Flawed policies engender Economic Blues
The ship of Indian economy seems to be lumbering. The policies of the UPA government have pushed the common man onto the fringe—whether they be food articles, petro products or others—and now the economy too is feeling the heat. The Gross Domestic Product (GDP), which was supposed to be around the mark of nine-plus percentage, was hoped to fare at 8 per cent during the fiscal year 2011-12. But the new estimates have further gone down. Credit rating agency Crisil has scaled down India’s economic growth projection for the current fiscal year 2011-12 to 7.5 per cent from 7.7-8 per cent earlier on account of the grim investment climate in the country. According to analysts, India is reeling under a high interest rate scenario enforced by the Reserve Bank of India (RBI) in order to tame stubbornly high inflation, which towered at 9.78 per cent in August 2011. It is noteworthy that other ratings agencies like the Fitch Ratings and Moody’s Investor Services, and international organisations like International Monetary Fund and Asian Development Bank also cut India’s GDP projection. The Asian Development Bank has lowered India’s GDP growth projection to 7.9 per cent for 2011-12 from the earlier forecast of 8.2 per cent due to tight monetary conditions prevailing in the country. Further adding insult to injury is food inflation. The government data showed that India’s food price index rose 11.81 per cent and the fuel price index climbed 14.50 per cent in the last week. The upsurge in food prices is likely to exert further pressure on the government and the Reserve Bank to tackle the situation expeditiously. The RBI raised interest rates last month for the 13th and possibly final time in a tightening cycle that began in early 2010, on expectations that persistently high inflation would finally begin to ease starting in December. Furthermore, the decision of Moody’s Investor Service, a month ago, to change its outlook on India’s banking system to negative rather than stable has cast a gloomy spell on this sector. It is important to know that the very same Moody’s displayed a lot of courage while it downgraded the country rating for the richest country in the world, i.e. the United States of America after failure of its financial system that let loose the financial tsunami across the globe.
One does not need GDP forecasts to gauge the downward drift in the economy. Even as the optimistic official forecasts peg economic growth rate for 2011-12 at not more than 7.7 per cent, data from a wide range of sectors are capturing the economic slowdown more graphically. Extrapolating such data, it is possible to see the heightened risks to the growth process in the months ahead. Against this backdrop, it is worth mentioning that industrial growth touched an all-time low of 1.9 per cent in September 2011 from 6.4 per cent during the same time last year. Month-on-month annul growth rates which stood between 10 and 18 per cent during most months of the August 2009-July 2010 period, have since decelerated and stood between 6 and 5 per cent in four of the five most recent months. This decline has caused disquiet in various circles. What is more, on a year-on-year basis, export growth at 10.8 per cent was at its slowest in the past two years. From a high of 82 per cent in July, it dropped to 44.25 per cent in August and to 36.36 per cent in September. Both manufacturing and mining slowed down to 6 per cent and 0.1 per cent during April-August, 2011-12. The corresponding growth rates for the same period in 2010-11 were 9.3 per cent and 7.7 per cent for manufacturing and mining, respectively. While the overseas debt has gone up to $306 billion at the end of March 2011 from $221 billion at the end of March 2008, the cushion of foreign exchange reserves went down to $305 billion from $310 billion over the same period of time. In normal times, perhaps some of this could be compensated for. But these are not normal times, as above data reveals. To further aggravate the situation, the rest of the world is slowing and sputtering. More, it is losing its appetite for risk which means that no easy money will be flowing into India to make up for policy deficiencies. It is particularly important, therefore, to get the common man’s spirit up and going. But there is absolutely no movement on the part of the government, even as problem is becoming more pressing. In fact, under the UPA government, economic reforms have given way to populism. It has, for far too long, appeared to be shy about how it intends to run the country, and what would constitute effective economic policies. As a result, the government machinery, instead of moving forward, seems to have come to a grinding halt. It’s high time that the UPA government woke up from its slumber and realised the common man’s aches and pains. However, it may not be advisable to the UPA to change the horses midway, but at least Manmohan Singh, who himself is an economist, should have everyone on board so as to chalk out people-friendly policies and steer his government properly.