Khalil Ahmad Khawaja VIEW : Indian economy under the bear’s foot — II — Khurram Ali Khan The falling rupee also reflects — in large or substantial measure — the world’s response to the present state of India Nonetheless, India’s current account deficit is likely to remain elevated in near term and financing it will be a challenge, the Barclays analysts said. The policymakers have failed to “curb gold imports and cut on India’s oil import bill” to strengthen or stabilise tumbling Indian rupee. In the stock market the state-run Life Insurance Corporation has hardly recovered after the initial losses. The foreigner investors have sold more than $4.5 billion in the current year. The tumbling rupee sent a more worrying message than the economy managers are prepared to hear or, at least, listen to. Is its collapse simply a reflection of India’s unsustainable current account deficit? Or does it reflect a greater malaise? The total food subsidy would cost “Rs 90,000 crore to the government including Rs10,000 crore for the implementation of the food security bill.” The food bill is a major cause of tension for several traders. Moreover, the Indian economy is passing through a critical phase. It seems the Indian economy is sinking. The Reserve Bank of India has already warned that the public spending on the bill can be a turning point. It would deepen the crisis. The cost of the crude oil has already reached a high level while the country is already facing high inflation. Several international companies are selling their huge shares and leaving the country due to unfavorable economic and volatile global conditions. The stock index is low. India, in fact, is in a state of shock and panic. India seems to be failing in its efforts to attract foreign investors. The current account deficit is also one of the major causes for the sharp fall of the Indian rupee. The government can stabilise the currency and attract funds into the country by dint of hard work. Nonetheless, it is an uphill task. The hit low value of rupee is a major source of tension among Indians. The falling rupee also reflects — in large or substantial measure — the world’s response to the present state of India. There are at least three issues that have caused dismay. The first is the repeated paralysis of the Parliament. Day after day the image that is shown to the world is of howling, screaming, quarrelling MPs who persist with partisan and, even, petty protests despite the daunting challenges facing the country. They seem unconcerned about the key reforms that will determine India’s economic future. They care more for their personal prospects in Andhra, Supreme Court judgments about their eligibility, missing files and fixing the PM’s accountability and, of course, ventilating easily manufactured anger against Pakistan. In contrast, Nero only fiddled! The second is what one calls the Vodafone tax amendment. The government’s decision to overturn a Supreme Court judgment, upheld on review, sent a dismaying message to investors that India doesn’t have a well-defined and stable tax regime. Instead, it can be manipulated by government caprice. Even court verdicts can be cast aside. So beware before you invest in India; the government will change the rules of the game not just after play has started but even after the referee has blown the whistle and the match is over! Quite frankly, who wants to invest in such a country? The third, one admits, is controversial. It can be read in many ways. I am talking of the decision to push through the food security bill at a time when the concern about India’s deficit has peaked and when everyone knows the finance minister’s commitment to 4.8% can only be honoured by savage, and, possibly, damaging expenditure cuts. About 269.3 million people are living below the poverty line, out of a total population of 1.2 billion in India in 2012. The decline in the value of rupee has raised several million people above extreme poverty. It may also be interesting to know that those spending up to 27 rupees a day in rural areas and 33 rupees in urban areas are considered to be living in poverty in India. The cost of food, rent and essential commodities are going to be out of the reach of the masses. The average cost of one kg of rice sold through PDS at subsidised rates is currently around 18 rupees. The welfare policies of the government for the poor seem to be leading towards failure. According to the United Nations report about 500,000 Indians die every year simply because of lack of clean water. It is shameful that almost nothing has been done to alleviate poverty in India. Indian governments have very poor record to alleviate the miserable conditions of the poor of India. The fall of Indian rupee is a natural phenomenon or law of nature. If it had been done in 2007, before the international economic crisis, the food security bill would have been applauded. The same was postponed till after the economic recovery; it might be seen as a valid attempt to tackle nutrition and health and thus promote productivity. In other words, it is a long-term investment in the economy with no good reason, but at the height of a crisis, it looks populist and suggests the government cannot handle the downturn. So what’s the wider point we are driving at? Let us put it simply. No longer does the world view India as a shining beacon, leave aside a potential superpower of the near future. It now sees India with disappointment, verging, increasingly, on disillusionment. Is this a loss of confidence? It may well be. Let’s not deny that possibility. But is it irreversible? One may nod in negative. The rupee is not sounding a death knell. It is, however, a loud, if not shattering, but announcing the demise of Indian economy. The issues are not just the economy but government, parliament and democracy. It’s the way India, the world’s ‘largest democracy’ and ‘a likely superpower’ functions as a country. India, itself, is in the foreground and what the world now sees it doesn’t really like. (Concluded) The writer is a former Associate Professor, Government Degree College, Gujar Khan. He can be reached at profkschazad@yahoo
Posted on: Thu, 26 Sep 2013 05:33:38 +0000