Highest ever hike evokes nationwide protest, shock. Brazen UPA unmoved
With the rupee at the verge of becoming a senior citizen and petrol prices consequently hitting the roof, the inflationary consequences on the poor and the middle class have become so intense that many families have started to toy with the idea of giving up a daily meal. The Planning Commission’s outrageous definition of poverty line at Rs 28 per day notwithstanding, India Inc is now openly and unambiguously talking about the spin off effect in terms layoffs due to rising costs. Though the government disingenuously claims that the falling rupee has only to do with the flight of dollars from Europe in the wake of the Greek crisis, there is no one in the government to explain why India is not the destination for dollar investments.
Usually when a country is hit by economic crisis like Greece, there is flight of US dollars to a more attractive (read less risky) investment destination. Today US is not a great shape either, yet India has failed to attract foreign exchange investments solely because of the policy paralysis in India coupled with corruption in central ministries which has gone unabated under the Prime Minister’s protection. If there was a proactive government at the Centre foreign investments in infrastructure sector alone which is in dire need of large investments, would have resulted in a problem of hardening rupee instead of the present situation.
The rupee has fallen 26 per cent (even as we go to press) since last July from a level of 44.50 against the dollar. There is no point in blaming the Reserve Bank of India (RBI) for not mitigating the problems arising out of the falling rupee. To begin with, the travesty of the truth lies in the fact that the crude prices in international markets have actually fallen by over 10 per cent in the past few weeks. Petrol prices should be coming down drastically if dollar from Europe had found its way to India. The Euro today is at a 21-month low at 1.2615 against the US dollar. If Government of India wants, the situation can still be reversed by some deft handling of the economic policies as well as reform measures.
First, there is so much despondency in the government coupled with ennui over the economic situation. Corporate India which is usually very charitable to the government in power has actually gathered the courage to tell the government that it is useless. Many of the reform measures can insulate our economy from the goings-on in the world. On the one hand, India could have become the investment destination for the dollar, and on the other, the potential for growth is so huge because of the infrastructure deficit of half a century, that India does not have to even bother about what is happening in the world.
The Manmohan Singh government in a vain attempt to earn a few brownie points says that FDI has shot up to $ 8,101-million in March 2012. What it hides is the fact that FDI was abysmally low at $ 3,121-million in April 2011. Hence, even if there is a jump in FDI, it is from a historic low base. The lack of confidence in the economy emanates from the fact that courts are now deciding the economic policies of the government while the government is busy charting out the course CBI has to take against UPA allies who have become pain points. In a seminar on real estate in Mumbai an industry leader even went to the extent of saying that the allies are being held together only by the CBI threat and not because of any political philosophy.
Few Indians are aware that the cost price of petrol before taxes is in the vicinity of Rs 27-28 per litre. But after all the excise and levies are added it balloons to near Rs80 per litre. Given the high cost of living in the past four years when inflation has never been in single digit the government could very well have reduced the central levies and brought down the petrol prices to curb inflationary trend. But the Prime Minister and his council of ministers seem to be only having a one point programme of protecting the corrupt ministers in the cabinet. Even the Supreme Court has questioned the inaction of the Prime Minister in the Rs1.7-lakh-crore 2G scam given his prior knowledge of the on-going corruption in his cabinet.
The large scale corruption at various central ministry levels has added to the money supply where lakhs of crores of rupees have been made by central ministers and their cronies. And the Prime Minister chooses to be a mute onlooker. Corruption alone contributes hugely to rising cost of living at every level. Corporate India also alludes to the fact that there have been so many scandals in the present government with so much money being made by so many cabinet ministers that the ennui had to set in. There is a feeling in the government that they really don’t need to win the next election because so much money has already been made. The best encomium for CBI comes from the former Swedish police chief who expressed his ‘disappointment’ at Sonia Gandhi not being questioned for her role in the Bofors scandal.
On the production side of the economy many of the companies have deferred their plan to import capital goods and machinery and/or payment for the same owing to the slump in the rupee. The costs of imports have burgeoned incredulously by over 30 per cent since the beginning of the year. For such companies which are involved in manufacturing of FMCG, in the given circumstances it would be best to put off the plans to expand operations. This would essentially mean that the demand-supply situation in the economy would become even more skewed and that will lead to further inflationary pressures.
Also, in such uncertainty, companies would lay off people from their jobs for the expansion plans that fail to take off and to cut costs. The government, it seems, is sanguine in its thought that the next general election is two years away, and it will ride back to power because the economic situation will improve by then. That might as well be the case the world over, but in India given the levels of corruption in the Central cabinet and the indecision of the Prime Minister to shore up the economy or to curb corruption has only led to stagnant policy-making.
The aam aadmi who voted this government to power is not even in the picture today. Vegetable prices have shot up by over 18 per cent month-on-month in some of the metros which is never revealed in the statistics given by central agencies. On the other hand, the government is deliberately trying to raise prices so that its argument on FDI in organised retail holds water. If one goes by the government’s intentions it becomes clear that there is a hidden agenda in all this. It is trying to kill many birds with one stone. To hike petrol prices by Rs8 per litre one day after the Parliament session closed, tells a story of how jittery the government is on facing the Opposition in the House over crucial issues. In all probability, there could be other inflationary measures taken before the next session of Parliament opens. The Opposition may not have to work very hard for the next election if this is the way the corrupt UPA government behaves till 2014.