Government plans and economic reality have as much in common as the dinosaur and the donkey. Last year’s Union budget was a complete whitewash. All budget estimates were revised and fell below expectations. . The 7th budget 2012-13 presented to Parliament by MrPrnab Mukherjee, seems far from reality. Some mathematics here, some jugglery there, and some demograph to fill the missing links. The Government seems have lost its reality as a result concise road mapping seems to be missing. Government is unaware of the economy. Growth. World Trade. Policy. When all these ingredients of a budget are absent, it is a paper of calculations. Nobody knows what will happen over the next one year. . As a fall-out, we do not have a 12th Plan (2012-17) ready? There is no document ready, even though some figures are allotted for different sectors. The mechanism to run these Schemes has not been perfected. No Plan document. At the start of every five year Plan, the plan status begins. Consultations with various ministries begin. Finance Ministry holds Expenditure Finance Committee in case the threshold of the outlay is above Rs 100 Cr. Then, at the fag end of the year, Cabinet Committee on Economic Affairs chaired by Indian Prime Minister give their approval. Only then, new Schemes sanctioned for the 12th Plan period gets budgetary approval. If the amount is released on 29th March, you can very well imagine what type of implementation will result. One year of the Plan period would have ended. Regarding approval for existing Schemes, adhoc approval basis, Scheme money will be released. Even during the X, XI Plan period, the first year of the Plan was not in operation reducing the Plan periodicity to Four Years.
Our pundits in the Planning Commission faithfully will tell you that the average economic growth of the XII Plan will be around 9%. Forget, during 2011-12, the growth was 6.1%. Based on these figures, the budget of the Finance Minister for 2012-13 predicts an economic growth of 7.6%. The Economic Survey has forecasted a growth rate of 8.6% for FY 14. If these statistics were to be proved right, the last three years of the XII Plan should post a definite growth of over 9.5%. Growth rates are predicted, fiscal deficit are targeted, but like the uncertain monsoon, they are never the conjuncture of the Finance Ministry. Who bothers? Given the world draught in economic growth and political paralysis in India, resistance to reforms, it is doubtful if our growth pace can outpace the predictions of the Government.
India needs Foreign Direct Investment to fund infrastructure projects. With our craze for social sector schemes, there is hardly any money to build capital assets. With hardly any policy that suit foreign investors on vexed issues like Policy and promotion, why would any investor be willing to invest in India, where continuity in Policy, in Tax Laws, Company Law, change even with retrospective effect. Vadafone is a classic example of this. Political high handedness which drove industry out of West Bengal made bad publicity. Odisha’s Posco project which would produce steel which is in short supply has been outliving the long delay of Envoironmental Ministry to give its approval, only to find it quashed by the National Green Tribunal. As it is, industrial development is concentrated in a few States of the Country. Social and economic inequality will come to the fore in these states where political reasons outweigh developmental needs. China has grown and is growing, because it is easy to get a permit there than in India to get a project on stream.
In case, political indecisiveness continue, we may see a vacuum in FDI inflows!
Showing posts with label political gridlocks. Show all posts
Showing posts with label political gridlocks. Show all posts
Tuesday, April 3, 2012
Sunday, March 11, 2012
India's economy past its balmy days
Over riding downside risks to Growth: economic Story
Politics and Contagion are the drivers of the underperforming world markets, not balance sheet nor earnings. Shaky Europe, political gridlocks, volatile markets, dysfunction in United States, have been a major cause to create disorder to world trade’s orderly growth. India has plentiful problems, short term, medium term, long term, combination of domestic factors and deteriorating global economy, stampedes in the elections to the state assemblies, has created a governance paralysis.
RBI gave a shock treatment, albeit a proactive stance by reducing the Cash Reserve Ratio (CRR) by 75 points to 4.75 from 5.50 effective March 10, 2012. The timing was perfect. On 15th March, advance taxation to the extent of Rs 60,000 Cr would be required which under the present liquidity deficit, it is difficult for the Banks to manage. The release of Rs 48,000 Cr into the liquidity inflow would help Banks to frontload cash balances.
