Economy
on rocks, not necessarily, thinks the
Finance Minister even when the Re breached 68. We are still at an inflexion
point as Rupee is yet to touch the downslide to 70 a dollar, as predicted by Dr
Tarapore a month and odd ago in the Business Line. The inflation differential
between the two countries India and US has been steady over the last two
decades at 3.6% notwithstanding the great recession since 2008. This exchange rate adjustment, that is
largely market driven, need not be seen as a weakness of the economy. There is
a large domestic economy, if carefully nursed, could reverse the trend though
not in the immediate future. We cannot very much alter our import basket
governed by the crude oil that is rising, and edible oil whose consumption in
India far outstrips the production necessitating its continuing import and the
heavy capital equipment required for infrastructure sector, in the short run. In
sluggish manufacturing sector intensity, expecting recovery in the short run
would be a wild goose chase.
If
we look at the emerging economies’ trends ever since Ben Bernanke announced the
QE programme of unwinding bond purchases, global GDP all along etching its
hopes on them, now looks tamed at 2.1% even in 2013. Chinese economy, though
sent some shivers at the beginning of the year, started quick recovery and
would seem to be steady on stabilising and may be at 7.7% growth. Among the
BRICS, the other major, Brazil is looking for World Football Cup to come to its
rescue. It is down from 3.5% to 2.5%. Unfortunately, India does not have an
event like the Commonwealth or world tournament to milk the opportunity.
After
a long slumber on the policy front, India’s economic Czars announced a slew of
reforms that would move like the wheels of Lord Jagannath’s chariot. They have
been announced at a time when the sectors are not poised to respond. Now, the
rating agencies that have been on a simmering hope would appear too keen to
downgrade India’s sovereign rating. Although on some such hopefuls, the EIA
predicted GDP growth at 6% for Asia and Afroasia (excluding Japan) in June
2013, is likely to shift it at 5.5-5.7%. Although the RBI in its July 30
Monetary Policy predicted a downtrend to settle at 5.5%, even the most
optimistic projection does not now seem to cross 5%.
The
silver lining in the cloud of despair is that the NRI deposits are growing with
the downfall of Re. Even in the backdrop of double digit consumer inflation
index, domestic savings have not fallen yet; and the employment rate also
remaining steady. The core sectors grew by 1% last month. Electricity
generation showed improvement by 6.2% with the rise in hydel power backed by
steady inflows in the command projects. More than average rain fall also
predicts a hopeful growth of the farm sector. There is enough money rolling in
rural areas still, thanks to the MNREGS and a few rounds of State elections
that fuelled free money make a merry go-round.
What
is at danger, however, is the likely bourgeoning of fiscal deficit fuelled by
the implementation agenda of Food Security Act 2013. The Centre’s expected
funding of the order of Rs.900bn in 2013 on Food subsidies alone that has an
embedded 40% leakage if we go by the CACP study, rings alarm bells of
consequence. RBI’s Governor Subba Rao without mincing words said that the Act
would ‘eat into the finances’; while the incumbent Raghuram Rajan said: “there
is blatant flaw in the policy making.” While the tigers are mauled alright, the
elephant would stop dancing and get chained in the cage.
Can also be seen on VITALINFO
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