The prospects for the 12 months ahead form the core of expectations at every Diwali. This year there were lights as usual but there was little to cheer on the economic front. The Congress held a chintan baithak on Diwali eve and no one could have missed the lack of enthusiasm in the Congress ranks itself. Sonia Gandhi’s rhetoric attacking the Opposition would not mask the reality of the government losing its credibility with one scam after another coming out. The party is put off because the CAG, Vinod Rai, publicly charged the government as ‘brazen’ in its decision-making. The party says he was crossing the ‘Lakshman rekha’ set by the Constitution on the functions of the CAG.
The government should ask what makes eminent constitutional authorities, one after the other, do this? Is it not their severe disappointment with the functioning of the prime minister? Not in the recent past has the Centre been openly described to be caught in a ‘policy paralysis’.
Now the government is contradicting itself. Its own appointed panel of experts headed by Vijay Kelkar has questioned the budget numbers, particularly those relating to tax receipts. That knocks down the very assumptions of the last budget Pranab Mukherjee presented as finance minister. The juggling in the budget is what the Kelkar panel has exposed: subsidies have been underestimated and tax receipts overestimated. That was done to muffle the reality of the widening fiscal deficit. Now the mask has been torn apart with the panel saying that fiscal deficit would not be what the budget said, that is 5.1 per cent of the GDP but 6.33 per cent.
Yet another constitutional authority, the Reserve bank of India, has delivered a blow to the new Union finance minister. Chidambaram’s urging to RBI to cut the interest rates has been rejected. Why should Duvvuri Subbarao take a lesson from Chidambaram when inflation pressures continue to drive the economy.
The proof has come from RBI’s data on rural wages in different states. What that data states is that rural wages across the country of unskilled workers have been going up while those of skilled workers have either gone down or stagnated. The rise is computed at 19 per cent by August. There is no comparative rise in agricultural productivity. Naturally inflation is not a supply side problem but an artificially created demand side problem.
The government is singing praise for itself on the MGNREG employment entitlement scheme. What it has done, as per the RBI study on rural wages, is to create an artificial income rise without a corresponding output increase. Significantly these wage increases are higher in states like Rajasthan and Andhra Pradesh where the MGNREG is claimed to be successfully implemented. If Subbarao did not succumb to Chidamabaram’s plea to cut interest rates, surely he must have been aware how the government’s flagship employment creation scheme was raising disposable income on a wide scale without adding to output.
Nobody outside the government seems to be giving any credence to this government’s claims on the economy. International rating agency Standard & Poor’s on September 20 reduced the 2012-13 growth forecast for India from budget claim of 6.5 per cent to 5.5 per cent. The government accused the agency of bias. The Kelkar panel has warned that the growth could go down even lower if the fiscal deficit is not cut.
Earlier J P Morgan, another international agency, had said that the potential growth had fallen from the 8 to 8.5 per cent of the 2003-07 to 6 to 6.5. The IMF and World Bank have all have all jointed in to cut growth forecasts to government’s infinite disconcert.
Since mid September the government has sought to reverse the flood of pessimist forecasts by ringing the bell of so-called reforms. That chorus began with the FDI in retail against the combined opposition of many parties, even by Congress-ruled Kerala. The charade on FDI is now revealed as a farce with the RBI revealing that the high current account deficit is being funded by foreign debt flows.
This is a double danger. External debt to GDP ratio is now 20 per cent up from 18.3 per two years back. The crooning about FDI in retail is shown as a whistle in the dark as in reality FDI flow has slowed down from $20.6 billion to 8.1 billion over 12 months. That means nobody abroad is fooled by the government’s rhetoric.
The India Story has vanished from foreign investment screens. India’s own corporate world is not believing in the government’s words any more. That is evident from the `9 lakh-crore corporate India is holding in cash reserves without investing it within the country. At the same time they are buying up companies abroad, Tatas bid for Orient-Express hotels and several other deals by power, steel, pharma companies buying up companies abroad. The PM himself had to ask public sector COAL India to invest its surplus rather than do nothing about it.
The government’s drum beating over getting FDI cannot dumb the reality. If the government is sincere in finding the money for various infrastructure investment schemes, there are Indians abroad who are willing to fund India’s growth story. In the last three years alone ending 2011-’12 the foreign remittance from NRIs has risen from $53.64 billion to 66.13 billion. That is $20 billion more than what the foreigners have invested in India in 2011-’12.
That the economy is doing badly can no longer be hidden whatever the Congress workers under prodding from Sonia Gandhi seek to pep up the depressed people. The government’s practice of crony capitalism and populism might be the culprits in contributing to the rise in non-performing assents of the banking industry.
Even as loan growth to core sector dipped alarmingly over the last four years, the gross NPAs in the banking industry rose alarmingly. In fiscal 2012 it was `1.3 trillion, or a rise of 46.17 per cent. The rise in the previous year was 20 per cent. So you can see that such virtual doubling of the rise makes the whole world uncomfortable about Indian prospects.
It is plain as daylight that the drum beating that the government is doing is really intended to mask the fact that the country is on the edge of a fiscal precipice. All the lights of Diwali cannot drive out this dark thought.
Balbir Punj is a BJP leader and Rajya Sabha member.