The Havoc Of A Crashing Economy

The Havoc Of A Crashing Economy

The havoc continues unabated, with the plunging Indian Rupee and the sharply rising cost of Petrol, Diesel, LPG,PNG, Aviation Fuel, and the cascading g effect of all this on other prices of almost everything.

Airline fares have been jacked up a startling 25% at one go. Cars are being priced higher. Insurance premiums too. Food is significantly more costly. And it is open season on price hikes everywhere and on everything, alongside shrinking demand amid high interest rates. The equity and debt markets too are most volatile and directionless, with some multi-crore scams of their own too.  

The recently concluded parliamentary session managed, probably as a response to these acute crisis conditions, and general disappointment from India observers abroad, to pass 11 bills out of over 45 pending parliamentary passage – many languishing for a decade or thereabouts! Perhaps, even the usually contentious and oblivious parliamentarians felt obliged to do something positive. In the last session before this there were such battles that only one bill was passed.

There is a strenuous attempt afoot on the part of the government to extract political mileage from at least the Food Bill and the Land Bill amongst them. This is probably as a prelude and cat’s paw to taking it to the people at public rallies. The government is desperate to put a positive face on something, an d whatever resonates with the Congress Party’s aam aadmi pretensions has the pole position.

But several commentators have opined that the voting public will not be moved by these bills, or the Pension bill or the new Companies Act either for that matter. These items of legislation are unlikely to connect with the voters urban or rural. Not with prices of everyday staples shooting through the roof and everyone feeling the pinch.

Meanwhile, the scams keep rolling out, and bumping into each other, with invariably large sums of money involved, almost in counterpoint to the tough times the economy and the people are going through.

Wild ideas, like laying hands on some of the over a trillion dollars’ worth of domestically hoarded gold, some 31,000 tonnes of it, are doing the rounds, as a possible fix it for the fiscal and current account deficits. This even as the government is threatening severe import curbs to conserve its dwindling foreign exchange reserves down by over $16 billion since April 2013.

The whisper is that the government wants to issue pieces of paper, Gold Bonds, and paper interest, in lieu of real gold deposited with the government. This flies in the face of the lack of confidence the public feels by acquiring and hoarding the gold in the first place, quite apart from its sentimental allure and traditional pull.

The GDP forecast too is now in the 4.4% p.a. range, having left even the 5% mark firmly behind.

The new Governor of the RBI, the energetic Mr. Rajan, has had a good impact with his first moves after taking over, and might well go some way to rescuing the economy from further rack and ruin. He has certainly demonstrated a reformist tone already, and provided some succour to the beleaguered banks. He also does not seem fixated on inflation to the exclusion of growth like his predecessor. He might just stave off an international ratings downgrade if his ideas are allowed to go through.

Mr. Rajan, young and accomplished in a sea of senior citizen politicians, is a breath of fresh air, blowing over a dispirited, embattled government, that has patently lost control of the economy. But even with all numbers and forecasts in such dire straits, the government is focussed firmly on political matters rather than economics.

This is like a return to the old days of 2% growth in the Indira Gandhi era, when economics was considered irrelevant to the real tasks of governance.

In fact, it is uncanny how much today resembles yesterday, and how the aam aadmi agenda of the Congress Party, however naively put together by the National Advisory Council, now dominates the government.

Somehow, it is being touted about that the welfarist MNREGA, directed at rural India, won the Congress 206 seats on its own in 2009, whereas the reason for the impressive tally was that it swept the urban vote, and actually only some 20% of the rural vote.

But, because the prevailing belief is that MNREGA worked, despite the inconvenient facts, many in the Congress Party think the Food Bill will similarly bring them back to power this time.

As far as public opinion goes however, the worry is not whether there will be a UPA III, which seems very unlikely given the food price rise and corruption, but how any other ruling dispensation will rule over the economic mess it inherits.

If the idea is to deliberately set the table so that the successor government fails, then the UPA is going about things very well. That this is, if true, very cynical and harmful to the interests of this country, will hopefully be noted by the voters.

But even if this kind of scorched earth strategy is being executed on purpose, the good news is that there is nothing intrinsically wrong with the Indian economy. And, significantly, some stubborn foreign investors understand this too.

So, a new, for example, Narendra Modi -led government, may be able to unleash the very “animal spirits” that Prime Minister Manmohan Singh dreams of sporadically, but has not been allowed to see through at all.

Rarely has a government been so dominated by the party chief. But then, in the past, a lot of the time, the party chief was also the prime minister, despite the intent, from time to time, to separate the two offices. 

Still, current events bear out that the economic agenda should definitely remain the province of the government, rather than be remote controlled by the party- which is, in the final analysis, not accountable. 

Hopefully therefore, a strong government initiative after the polls, will set the economy back on the rails and we can start taking pride in our future again.

(1,013 words)

September 8^th, 2013

Gautam Mukherjee