In UPA’s second avatar, our well learned Economic Professor, who is presently India’s Prime Minister, seldom speaks. When he speaks on rare occasion, like the one he did before the Chief Secretaries of States recently, it was pearls of economic wisdom, erudite scholar’s thoughts, which flew like the Ganges which carries all the filth, mud, dead humans, unconcerned.
His cure to the dreaded scarcity of essential commodities was, waiving mandi taxes, octoroi and local taxes which impede the smooth movement of essential commodities.
His Second doctrine which “demeans us against our own people” is the Corruption strike at the roots of good governance and denting country’s international image.
His third prescription was that the economy was on a high growth trajectory for the past few years, but it was ‘inflation’ that posed threat to the growth.
He felt that there was a need for paradigm shift in institutional arrangements for improving the availability of various commodities to meet the higher levels of consumption.
There were times in independent India, when he adhered to “Mixed economy” philosophy. But down the line, we were comfortable transforming ourselves to the “Business economy”, when economic institutions preached liberalization and globalization, reverse foreign investment by Indian mega companies. In order to grow, sub prime lending rate allowed mega companies to become mammoth companies, car lending, funds for housing, higher purchasing power amongst the middle class put India to growthtrajectory, etc. Then, the coalition Politics unwound the “economic economy” , where priorities were accorded to Social causes like 100 days Compulsory work, writing off agricultural loans worth Rs 70,000 Cr, BPL subsidy under PDS, and many such freebies.
Taxation by the Central Government through budgetary exercise, direct, indirect, scaled new heights. Service tax, which was Rs 500 Cr in 1991 budget skyrocketed to Rs 50,000 Cr in 2010 budget, Petrol prices were de-linked from Government control and vested in the oil companies which raised the same periodically. Let us thank RBI which has said that 25 paise and less than 25 paise will cease to exist , so from now on, the increase will be minimum 50 paise, but concurrent increase over the last six months’ was Rs 10/- over the previous price. The diesel prices were vested with the Government, and its alterations not under the purview of Oil companies, because Diesel constituted a major use of big businesses and government! Oil Seed cultivation is in chaos, do to excessive import of edible oils. While the proportion of domestic supply:: Foreign import was 50::50, some livid mind thought it should be changed to 50:50, but the imported oil exceeded the demand by 30%. Added to that, in the name of inflation, the customs duty was made “zero”. Countries, in order to up the import c.i.f price resorted to taxation, “export tax” so the price looked higher than that was the domestic price; hence WTO penal clause was avoided. Import has been going on indiscriminately, thereby, the indigenous edible oil industry has produced lower and lower growth figures, which may ultimately result in 100% import of edible Oils. Again using the ‘inflation’ doctrine, Government is contemplating banning exports.
RBI has no grip over the economy. They reduce interest rates and say that the monetary ends are stable. There is a multiplier effect in the interest Policy. If credit interest rate becomes lower, the savings rate will also become lower. According to RBI, saving money and lodging it in Banks instead of recklessly spending it, will fuel ‘inflation’. When the Opposite happens, the RBI tightens the policy, allows increase in interest rate not through raising interest rates, a power now transferred to Banks as “base rate”, but by fiddling with REP rate, reverse REPO rate, CRR, etc. In India, demand is over-estimated, supply under-estimated. When inflation creeps in, Government reverses its Policy, demand under-estimated and supply over-estimated.
When the economy is between the devil and the deep Sea, major scams worth lakh Crores of Rupees have been detected proving to the world, that Deviant Globalization (Nils Gilman) is a part and parcel of Indian economy. Instead of Indian money stalked in the Indian Banks, the money finds its way to tax heavens, with Government doing nothing about it to bring back the money.
Prime Minister should act, instead of theorizing the well-known economic theories which mean nothing to the Common Country man or tax payer.
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