The macro economic picture will be assessed by the RBI on 15th March 2012, when it has to do revelations to enable the government to bring forward a favourable budget, which is the last straw on the UPA’s back. With food inflation in the stable for now and the tamed general inflation may not cause any upheavals at least for the present. The winds are favourable and the sky is clear, which makes it incumbent for the RBI to educe the interest rates which were hiked 13 times during the last 20 months or so, to give respite to the manufacturing sector to beget a better index of industrial production. The REPO rate announcement is long overdue. The industrial growth in the last quarter was 0.4% due to a combination of factors.
The burnt of petroleum hike read petrol hike had a destabilizing effect on the inflation figures. As the demand for petrol goes up in proportion to the manufacture of more and more motor cars for the middle-class, and with favourable bank interest to buy cars, the automobile population has become weird. Now, any dent of pressure would slow down the automobile sector growth which would mar a better IIP. We need to choose between growth, or hiking the petrol prices to produce better figures for oil companies in the balance sheet, which is preferred? Government needs to think aloud.
The Financial accountants see everything from the prism held by them on seeing green figures. They look forward to ways by which they can reduce the red figures. In doing so, they have distraction that some red colour entries cannot be touched- being pet projects of the UPA Chairperson, Greenfield project for the giant development of a state where sympathy for the party in power is almost hundred percent, etc. Rural ministry has pumped money into the rural sector, where the retailers have made a fast buck because of enhanced purchasing power. Through a slew of government interventions, it is not enough if we increase the capacity of BPL to spend more; they must essentially earn higher and better with support initially and without support, further down the road. Does any government scheme evaluate the incidence of income capacity of any beneficiaries? No.
We see a BoP in the current account ( $ 166.8 billion) which is a glaring and high trade deficit. Exports between April-February 2011-12 showed a jump of 21.4% and is about $ 267.4 billion, with the export of the terminal month of the year to fetch $ 33 billion, to round off the exports to $ 300 billion. This seems incredible given the glut in India’s foster as well as traditional markets. There was risk as we moved over to new and emerging markets. Imports grew by 29.4% during the same period to touch $ 434.2 billion, posting a straight trade deficit of $ 166.8 billion. This is not sound strategy even though we have a comfortable Foreign Exchange Reserves around $ 300 billion.
While petroleum products occupy a significant value of imports, government should contain import considerably or recklessly. The annual import of sizable quantity of edible oil from various countries, more than the required demand at 0% customs duties, is hurting the domestic industry. There are also anti dumping charges against these importers, but the Indian Agricultural Ministry which has neither figures nor reasons to justify imports has been depending upon indiscriminate import. Domestic oil seeds industry, Coconut oil industry has gone red because of cheap import. Government should take a call whether it is wise to export Cotton in its raw form or give value addition and get 6 times its price especially since the export is directed at our direct competitators like Bangladesh and China? Gold imports need a rethink. Gold belongs to a class of investments that will never produce anything but whose growing value depends upon the belief that someone else may pay more for it. Rupee’s down trend against the Dollar for a period is not a good aspect considering exporters bag of problems. Our cardinal import policy through FTP needs revision.
In our anxiety to post higher economic growth, we had privatized certain sectors. Aviation sector was one that underwent a major transformation. Air India, Indian government airlines is cash strapped. Kingfisher has plethora of problems. When the going was bad, Kingfisher’s accounts were blocked by Income-Tax and Service Tax. Banks announced simultaneously, that Kingfisher account has become Non Performing Asset, hence any bail-out would depend upon cleansing the account. The Oil companies have stopped giving jet oil to the airlines. Airports are demanding their dues. Government is keeping a silence. If the Company fails, what about employees? Flight schedules? Alternative? Complete disorder can be expected in the aviation sector. Banks will lose their credits. What about goods and services which catered to the airlines on a daily basis. The vacuum cannot be created by a foreign airliner undertaking flights in the domestic routes. Jet Airways has also been served a notice. What government is contemplating is not clear. Already damage has been done, and the government would be doing greater damage if they do not act. Indian balmy economics is in the sorrow days trap!
Politics and Contagion are the drivers of the underperforming world markets, not balance sheet nor earnings. Shaky Europe, political gridlocks, volatile markets, dysfunction in United States, have been a major cause to create disorder to world trade’s orderly growth. India has plentiful problems, short term, medium term, long term, combination of domestic factors and deteriorating global economy, stampedes in the elections to the state assemblies, has created a governance paralysis.
