Inaction leads to Economic Paralysis

Economic Wait and Watch policy ruinous

Economy:

Can Indian economy be consistent to hold on to the growth rate of 9.5% it did 5 years ago? Very very doubtful.

       When US announced its qualitative easing, which would deter their bond purchase, Indian markets tumbled, Our markets were sitting on the fence and tumbled by 500 points (2.74%) (BSE) and Nifty shed 166.35 points (2.86%) to send markets reeling. It was an economic tsunami of sorts, waiting to happen, as our financial stalwarts prefer to wait and take no action.

       Our Rupee has slid to nearer to Rs 60/- yesterday and it was a brave effort which saw its devaluation flow to recover to Rs 59.27/dollar. Gold also knocked out the punch and nosedived to Rs 2,550 per gramme to touch Rs 20,400 to a sovereign.

       Our Current a/c deficit is widening due to uneven exports and excessive imports. The entire Foreign Exchange Reserves has nil contribution from exports as it has to consume the import costs, and the surplus in the export-import trade, we have FER which can contain 7 months of import. If there is drawl by FII which is natural, our Reserves get depleted.

       Petroleum costs, add-ons by Oil companies when they have nothing to lose, as the Crude oil is not imported by them, they get it refined at nil taxes, and yet for every paisa increase of the Rupee, they hike the Petroleum prices to compensate what they call under recoveries which fuels inflation in the local market. There is no outstanding increase of oil per barrel, but just because of currency depreciation, oil companies by their monopolies in the market. Of course, the few private players named Reliance would love to hike the prices, because it also considers itself to be a major monopoly.  

       But what is sad is the Economic Advisors to the Government remain bird watchers. Dr Raghuram Rajan, Financial Advisor, is in a state of illusion. He says, we are alert, we have many options. But measured steps will be taken in full measure at the appropriate time. Going further, India’s planning czar, Dr Ahluwaliah, says devaluation of the Rupee is a temporary phenomenon.

       Rupee parity with the dollar was Rs 40/$ (2007), it went steadily up to Rs 60/$(2013), and CAD deficit has been growing alarmingly and FER are depleted.

       Wait and Watch Policy is costing the country dearer; this is no Policy at all. We are inuring the economic growth of the country which will witness a slower growth with Budget deficit going up alarmingly and CAD becoming worse. If we do not leverage advantages now, we will never!

Kerala's crisis? Why?

Kerala’s notoriety of excessive Greed

Kerala does not have an economy of its own. Nor is there, any favourable industrial climate which attracts investment. Its insipid industrial Policy does not generate confidence amongst investors, while money order economy places lot of money in the hands of families who have workman abroad. Recently, Kerala based economists and broadcasters wanted Rupee devaluation to continue so that the remittances in foreign exchange from abroad will lead to more exchange rates when converted to Rupee. These experts even asked the Gulf employed Malayalees to raise loans and send the money to Kerala to beget higher returns.  Kerala’s thriving economy depends on the sweat of the brow of these hapless people who are all over the Middle East eking out their livelihood. Kerala does not labour, hence migration from Bengal, Bihar, Orissa, Tamilnadu, Andhra Pradesh, etc. This is cheap labour for you.

          How can you become an entrepreneur without a base? Kerala’s highly literate population can easily be fooled. That is Kerala model for you. Like the Dengi dengue, fly by night blade companies minted money from this highly literate people. These blade companies looted the public money, and left without a trace. No lessons were learnt from the fearsome collapse of the money lending blade companies which one after another failed in the 90s because, they could not afford to pay interest. Even top level companies which floated money lending companies fled, pulled their shutters and the middle class, pensioners lost a tidy Rs 10,000 Cr or more. There were many companies which promised plantation cum animal farms. There were multi level marketing firms, and money chain companies. Now, the green initiative companies have taken over. Why do all these companies flourish? Because they offer higher returns of around 30-50% against Bank’s 8.5% for a five year deposit.  It is because, people have corpus money, wealth, which they want to invest. There may be black money, too. Gold selling companies had variety of schemes; they offered gold by paying in installments.

