Do we need silver lining when we like Gold?

Silver lining gave dark clouds and no rain?

Rupee on the downhill:

When the Banker’s bank in India assiduously avoided a cut in its CRR rates, playing over caution, Rupee made bold to venture into new lows (falling around 1.5% against the dollar) and plummeting to 58.77/78 against the Dollar. Another danger await us: tinkering with US monetary stimulus by Federal Reserve, would cascade into further erosion in dollar value. Appreciating Yen has further weakened Rupees strength. Rupee also might become q victim of carry trade unwind, as Rupee has become a pain in the neck for investors. It is not surprising that Rs 750 Cr moved out of India in the last two days.

Though there were inflows of around $ 3.6 billion during FY 2013-14, the pull out by FII was $ 3.5 billion. This has put tremendous pressure of the Rupee.  The cascading effect was dampening of sentiment in BSE, NIFTY.

Current a/c deficit:

The experts argue that the widening was due to concerns of high Current A/c deficit, widening trade deficit, which has already impacted the Rupee. India’s exports were $ 48.67 billion against India’s import of US $ 86.6 billlion.India’s reckless import of Crude Oil ($15.6 billion), non crude oil ($ 29.62 billion). This has created trade deficit. For the month of May alone, the deficit was $ 20.1 billion while it was $ 17.8 billion in April, 2013. The gap was $ 16.9 billion in the corresponding month of the previous year. Input imports, and machinery import has come down considerably as export units are not working to 60% of their capacities leaving an idle capacity of more than 40%.

Son-in-law status for Gold import:

Government treated Gem and Jewellery industry as a key growth oriented industry. The votaries of Gold import saw a gold lining. But it remained only as clouds fleeting away because of the strong wind!  This has resulted in massive availability of Gold with prices running above Rs 20,000/a sovereign. Gold import stood at a high of 89.7% to import figure of $ 8.4 billion. Many firms in the SEZ were importing gold and there are many instances when the gold imported instead of export found itself in the DTA. With abundant supply, and Rupee reeling and prices of land falling correspondingly, Gold prices rose steadily; this did not hurt the gold shops, as there were enough buyers as they felt Gold was the best asset to appreciate.  Purchasers thought we need to preserve wealth. Gold was the best option because of lavish appreciation. This logic was spread by the Gold merchants and government did nothing to dispel the impression.

The import of gold drained the Foreign Exchange Reserves. Only belatedly, the Government has woken from its slumber to declare that Gold imported should have a minimum 3% value addition and 5% value addition in gold and precious stone studded jewellery.

Reckless import; no balancing act:

Thanks to our policy of importing crude edible oil valued Rs 65,000 Cr, we have helped the South East Asian economies to substantially increase their exports. They have become large scale proucers of edible oil, and their economic growth of 40% comes from this oil sales. When the GoI distributes imported Palm oil through the Public distribution system by offering 25% subsidy to benefit 1 million stakeholders, are we not helping Philippines, Malaysia, Indonesia, god sent opportunity to revive their economic growth while putting down India’s domestic India, which receives rather ‘nil’ support from the Planning Commission to increase output of edible seed growth, enhance the area of edible sees sowing, getting better productivity.

Planning Rethinking:

 From 15% in the First Plan, we have descended to provide 5.4% in the 12^th Plan for the entire agriculture. The efficiency in the rationalizing of such actions need to be put to test by asking s simple question- have we forgot our foundations? The bench mark of our growth will lie in giving excessive importance to agriculture. We talk about Food Security, while we destroy the foundation of Agriculture that would provide Food. Farmers are as important as consumers, because without the farm output consumption will reach a zero end. 

Contradictions in Planning

Indian economy has withstood the torrential economic crisis of 2007-9. That is what the Government wants us to believe. Double dip growth cruve, we are at the fag end of the curve, and what remains is an inclined growth. It is raining cats and dogs, and our agricultural growth looks promising. In the end of the last fiscal, contrary to the Planning Commission’s expected growth of (-) 0.20% while, the agricultural growth posted (+) 0.20%. Quite often, planning commission’s growth figures are not only wrong but goes astray notwithstanding that they are only supposed to Plan, write the guidelines, question the achievable or non progress made. A project is included it in the
Plan, but the Commission is unable to ear-mark actual outlays due to funds’ volatility or shortage. Like sure sciences, economic planning is subject to rational or irrational human behaviour which can be contradictory to what could have been imagined. What are Plans? Mere estimates or one’s real assessment of growth, development in mathematical form.

