Open Forum

New Delhi, 31 July 2013

“Situation Under Control”

BUT NO GLIMMER OF HOPE

By Nikhil Gajendragadkar

The first quarter of the new financial year brought grim news for the UPA Government at the Centre. There is no good news for the people either. Industrial production has declined, exports continued its downward trend, and inflation, which we all want to decrease, has increased.  On top of it, tax collection also has missed the mark. Still the Manmohan Singh-led Government remains calm and unmoved.

Industrial production or factory output has shrunk. According to statistics released by the Government, its growth rate was minus 1.2 per cent. Sub zero rate cannot be called as “growth rate”. In April this rate (or IIP) was just 1.9 % according to “revised” estimate; earlier it was fixed at 2.3 %. These results are declared by the Government itself.

Decline in the growth rate of Capital goods is more disturbing. It shrunk to -2.7 %. Capital expenditure is an indication of the investment by the industry. In 10 out of last 14 months this rate is below zero, which means the Indian industry (or India Inc. as popularly known) is avoiding new investment or it is incapable to do so. Either way it also tells that the Capital Goods Industry is in a bad shape.

This quarter had a surprise in the store (besides large inventories) for Consumer Goods industry too. It (including “Durables” and “Non Durables”) saw a negative growth rate. By June end this industry shrank by 4 %. This came as a shock for the industry as a whole and the Government too. Lack of demand - both domestic and international- led to stockpiling of goods. Costly Input forced producers to increase price, which is driving the consumers away. Thus industry is in a fix.

The auto industry bears testimony to the fact that economy is slowing. In June, car sales plunged by 9 % with sale of commercial vehicles dropping by 13.45%. For the past eight months this is the trend for auto sector. Increase in input cost is one reason and costly fuel the other. If transporters cannot get enough business, who will invest in purchasing a new truck or a bus? In other words transporters are not getting enough work. Negative growth of industry and slump in the transport sector are directly related. If there is no demand then where the hell will producers transport their product?

The other tragedy is exports. June saw a decline by 4.57% in exports. Last month, India could export goods worth only $23.78 billion. Though it saw a decline by 1.11% in May, latest is the largest in past eight months. But imports have not come down proportionately. In May balance of payment (BOP) rose to $20.1 billion. Compared to April and May import of gold reduced considerably, thanks to steps taken by the RBI and the Government, and BOP or Current Account Deficit (CAD) came down to $12.2 billion in June. Still overall CAD is as high as 4.8 % of GDP.

The same quarter gave another jolt to the Government on the tax front. Growth in its collection sank to only 8.7%. Slide is prominent in indirect taxes. Of course it is not unexpected. Indian economy in the last two quarters of last year (2012-13) grew at meagre rate of 4.7% and 4.8% respectively. Numbers of the first quarter for GDP growth are yet to come but going by the trend, they will not be encouraging, feel many economists. Excise duty is a major source of income for the Government. It is reduced by 5 %. Corporate Tax comprises one-third of total tax collection. It has grown only by 7.8%.  Budget forecast was 16.9% growth in this segment. Service tax has risen dramatically in last few years, so the Finance Ministry relies heavily to boost its finances. The Budget estimated growth of a whopping 35.7% growth in service tax, it registered 15.2% growth in the first quarter.

Excise tax and corporate tax are directly connected with the performance of industrial sector. Auto, textiles, manufacturing, consumer product; nearly every sector is doing badly for last one-and- half year. When industry as a whole slows down, one cannot expect growth in tax collection either. Some vehicle producers have already started reducing production by halting it for few days. This will affect employment.

On one hand production and tax collections are dwindling, inflation is showing no signs of abetting. Retail inflation rate touched 9.87% in June. Preceding three months it did not rise, but was not below 9%. Food inflation was up to 11.84% in June. All varieties of grain, vegetables, fruits, milk and all other food articles are getting “dearer” every week for last three years. One cannot comprehend how the Government can claim that inflation is on decline? Even inflation based on WPI (wholesale price index) in June has inched to 4.86 from 4.70 earlier months and food inflation based on WPI is 9.74 in June from 8.25. Supply crunch is the main reason behind this situation and the Government is doing precious little to rectify it.

Rupee’s depreciation against US Dollar has deprived our economy to gain from lower crude price in international market. This has also led to increase in fuel prices in the domestic market. Costly fuel starts a vicious cycle of more inflation. High cost of essential commodities has forced common people to spend more on these items, naturally they cannot think of a home loan or loan for buying a vehicle. Inflation has eroded demand for almost all goods.

Prime Minister Manmohan Singh announced opening up of many sectors for FDI, but there are no takers. High inflation coupled with huge fiscal and current account deficit are major hindrances in attracting foreign investment. In the past four years the Government did nothing to boost domestic investment and saving. It is spending on so called “social programmes”, but that expenditure is not creating assets for the economy and country. The Government’s publicity campaign “Bharat Nirman” (Rebuilding India) is actually a proof of such spending. What happened to Mid Day Meal scheme is now in the open with the Bihar tragedy.

Agriculture sector is in dire straits for decades. The UPA government is paying lip service to farmers for the past seven years. Neither industry nor agriculture is good health, then who will create 10 million jobs needed every year?  This Government‘s quest of “inclusive growth” is in reality pushing many groups away from it

June saw a decline by 4.57% in exports. Last month, India could export goods worth only $23.78 billion. Though it saw a decline by 1.11% in May, latest is the largest in past eight months. But imports have not come down proportionately. In May balance of payment (BOP) rose to $20.1 billion. Compared to April and May import of gold reduced considerably, thanks to steps taken by the RBI and the Government, and BOP or Current Account Deficit (CAD) came down to $12.2 billion in June. Still overall CAD is as high as 4.8 % of GDP.

On any front there is no glimmer of hope. But Congress and its allies in the UPA are obsessed with next year’s General elections. The politicians want to win their seats. That is why they are proclaiming the “situation is under control”...But we know the reality.---INFA

(Copyright, India News and Feature Alliance)