Research & Analysis

Economy diseased: Need efficient doctor

There is a dilemma and nagging 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? Such doubts are many and answers as varied as the questions. In addition to this conundrum, it’s alleged that 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? Or 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, but definitely there are issues and serious issues, with many sectors in limbo.

The reason is difficult to understand. The latest entrant to this scenario is the popular biscuit industry. One of the largest biscuit-makers is contemplating laying-off 10,000 workers. This can be due to either intense competition with many new entrants or because the company hasn’t innovated and come out with new varieties such as cocoa-filled cookies or numerous other new tastes that are flooding 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 a full meal. A food item sale apart from a company’s efficiency also reflects the preparedness to keep up with the changing tastes and times.

This is to be compared with the overall rural household-level data from four Consumer-Expenditure Survey of National Sample Survey – 1987-88, 1993-94, 2004-05 and 2009-10, say two researchers Amit Basole and Deepankar Basu of University of Massachusetts, US. They, say that rising expenditure, one of it 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 per cent increase on fuel between 1987-88 and 2009-10 caused 0.7 per cent and 10 per cent decline in calorie intake.

Remember, the fuel price has increased over 13 to 15 per cent during the past about six years. It has hit calorie intake further. And while the rupee is hitting an eight-month low of Rs 71.80 and petrol prices are skyrocketing, this hits consumption at every level, food included.

On the one hand, while the officials blame it to external factors like Donald Trump engineered trade war, on the other critical 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. In that sense, the economy is on a roll. Continuous inflationary situation, which the price index may not be mirroring, limits consumption, expenditure pattern, consequently production and growth parameters. This 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 per cent between April 1 and August 15 as against a required rate of 17.3 per cent. 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 wit 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 realisation.

Empowering the constabulary to raise revenue historically has been disastrous. Let the nation recall the reasons leading to the French revolution – almost same as inflation, lower food intake, job evaporation, power of the gendarme and choking of the economy. The government has to bring in that revolution. It has to junk Manmohanomics and ensure free flowing economy.

The Government needs to be an 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. In fact, the government’s own arm, the Reserve Bank of India, in its monetary policy review on August 7 has eloquently stated: “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.

A doctor can experiment and fail once. If he repeatedly fails, it would raise questions about his education and expertise. 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 a slump in both rural and urban demand. Plus, its other observations are eye-openers. Total kharif area sowing is 6.6 per cent less than a year ago. This means an impending farm crisis and further food price rise.

Industrial activity, says the RBI, 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 per cent is summarised as key indicator of investment activity contraction in June. It has faltered once again on protecting savings or about its boosting. 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. This certainly 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. Longer the delay, the disease will progress.

 

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