Tuesday, 1 January 2013

Indian Economy in 2012 - Nothing to base hope on.

We have had a tumultuous calendar year that ended yesterday. The UPA II Government had projected a GDP growth at  7.6 (+/-0.25) %for FY'13. Chief economic adviser Kaushik Basu was confident about 9% growth but was worried about the impact debilitating politics would have on the economy.  With a projected GDP growth of 9% in 2011-12 and ending up with 6.9%, the start of the FY 2012 -13 was upon an established lie. We didn't have any analysis on why we missed the forecast of 9% growth in 2011-12 and what exactly are going to do to achieve the >7% growth as projected.  (Economic survey 2011-12)

The UN Economic and Social Commission for Asia and the Pacific (UN-ESCAP) projected Indian economy to grow at 5.9 per cent in 2012-13,  compared with 6.5 per cent in 2011-12. The International Monetary Fund (IMF) has slashed India’s growth forecast to 4.9 per cent for 2012. IMF says weakened growth in the first half of 2012 was an outcome of stalled investment caused by governance issues and red tape, and a deterioration in business sentiment since we have soaring current account deficit and a depreciated rupee.

Let us see where and how we miss the growth. Drill down and look in detail are not needed to say lack of Governance caused economic growth. Take a quick glance at Gujarat economy and the nation as a whole will tell a lot of tales on the areas need improvement. But that comparison will fetch anyone a brand of Hindutva fanatic with Saffron painted all over the face. Let me try here to do analyze without comparing Gujarat. I would be happy at such a brand and color as it would establish my credentials far away from the inherently corrupt UPA regime. Also, a proud member of the Sangh parivar don't mind his identity getting widely publicized.

We have a planning commission and we all know how does it function. With the infamous 32 INR/day calculation they have established how far away they are from reality. That was defended with a version that seemed acceptable at the outset. 32*30=960 per head. A family of 5 can earn Rs.4800 per month and we have families living on that money in the nation.

Well, this is a spirited defense of the insensitive planning commission, but a perfect diversionary tactic to confuse the common man. With inflation soaring day by day in every way possible, how long will a family 5 be able to sustain life with sumptuous meals and a decent living?

With the price of pulses set to shoot the pulse of consumers, and edible oil prices
slick their way of life, volume of production of rice and wheat getting shrinking year on year and thus prices go up as by the normal market behavior, how can this 32 INR be justified?

With MRP ruling the roost and it has uniformity throughout the nation, what was the justification to have 26 INR a day for rural areas?

One has to conclude that the food price taken into consideration for this calculation was from the canteen at the Parliament where everything is sold at a subsidized price, but the feel one get upon knowing the price is that the MPs are charged some money as free food need not be provided at the Parliament
. Who foots the bill is a question for the taxpayer to ponder and lament about!

The management of national economy is marred by political compulsions, greed and  callousness. To add up, we have corruption, cronyism and many of white collar economic offenses in the book present in our nation. 

In 2011-12, 175 projects have been sanctioned without specifying any commissioning schedule while 235 projects are running behind schedule. Maximum number of projects delayed relate to road transport and highways (90), followed by power (45), petroleum (29), railways (26), and coal (17), said the economic survey of 2011-12. The delay in railways ranges from 2 to 213 months and in road transport and highways from 4 to 106 months. (Economic survey 2011-12)

Ministry of Statistics and Programme Implementation (MOSPI), shows sub-optimal project implementation across all the major sectors. While some of the project delays are due to exogenous factors beyond the control of the implementing agencies, in the majority of cases the delays are mainly due to a dismal record of project implementation starting from project identification and designing to undue delays in procurement (both tendering and contracting) and ineffective project monitoring. (Economic survey 2011-12)

Of the 583 central projects underway involving an outlay of Rs.8.21 trillion only seven are ahead of schedule and 166 are on schedule, says the Economic Survey. The original cost of the projects when sanctioned was Rs.7.12 trillion but delays pushed up costs by 15.3 per cent or Rs.1.08 trillion. (Economic survey 2011-12)

We have huge potential for saving money here but the managers of the economy prefer to live with this and try to invent reasons to live with this. They leave the problems and the root causes to grow and find out means to keep the public eye away from the problems.  

A continuously declining rupee could put serious pressure on India's worsening current account deficit. It will increase the import bill largely on account of higher fuel prices. It is unlikely to boost exports which are constrained by painfully slow growth in major markets like the US, Europe and Japan. 

The Government's expenditure will only grow. With elections around the corner, political parties tend to dole out freebies to get votes instead of standing firm on the Governance and growth grounds as done and won by BJP in Gujarat. Populist schemes will have its own adverse impact on the economy and further strain the already sick economy.

The exogenous factors affecting the proper implementation of growth plans, referred to by the MOSPI, may be beyond the control of the agencies implementing programs, but they are not beyond the control of the Government. The implementing agencies and agencies creating trouble for implementation are part of the executive. The problems in implementation is monitored and reported, but the follow up action to correct the situation and put the implementation back on track is not taken and we're advised to live with the problems

This is attributed to the indecisiveness and reason cited are plethora of corruption charges and indictment of some bureaucrats in those. The buck should stop somewhere but we have none to take responsibility with a sense of national cause.

With the mammoth share of FDI rumored to be laundered money swindled in the nation, the gloomy economic forecast and continuous mismanagement of the economy will divert that kind of money too to different and profitable economies. India will be looted without even the possibility of the swindled money routed back as investment. In other words we'll be back to the old colonial days. 

The impact of this directly affecting the common man are:
  • There will be fewer job opportunities for those seeking work.
  • Lower increments for those who are already employed. 
  • Inflation will remain high-around 7% eroding the standards of living of the middle class. 
  • Interest rates will continue to remain high, making car loans and home loans unaffordable. 
  • Consumption will slow down sharply with people losing purchasing power
  • With high inflation and low increase in income savings or investments will be a distant dream.
  • Domestic investment in India will crumble ending in further economic downfall. 
Government is not ready to accept the truth. We, the people, should be worried, very much worried about our future and that of the next generation. Because we don't have people at the helm of the national economic affairs caring much for us. We either need to fend for ourselves or ensure the right people are appointed to manage our key affairs in the proper way that benefits all of us and not some imported elite to whom many of our current national leaders have surrendered to. 

But we have hope in Gujarat. Many things work properly in Gujarat that it hardly feels like India says the The Economist. Gujarat accounts for 5% of India's population but 16% of its industrial output and 22% of its exports. The Gujarat Government uses the usual methods to try to kick-start growth, including special economic zones. But more than signing MOUs, it has provided the standard things that businesses have been craving for across India but often not provided with: less onerous labor laws, good roads, reliable electricity and effective bureaucracy.

 Gujarat's economy grows by double digits @ 10.08%, even as India's rate slumps to 5 - 6 % this year. There are lots of excited talk about exporters switching from China to Gujarat reports The Economist. A recent comparison of Indian states by McKinsey, a consultancy, sung praises about Gujarat. Gujarat should be the vision of India's future.

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