          Take Kerala’s dubious business marketing strategies of some of the successful firm which failed to deliver after amassing wealth. Total 4 u scam consumed Rs 200 Cr with alleged cheating of investors of around 700 investors. Tycoon Money fooled  24,000 investors who lost Rs 410 Cr.Nans Excel, multinational marketing Company deprived 250 investors of a near Rs 500 Cr. Apple a Day, a construction company is alleged to have collected Rs 100 Cr by promising housing to around 700 people. All the cheated, belonged to the middle class. Why are they gullible? Greed?

          Today, if you want to make a fast buck, go for Green Energy initiatives. This is what Team Solar did. People are said to have been cheated to the tune of Rs 35 lakhs and Rs 40 lakhs. All these monies were collected by the Team Solar management in Cash.

          Literate Kerala, park their funds in dubious paper companies. People who have large liquid cash, which they want to multiply in good time select these companies unaware of the dangers. They lose lot of cash but never complain, because they have to revel the source of hard cash which they had.

          RBI has come out with stringent Gold loan policy. This has helped the private banker to double/treble his business. They seek 12-15% interest per annum. Before the granting of loan, they deduct 3-5% as service charges from the loan amount. The craze for gold goes on, inspite of the cost of glittering gold which no longer glitters.  In spite of higher Tariff value imposed by Customs, there are no diminishing imports. Why? In spite of higher prices, there is demand for gold. This is simple Economics, my dear Watson (PC).

          These incidents have brought bad name to the state; no genuine investor wants to come to Kerala to set up an industry. Entrepreneurial cult is conspicuous by its absence. With global recession, there is lot of investors including NRIs looking around. Nobody has in their list Kerala as a destination because of state’s poor entrepreneurial heritage. Money order economy may boost consumption because of excessive spending, which will post a higher State Domestic product growth but will not create permanent assets which will recycle investment and spending. No new jobs will be created because of absence of industrialization. The colleges who spun out more graduates add to the unemployment picture of the state. They desert the state to greener pastures.

          Kerala’s poor political leadership has been responsible for the mess it finds itself in. It needs people who will avoid chaos in the investment front

Who is response for India's economic mess- Dr Singh, UPA, or Politics?

Is Dr Manmohan Singh alone responsible for India’s underachievement?

            Is India’s under performance in its economy due to Dr Manmohan Singh’s underachievement?   Is he, alone, responsible for slowdown in India’s economy, huge fiscal deficit, falling rupee, corruption scandals, political paralysis due to inept leadership qualities, and unfair power sharing agreements with regional parties who do not share Congress party’s economic  philosophy.

            It is true, that India’s growth momentum is slow and low compared to previous years. The Prime minister is projected as an ‘unachiever”, because he is in no position to launch any of the Second Generation Reforms. Is Dr Manmohan Singh alone the culprit for the economic mess that India is in?