The Union Finance Minister when he unveiled the budget, pictured a scenario of modest to good growth based on his premise that the world economy was growing, blooming, and zooming. However, in view of the carry over of the crisis-riddled economy, he had to impose certain taxes, increase certain surcharges, maintain the equilibrium in some areas, be considerate in some other areas, and be tight fisted in areas where lot of help has been given. The first step was when the prices of petroleum products were increased in March. The feeble voice of the Opposition, who became men of straw, did not have the vigour to shout. Hence kept quiet. Emboldened by this silence, again, on June 25, the Group of Minsiters (like the proverbial monkeys- see me not, hear me not, no speak) decided to increase the petroleum prices at the rate of Rs 3.50 per petrol, Rs 2.00 per diesel, Rs 3/- per kerosene and Rs 35 per LPG Cyclinder. Government’s argument was, though the oil companies showed profit in their balance sheets, it was factoring the subsidy given by government, which was causing a drain on the exchequer. Why not use it for some more productive exercises. And even after this added pricing, the inflation would enhance by less than 1%. Headline inflation was 10.16%, which government corrected as 11%, while food inflation touched 12.92% falling from 16%. No doubt, ONGC got a whopping Rs 5,400 Cr by way of bonanza because of this raise while Oil India’s additional income is expected to rise by Rs 800 Cr. In addition government got a share of central levies at the raised prices. The Railways would incur heavy losses while gas based power would have to incur an additional of Re 1/ unit (kWh).

The Fiscal deficit envisaged by the Finance Minister was 5.5% of GDP. He had budgeted an expenditure of Rs 11.09 lakh crore, while tax and non tax revenue was expected to yield Rs 6.82 lakh Cr. He had to resort to borrowing of Rs 3.81 lakh Crore. He was on a strong wicket, as his deficit pitched at 5.5%, while 2009-10 (6.8%) (revised 6.9%). The Finance Minister had proudly announced that the rolling targets for fiscal deficit was plugged at 4.8 %( 2011-12) & (2012-13). Finance Minister is in a tearing hurry to jump the fence.

We can heave a sigh of relief that our headline inflation (10.16%) and food inflation which dwindled to 12.92% from 16% have become even, after WPI and CPI had 10% difference between them. So leveling of the inflation, has given comfort to our Finance Ministry.

The first casualty of the guillotine of the stimulus was the Technology Upgradation Fund of the Textiles Ministry which has been withheld temporarily. He may cut down DEPB, reduce DDB, and other fiscal stimulus offered to various segments of Exports which did exceptionally well in spite of several shortcomings.

Under the targeted Public Distribution System, only 57% of the 652.03 lakh BPL families (up from 596.23 lakh) are covered by it. The amount of subsidies for food, fertilizer and petroleum is expected to be Rs 64,929 Cr. Central Issue price (CPI) for Above Poverty Line will be 100% of the commercial FCI’s commercial cost, while 50% subsidy was provided for Below Poverty Line people. The difference between APL and BPL prices provide strong incentives for illegal diversions to the market. The Government had identified BPL families through select geographical targeting which they found unrealistic, hence abandoned.

Dr Montek Singh Ahluwalia, Dy Chairman, Plg Commission when questioned the rationale, replied that the Government is not supposed to subsidize the oil companies. Somebody has got to pay for it (cheaper kerosene and LPG) - either through general revenues or from jacking up petrol prices. Subsidies need to be utilized for building schools, education, hospital, etc. He candidly said that people building roads should have knowledge of building roads, while Planning Commission members provided guidelines, econometrics, and implementation strategy. But the implementation was by some other body. He concurred that the Planning Commission had targeted 7000 Kms of National Highways @ 20 kms per day. But funds have to be found for it. He said regarding building of Delhi Airport, the role of the Commission was just selecting the Operator.

Regarding the point that under Road Transport, Planning Commission had targeted 7000 Kms of national highways without allocating funds would mean that the non availability of planned allocation would halt the project. There cannot be discussions on it. Secondly, the Planning Commission deputy chief should be aware that around Rs 70,000 Cr were pumped to the Government account by the Spectrum auction. The expected and anticipated bringing down of stimulus for sectors which had done well last year, would yield another Rs 50,000 Cr. Already the announcement of ‘base rate’ would help the Banks to mobilize more money and more income, which would be pro rata given back to the Government as dividend. India accounts for about 20% of remittance to developed countries. Overseas investment to India is directed at not the share markets and real estate markets, but to risk-free capital guaranteed deposits in India. That is why, Banks deposit base is soaring in spite of poor RoI (Return-on-Investment). If Indian Oil Corporation has been patronized through subsidies and if they had made profits to the extent of Rs 10,220 Cr in 2009-10, how much of it was granted to government by way of dividend. In Rs 10,220 Cr, what was the percentage of subsidy that the Government shelled out? Dr B K Chaturvedi Committee appointed by the Plg Commission has clearly pointed out that subsidy for BPL families in 100% electrified villages found way to black market, and 26% of the total kerosene was used to adulterate diesel, what action did the Planning Commission or Government of India do? If the Plg Commission was so concerned for money, why are they importing Crude Palm oil at ‘nil’ Customs duties and edible palm oil at 7.5% which account for a loss of income to the tune of Rs 24,000 Cr. Further 3 lakh tones of Palmoil is distributed through PDS by subsidizing 1 litre of Palm oil by Rs 15/- which amounts to around Rs 500 Cr. Planning Commission targets a growth rate, then mid-course changes it, and at the end of the year alters it, and what is achieved is a different percentage? How does Planning Commission Deputy Chairman endorse this? Accountability rests with the Commission. It cannot absolve/abdicate itself of the responsibility. If Planning Commission should consist of Accountants only, why put intellectuals, economists, scientists, thinkers, sociologists, and pay astronomical sum to them? Better disband Plg Comm?