There is a quandary.
There is policy uncertainty. Is the economy growing, in a thaw or on a downslide?
Does it need revival or should it be on a sprint? Is it spirited or dispirited?
There are questions galore and the answers could be as varied as the questions.
It is also alleged that the economists are also divided – pro-government,
anti-government, Marxists, non-Marxists, pessimists, optimists and so forth.
Does it mean that there
is no problem with the economy? Does it mean that all discussions are mere
bunkum? Or is it a way to keep the reality in shroud or avoid discussion? India
needs an answer and it is eluding. It may be a transition that all are unable
to judge. There are definitely issues. Many sectors are thawing. The reason is
difficult to understand.
The latest to thaw is
the popular biscuit industry. One of the largest biscuit-makers is mulling
laying off 8000-10,000 workers. It can be due to intense competition with many
new entrants or it may be because the company has not come out with new products
which are in demand in the market. While the company’s crisis may be affecting
over 50,000 people, it need not necessarily be a national crisis. Identifying a
snack with national crisis like fall in purchasing power is dodging the
question of full meal.
As per Amit Basole and
Deepankar Basu, researchers from University of Massachusetts, US, this is to be
compared with the overall rural household-level data from four
Consumer-Expenditure Surveys of National Sample Survey – 1987-88, 1993-94,
2004-05 and 2009-10. They say that rising expenditure, like on cooking fuel
caused a decline in calorie intake. The study reflects today’s reality as well.
They state that the relative price changes, occupation pattern alteration and a
10 percent increase on fuel between 1987-88 and 2009-10 caused 0.7 percent and
10 percent decline in calorie intake. The fuel price has increased over 13 to
15 percent during the past about six years. It has hit calorie intake further. While
rupee is hitting eight-month low of Rs 71.80 and petrol prices are
skyrocketing, it hits consumption at every level, food included.
While the officials
blame it on external factors like Donald Trump engineered trade war, economists
blame flip-flop policies of jacking up costs or prices of government managed
items and services – fuel or railways or highway tolls or CBSE schools and
higher education fees – each of it affects food consumption or calorie intake.
Continuous inflationary
situation, which the price index may not be mirroring, limits consumption,
expenditure pattern, consequently production and growth parameters. It hits
official revenue collection and government expenditure pattern that provide the
only stimulus amid a host of uncertainties in perspective planning of
industries, managing falling sales and job cuts.
Every day the figures
are becoming too stark. Direct tax collection has slowed to 4.7 percent between
April 1 and August 15 as against a required rate of 17.3 percent. This shows
the fallacy of projections in inflation-hit economy or is it failure power of
the reasoning.
India needs to have
dialogue on the tax system. It needs to have a will to lower the tax rates to
boost purchases, production, growth and higher revenue realisation. A
bureaucratic budget is smothering all that. Not only direct and indirect taxes
even penalties like on car speeding are aimed not at spurring growth but
revenue realization. Empowering the constabulary to raise revenue historically
has been disastrous. The government has to junk Manmohanomics and ensure free flowing
economy.
Government should be
efficient manager, be impartial, allow freedom of business and leave decision
of how much tax to pay to the people. Coercion and dispossessing people of
their earnings and wealth does not ensure that needed freedom. The government’s
own arm Reserve Bank in its monetary policy review on August 7 has eloquently
said, “Overall there is evidence of domestic demand slowing down further.
Investment activity has been losing traction”.
Unfortunately, its
suggestions are away from reality and contrary to the inflationary situation.
It has flawed prescription of reducing interest rates (for increasing credit)
while it should be increased to check inflation and boost savings. The UPA government
did the same mistake in the wake of 2008, global sub-prime meltdown. It led to
a situation of officially looting the banks by large corporate, now called NPA
crisis. The RBI is repeating the 11-year-old mistake of the then finance
minister P Chidambaram. Lowering interest rates even then did not raise the
domestic consumption. The RBI in its policy review accepts deceleration of
private consumption, considered mainstay of growth. It even connects fall in
consumer price index (CPI) to absence of demand that boost sales and industrial
activity. It finds slump in rural and urban demand.
RBI’s other observations
are eye-openers. Total kharif area sowing is 6.6 percent less than a year ago.
It means an impending farm crisis and further food price rise. The industrial
activity, RBI says, continues to be weak in May 2019, impacted mainly by
manufacturing and mining. It translates into what rightist and leftist
economists sum up as job losses. The slowing down of capital goods import to
5.8 percent is summarized as key indicator of investment activity contraction in
June.
It has faltered once
again on protecting savings or boosting it. A nation that has grown on the
traditional wisdom of growing on savings unfortunately is devastated through
imposition of taxes on interest accrual – hedging against inflation. It is not
income.
Repeated goof ups across
regimes are surprising. The economy, let the nation accept, is on a downslide
and needs revival. It is looking for a professionally efficient doctor.