            Foreign Direct Investment and Foreign Institutional Investments brought Crores of Rupees in foreign currency to India. Setting up of collaborative ventures, opening up of aviation to the private sector, auctioning of coal blocks to private sector, Telecom miracle, privatization of infrastructure, disinvestment, giant setting up of Original manufacturers of automobiles, gave fillip to industrial growth, increased  capital formation due to setting up ancillary industries under the patronage of a mother units for original equipment manufacture as well as Replacement parts industry, gave impetus to increasing employment. The growth of the software industry, as a result of which 55% of the foreign exchange came from Service exports, put India in a frontal position in respect of bilateral, multilateral trade. The unemployment got reduced as India’s educated got employment in the new generation banks that began operations in nook and corner of India, the need for software and hardware engineers, aviation personnel for various private sector airlines, big industrial houses which went for Acquisitions & Mergers, acquiring properties abroad, manpower required for on-shore operations abroad, telecommunications which grew vertically and horizontally, export houses , export logistics, export infrastructure, export consultants, requiring qualified personnel, drove the employment market upwards. The purchasing power of the younger generation professionals, their fat pay, the change from joint family to nuclear families, easy loans for buying apartments, motor cars, household items, etc., saw more and liberal spending rather than depositing the money in the Banks, which kick started the economy which saw growth touching two digits. Inflation was at its low, because, there was huge consumption, and all round passing off money, rather than getting blocked in deposits alone. Currency circulation created enough money flow in the market which diminished inflation. Insurance Companies, including foreign companies, set shop here. There was sufficient business for anybody and everybody. The money came into the organized net and got circulating through bank drawls and deposits. Banks had enough money to lend, and with a wide variety of products for which it gave loans, its coffers filled. The loans were given against collateral guarantee, and hence non- performing- assets in the consumer, middle class sector like house loan, gold loan, car loan, durables loan, was nil if not very low. The credit Card/Debit market rose geometrically. The launch of Telecom Revolution saw the increase of teledensity grow by 1000% giving business opportunities across a value chain. Exports which were $ 45 billion in 2004 grew to US $ 300 billion, bringing in the much needed Foreign Exchange. Foreign Exchange Reserves crossed US $ 300 billion. Stock markets began to grow by more than 100 points on a regular basis. Private sector contributed to a Indian Retail Chain, which changed the mind-set of the buyers who flocked to the Retail markets, and big malls, so as to get everything under one roof. BoP position was easily met due to Foreign Exchange Reserves, remittances from Indian Diaspora, FII, FDI, Exports, etc. Banking sector got strengthened, as it was able to contain the excess flow of liquidity which would have created volatility.

            Come UPA II. Everything began to go sour. Rs 80,000 Cr was written off to compensate the farmers’ credit which had become NPA. Reforms halted as one or the other coalition partner refused to tow the line. Enormous money was required for providing subsidy and to undertake popular Schemes. Opposition was relenting which made governance difficult. America’s meltdown caused a lightening strike on India’s software industry. Our exports shrunk as that country was India’s largest bi-lateral trading partner. American economy which became weaker and weaker, and the brakes applied did not work to change the mood of the economy. The economic crisis engulfed to Europe. This struck the European Union in more than one way. Indian professionals or the service industry, felt the brunt. Inflation started to mount. The more the RBI tried to tame inflation, it grew, and increasing interest rates 13 times did not even get an inch of recovery. Government resorted to Keynesian formula. Liberal spending. This caused more discomfort than benefit. People stopped spending. They were careful with the money. It caused a downturn in consumption. Reduction in consumption caused reduction in production. This was instrumental in creating lay offs, and retrenchment. Banks did not credit as it should have got. The robust economy slid to 5.2% against our declared target of 9%. The financial deficit was uncontrollable. The deficit finance which was reckoned at 4.2% went up to 5.9%. Even though Direct Taxes receipt showed an increase, the actual receipt was only 55-60%, as most of the money due got caught in litigation.

            Scandals, scams, became a scourge to our economy. When Parliament was incapacitated to function by pandemonium and when one entire Session was lost, what policy trajectory was possible? There have been crusaders, who have been blocking every move of the Government. The coalition parties were declining to support the Government which is surviving on the mercy of Opposition parties who are ruling some States as regional parties. The fiscal deficit in the State budgets is no better. They want funds infusion like Rs 10,000 Cr (UP), Rs 12,000 Cr (Bengal), Bihar (Rs 10,000 Cr), etc. From where the Government will augment, is another matter?

            Dr Manmohan Singh when he was Finance Minister in Mr Narasihma Rao ’s cabinet, had to look after only Finance. The economic conditions then, were rosy. America was interested in India’s growth and the bi-lateral trade began to grow from US $ 30 billion to US $ 60 billion. The government of Rao was a minority government, and even if it had fallen, there would have been no serious repercussions. Today, if anything happens to the Government, Congress will lose face, and there are no strong statesmen in that party to bring unity in the diversity coalition.  Can we blame only Dr Manmohan Singh for all the ills?

            

             The monsoon , as we take stock, only rains but never pours. the deficiency will be reflected in the final tally of crops, and agricultural output, which will send India into a tail spin. Dr Singh's worries are not over. It would crop up again and again. Mamta is waiting with a bowl. So also others. And we have Anna Hazare waiting at the other end to cleanse the rotten political system which has already saturated.