Economic Highlights

New Delhi, 21 December 2012

Government Must Shed Flab Else

2013 WOULD SPELL MORE TROUBLE

By Shivaji Sarkar

Indian economic developments have nothing to cheer up the mood as the year ends. Worse, the mid-year economic review along-with the RBI’s review indicate further troubles ahead. Namely, moderation in growth, fall in tax revenue, rupee tumble, higher inflation and increasing joblessness.

True, the GDP growth rate has been moderated between 5.7-5.9 per cent against 7.6 per cent projected in the Economic Survey. But the Punjab and Haryana Chamber of Commerce’s chief economist SP Sharma calculates growth to a moderate 5.3 per cent. While the current account deficit--- trade deficit- peaks $ 16.4 billion, the highest ever in the first six months of the current fiscal year.

Recall, from 1949 until 2012, India’s current account averaged minus $ 1.2 billion reaching an all time high of $ 7.4 billion in 2004 March and a record low of minus $ 21.7 billion in 2012 March, when the figures were at $ 12 billion.

Importantly, the investment flow from foreign sources has also been hindered in the wake of a slowdown in the west and a not-so-favourable domestic environment. In fact, of late foreign institutional investment (FII) for short-term, particularly in the stock markets, too has slumped.

Predictably, this is severely impacting on the rupee value, which hovers around Rs 55. Worse, the pressure is likely to continue through the New Year and would result in further inflation as the purchasing power of the rupee further decimates. This in turn would lead to imports of essential items including petroleum becoming expensive.

Besides, notwithstanding whatever the Government claims about a turnaround in the wake of some moderation in inflation of the wholesale price index, the outlook looks difficult. Given that the consumer price index (CPI) is showing stubbornness. Whereby, the inflationary pressure on the economy is likely to act as a brake on the growth process.

Moreover, a slump in industrial activity, despite some supposed improvement in statistics, will put pressure on revenue mop up. Wherein the fiscal deficit might surpass the revised target of 5.3 per cent as corporate and services taxes are likely to miss the target owing to poor corporate showings.

Notably, this slowdown is also impacting customs and excise accruals, the mid-year review indicates and creating bad debt. Shockingly, the banks have over Rs 450 lakh crores of bad debts, termed non-performing assets (NPAs).

As it stands, the Government could collect only Rs 9,400 crores from spectrum sales against the targeted Rs 40,000 crores and disinvestment has come a cropper. One only wishes that the Executive’s hope of picking up gross tax collection in the second half comes true.

Add to this, overall joblessness is yet another problem the country is facing. The National Sample Survey Organisation in its latest countrywide study found that a mere 2 million jobs were created between 2004 and 2009 compared with 62 million created between 1998 and 2004. 

Indeed, the industry, including IT and media, has shed more jobs during the past two years thanks to recession. In these circumstances the Government’s claim that the unemployment rate has come down to 6 per cent appears suspect.

Also, the euphoria with which economic growth is measured in terms of GDP growth, and the high salary packages received by certain sections in the hyped organised sector hide the truth on employment.

Importantly, if economic growth is to be inclusive, the majority of the workforce, who do not seem to be reaping the benefits of GDP acceleration, will have to be brought into the growth process. But, this can only happen if there is ample recognition of this fact.

As it stands, the workforce statistics fail to capture the diversity of the labour force, along-with new and growing forms of work, like homework and the incomes levels achieved by workers in different segments coupled with the lack of social security benefits accruing to them.

In addition, the Government’s recruitment in para-military and similar security duties do not add to the growth of the economy though it increases expenditure and raises the aam aadmi’s discomfort as larger the para-military forces the bigger the problems they create for the people. Their high numbers have not shown any significant impact in trouble-torn States of Chhattisgarh, Orissa, West Bengal or the North East. Wherein, productive activity in these areas has not increased while administrative expenses continue to soar.

Pertinently, employment in productive areas like industry has been declining wherein industry is maintaining its profits through cost-cutting exercises, particularly by reducing the workforce. The Government, on its part, has taken recourse to not filling up job vacancies.

Questionably, can a nation progress through such jobless growth? The Prime Minister’s Chief Economic Adviser Ragjuram Rajan thinks it can. His three-pronged strategy includes a confidence-boosting budget, speeding up clearance for projects and further steps in capital market reform.

Clearly, jobs are nowhere in his priority. And capital markets do not create jobs. Thus, the budget is unlikely to bring in the much-needed revolutionary approach required on the tax front. Until the Government is willing to shed some taxes, including freeing bank deposits from TDS (tax deducted at source) income-tax and service tax, turnover would remain elusive. Even highway travel has to be made toll and hassle free. Shockingly, Indian roads are the highest taxed in the world.

Undeniably, the nation is looking for a different approach to the economy as taxes are becoming an impediment to growth. Without growth, jobs cannot be created and the aam aadmi cannot leave on doles like NREGA for long as it is not productive employment.

There is no gainsaying, that in real terms it might help the poverty-stricken people for 100 days but it is not adding to the process of growth, on the contrary, NREGA is an admission of the failure in creating jobs.

Undoubtedly, the Government needs to look beyond the clichéd and jargonized approach of “reforms”. If the country has to progress, novel methods are required. Sadly, the Government’s efforts of  trying to shackle all industrial activities through administrative measures has only made the bureaucracy at all levels demanding and corrupt. Nothing moves without paying a pound of flesh. Even rail travel entails greasing the palm of the railway staff.

In sum, the country needs rules but it does not require rules that empower the bureaucracy. Wherein, officials punish investors and industrialists who do not kowtow to them. Where is the much-touted change in the process post liberalization?

Needless to say, if the nation has to survive it possibly needs less of Government, which must shed flab and reduce unproductive expenses like buying cars for its staff, do away with multiplicity of inspections, clearances, taxes and look for creation of a system that flourishes whereby the nation comes out of man-made blues. India has capacity to lead even if the West slides! ----- INFA

(Copyright, India News and Feature Alliance)