RBI gave a shock treatment, albeit a proactive stance by reducing the Cash Reserve Ratio (CRR) by 75 points to 4.75 from 5.50 effective March 10, 2012. The timing was perfect. On 15th March, advance taxation to the extent of Rs 60,000 Cr would be required which under the present liquidity deficit, it is difficult for the Banks to manage. The release of Rs 48,000 Cr into the liquidity inflow would help Banks to frontload cash balances.
The macro economic picture will be assessed by the RBI on 15th March 2012, when it has to do revelations to enable the government to bring forward a favourable budget, which is the last straw on the UPA’s back. With food inflation in the stable for now and the tamed general inflation may not cause any upheavals at least for the present. The winds are favourable and the sky is clear, which makes it incumbent for the RBI to educe the interest rates which were hiked 13 times during the last 20 months or so, to give respite to the manufacturing sector to beget a better index of industrial production. The REPO rate announcement is long overdue. The industrial growth in the last quarter was 0.4% due to a combination of factors.
The burnt of petroleum hike read petrol hike had a destabilizing effect on the inflation figures. As the demand for petrol goes up in proportion to the manufacture of more and more motor cars for the middle-class, and with favourable bank interest to buy cars, the automobile population has become weird. Now, any dent of pressure would slow down the automobile sector growth which would mar a better IIP. We need to choose between growth, or hiking the petrol prices to produce better figures for oil companies in the balance sheet, which is preferred? Government needs to think aloud.
The Financial accountants see everything from the prism held by them on seeing green figures. They look forward to ways by which they can reduce the red figures. In doing so, they have distraction that some red colour entries cannot be touched- being pet projects of the UPA Chairperson, Greenfield project for the giant development of a state where sympathy for the party in power is almost hundred percent, etc. Rural ministry has pumped money into the rural sector, where the retailers have made a fast buck because of enhanced purchasing power. Through a slew of government interventions, it is not enough if we increase the capacity of BPL to spend more; they must essentially earn higher and better with support initially and without support, further down the road. Does any government scheme evaluate the incidence of income capacity of any beneficiaries? No.
We see a BoP in the current account ( $ 166.8 billion) which is a glaring and high trade deficit. Exports between April-February 2011-12 showed a jump of 21.4% and is about $ 267.4 billion, with the export of the terminal month of the year to fetch $ 33 billion, to round off the exports to $ 300 billion. This seems incredible given the glut in India’s foster as well as traditional markets. There was risk as we moved over to new and emerging markets. Imports grew by 29.4% during the same period to touch $ 434.2 billion, posting a straight trade deficit of $ 166.8 billion. This is not sound strategy even though we have a comfortable Foreign Exchange Reserves around $ 300 billion.
While petroleum products occupy a significant value of imports, government should contain import considerably or recklessly. The annual import of sizable quantity of edible oil from various countries, more than the required demand at 0% customs duties, is hurting the domestic industry. There are also anti dumping charges against these importers, but the Indian Agricultural Ministry which has neither figures nor reasons to justify imports has been depending upon indiscriminate import. Domestic oil seeds industry, Coconut oil industry has gone red because of cheap import. Government should take a call whether it is wise to export Cotton in its raw form or give value addition and get 6 times its price especially since the export is directed at our direct competitators like Bangladesh and China? Gold imports need a rethink. Gold belongs to a class of investments that will never produce anything but whose growing value depends upon the belief that someone else may pay more for it. Rupee’s down trend against the Dollar for a period is not a good aspect considering exporters bag of problems. Our cardinal import policy through FTP needs revision.
In our anxiety to post higher economic growth, we had privatized certain sectors. Aviation sector was one that underwent a major transformation. Air India, Indian government airlines is cash strapped. Kingfisher has plethora of problems. When the going was bad, Kingfisher’s accounts were blocked by Income-Tax and Service Tax. Banks announced simultaneously, that Kingfisher account has become Non Performing Asset, hence any bail-out would depend upon cleansing the account. The Oil companies have stopped giving jet oil to the airlines. Airports are demanding their dues. Government is keeping a silence. If the Company fails, what about employees? Flight schedules? Alternative? Complete disorder can be expected in the aviation sector. Banks will lose their credits. What about goods and services which catered to the airlines on a daily basis. The vacuum cannot be created by a foreign airliner undertaking flights in the domestic routes. Jet Airways has also been served a notice. What government is contemplating is not clear. Already damage has been done, and the government would be doing greater damage if they do not act. Indian balmy economics is in the sorrow days trap!
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