Economic Highlights

New Delhi, 18 January 2016

Economic Conundrum

POOR TAXED, RICH SUBSIDISED

By Shivaji Sarkar

The Indian economy has sharp contrasts. On the one hand, it prepares itself for a major surge by way of higher public investments, FDI and a push to agriculture through a better insurance scheme. And, on the other hand, it faces a major problem -- of over $2 billion forex outgo by foreign institutional  investors, foreign education, and whether it should refinance Rs 5 lakh crore NPA-hit PSU banks, deviate or not from fiscal consolidation, falling deposit interest rates and other fragilities such as high retail inflation and sluggish industrial index.

Does this then mean the country is not progressing? No, the nation is progressing. The Government is preparing to invest Rs 80,000 crore on highways, of having a GDP growth that would possibly be over seven per cent and build hi-speed bullet trains. However, at the same time, it is unwilling to do away with the perpetual loss-making and public investment guzzling Air India as well as stop the monopolization of airport operations.

Worse, it also wants to take an economically unwise decision of reducing interest rates on small savings of National Savings Certificate, savings banks, fixed deposit rates and the Public Provident Fund (PPF), notwithstanding that the savings, a security for the poor, has virtually been greasing the economy since 1960s. The poor, senior citizens and millions other would obviously have the right to know whether they are being made to suffer for being the harbinger of the country’s progress! Further, they have the right to question why they have to give up LPG and farm subsidies.

Additionally, the people also fail to understand why those pilfering their money, now called NPA, are being doubly rewarded -- one for their action and two by the Government’s generosity of cutting the lending rates so that they can continue their predatory moves to swindle more. Undeniably, there is a bureaucrat-banker-lender liaison, which sadly the politician, voted to power, is unable to break and unwilling to halt the poor getting hit repeatedly.

The Government, as is known, is burdened with the task of reducing fiscal deficit. Therefore, the question arises why it should refinance the banks? As per Basel-III norms it has to put in Rs 1.80 lakh crore in PSU banks and has reportedly agreed to provide Rs 70,000 crore as equity. But the people would like to see it being paid by the swindlers and the bad bank managers and certainly not by cutting the interest rates.

Besides, the other nagging question is why should the honest always bear the burden and continue to suffer? The message doing the rounds in the politico-economic circles is that though the strict actions by Prime Minister Narendra Modi have brought a thaw in large scandals, these are yet to translate into benefits for the poor. In the 1950s and 60s, the poor-funded schemes led to the growth of the country. It is so even now. Official statements show that private investments from large houses remain abysmally low. Thus, the entire stress is on the public through high taxes, toll and other duties as well as investment.

Yes, strangely this is the plain truth. With whose funds are the roads being built? Not a single company has put a penny. The Noida-Agra expressway is built with all public (bank) funded money and the company owes a whopping Rs 95,000 crore (one-third of official NPA of Rs 3 lakh crore) since 2008. Who benefits? Obviously, the company! It charges high toll of Rs 350 per vehicle. Who pays? The poor users, in addition to the Rs 2 per litre that they pay as cess for building the road and myriad other tolls, service and other taxes.

Road cess alone has raised a corpus of over Rs 2 lakh crore since 2000-01 as 30 to 50 per cent of it has remained unutilized. The people have also been seeking answers viz similar roads and other projects, which despite having recovered the full cost plus profits in about three years continue to fleece them. Is there any reason for being soft on the companies?

Then there is inflation and a cut in subsidies. The private high profit-seeking cartelized companies have trigged this. It is surprising that during the supposed “bad days” -- 2008-13 -- they had record profits going beyond 140 per cent by way of hiking prices 100 to 200 per cent. These include Unilever, ITC, Tata et al. Government organizations such as railways, and those dealing in petrol, gas, milk and other services have also joined them. Retail inflation remains high. The consequence is low consumption, poor demand and a production slide in manufacturing and industrial sector.

It is a strange contrast – high profits and low volume of business. The industry has not come up with a remedy. It has forced the Government to give sops during their high-profit era and is now again nudging for more concessions at the cost of the poor and farmers.

Sadly, the individual farmers have been suffering. They are getting low prices, no subsidy and are in high debt. The new crop insurance scheme may give them succour but that is no insurance against fleecing by the large houses that have got into this area. Marketing is controlled by them and so largely are procuring prices despite the Government’s minimum support price. The farm sector needs more sympathetic treatment and attention not only to sustain the farmers but also to ensure growth. Agriculture still decides India’s GDP growth and overall price mechanism. The Government is looking at it but it has to do more and with empathy.

Commodity prices are complex. But somehow the society is unable to regulate these. These cannot be left to the whims of the operators. Growth is getting hit, disparity is growing and there are a few islands of prosperity -- not a healthy trend.

Energy prices are slumping. Crude oil has come down to $28 a barrel – and is slated to touch the low of 1997, when it was $18. This reduces large current account deficit. As the world gradually takes to solar, oil would soften further. However, full benefit is not coming as the rupee has slid beyond Rs 66 to a dollar. In 1997, it was Rs 36.36 to a dollar. The country needs to pep up the rupee and reduce taxes on petroleum to allow inflation to find the natural low levels. This can also lubricate other sectors and enhance demand and industrial production.

The NITI Ayog has to study avenues beyond the routine and ponder over these issues, stable prices and wages. It also has to suggest how the public-funded private sector can change mindset to invest for growth with a low profit model. A break from the Manmonhan Singh-Congress model is a must to give a politico-economic message and ensure faster all-inclusive growth. Will Modi pay heed? ---INFA

(Copyright, India News and Feature Alliance)