the ways and not the ‘only’ way. Currently we are too dependent on FDI coming in and this could pose very serious repercussions for the domestic industries, which as such is in the doldrums. Bringing in FDI is good from a capitalistic point of view. But if we take a moment to sit back and look, it makes one wonder whether we are opening up too much? The Wall Street crisis affected almost every American, directly or indirectly. And it was largely on account of pension
The Govt is pushing forth reforms in sectors which at this point of time does not affect the common man much and has turned a blind eye to real issues which if not addressed first will affect this FDI dream too. Non availability of land, lack of research in agriculture, rising cost of labour, unemployable unskilled labour, lack of roads, power shortages; there are so any crucial infra links which have collapsed. Will FDI alone in some sectors help? There are innumerable operational hassles faced by companies like storage, transport, especially of oversized cargoes, the list is endless. So instead of dealing with any of these, the Govt wants to do only that which will grab local and international media attention. And even companies in India Inc- why have they become so dependent on economic reforms and less on their own innovations?
Manmonhan Singh opened up the Indian investment doors to the world then but today, that alone will not work. The systems put in place then have far outlived their use and now the internal systems need a complete overhaul. Is this going to be done by the FIIs and FDIs?
2: Curbing gold imports will bring down Current Account Deficit and correct all BoP anomalies
Curbing gold buying is a good thing but that alone is not going to help. 79% of our oil needs are through imports and it is billed at somewhere around $160 billion. Oil is the largest item in the import basket. In the field of natural gas, India is the fifth largest importer after Japan, South Korea, the UK and Spain. In Q1FY14, oil and gold imports stood at US$491.5 billion of which oil comprised of US$ 169.4, up 9.3% (YoY), non-oil was in fact the highest at $322.1 and gold at $53.8. The various ‘curbs’ on gold have helped but gold is once again at Rs.30,000/10 gms level and there is talk of it hitting Rs.31,000 levels. Import duty at 10% would mean higher smuggling, which again means more black money. Thus concentrating on gold alone to curb the CAD and rupee is clearly not the way to go; the fact that gold prices are up and rupee today is at a new low at Rs.62.60 levels proves precisely that.
3: Growth has to be inclusive and do it by doling out ineffective social schemes.
The UPA Govt’s NREGA, its pet project and the largest welfare scheme project run by any Govt around the world. The Budget of 2013-14 allocated Rs.30,000 crore, same as in FY13 and Rs.40,100 crore in Fy12. The allocation was slashed because only 73% of the available funds were utilised in 2010-11. The ministry of rural development’s data shows in FY10, NREGA created 284 crore person-days of work, it was 257 crore in FY11 and 216 crore in FY12. But data also shows that work largely undertaken under NREGA, be it digging a lake or building a road, remains unfinished. A Joint Parliamentary panel has found that NREGA funds are diverted and misappropriated and yet Sonia Gandhi wants to usher in another social scheme, Food Bill, which India cannot afford at this point of time. This is not inclusive growth. The govt needs to generate employment opportunities in the country and start promoting domestic growth. That would automatically lead to inclusive growth. The UPA could take a few lessons from Nitish Kumar to truly understand what is inclusive growth and how to implement it without emptying the coffers further.
4: Curb gold alone to bring down CAD, hike fuel prices intermittently.
As stated earlier, curbs on gold alone is not going to help. Fuel needs to be addressed and it is this subsidy which is leading to the burgeoning CAD. Not allowing diesel to find its own levels is being really foolish. On one hand we are dealing with this fuel crisis, crude is at $110/barrel and rupee is down below $62. Yet, we have people buying petrol and diesel guzzling SUVs; isn’t this also something like gold which Indians cannot simply afford? What are the measures which the Govt is taking to curb the fuel bill by improving public transport and curb private transport, something like Singapore? Why can’t auto companies be mandated fuel efficiency norms to increase fuel efficiency and reduce consumption? Clearly, fuel consumption needs to go down along with gold. Concentrating on curing the fever, without treating the congestion will only perpetuate the pneumonia to fatal levels.
5: Rhetoric statements will help soothe sentiments
No way! It would actually be better if the FM and PM stop making meaningless statements on TV, thinking that it will boost sentiments. It did help some time ago but action was never followed up with the words thus people have stopped believing anything they both say. Unless the Govt walk’s the talk now, which seems unlikely, mere talk is making a fool of the Govt.