Dr Ashwini Mahajan
After USA”s The Economist magazine’s comment on Prime Minister, now it is the turn of ‘Time” magazine of USA which termed Prime Minister as underachiever in its July issue. US President has also joined this chorus by criticising the present government. Prime Minister Dr. Manmohan Singh had the reputation of a renowned economist, who had served as a professor and an economist before joining the government. As a proponent of economic reforms, he earned a reputation of an extra ordinary policy maker. But recent developments in Indian economy have put a big question mark on the efficiency and abilities of Dr. Manmohan Singh.
‘The Times’ has alleged that Prime Minister lacks the will to bring the economy back on the track of economic growth. Faced with the challenge of slowdown in economic growth, huge fiscal deficit, and sinking rupee, Congress led UPA government has demonstrated complete lack of direction. Investors, both domestic and foreigners are depressed. Self-confidence of the Prime Minister has been dwindling in the last three years of UPA-II government. Prime Minister has lost control over his ministerial colleagues. Engrossed in the populist programmes, government has failed miserably, in legislating the pending bills in the Parliament, ‘Time’ complaints.
Though foreign (USA”s) magazines measures the efficiency of the government in its ability or otherwise, to implement its decision to open retail sector for FDI and treat non-compliance of the same to be the cause of economic slowdown. However, the fact is that slowdown of the economy is though due to the government; it is not due to non-facilitation for so called economic reforms, but actually due to mismanagement of the economy and wrong direction of economic policies.
Prime Minister has himself conceded that the economy is in very bad shape. Latest statistics released by Central Statistical Organisation (CSO) has reduced the estimate of economic growth (GDP growth) to 6.5 per cent during 2011-12. It may be noted that rate of growth in preceding two years has been 8.4 per cent annually. Industrial growth has decelerated to merely 2.9 per cent in 2011-12. In the third quarter of 2011-12, it became even negative by 1 per cent. Fiscal deficit is approaching 6 per cent of GDP. In the last just 4-5 months, rupee has depreciated by 20 per cent. Despite the fact that food inflation has cooled down in the recent months, thanks to the reasonable agricultural production, general rate of inflation has continued to be high.
Inappropriate Measure of Development
Policy makers of the country think GDP growth to be everything for development. All problems of the country would be solved once 9 per cent growth target is achieved, they argue. Thus, GDP growth is used as proxy for development. But if we look at performance of 11th Five Year Plan, we find that despite nearly 8 per cent GDP growth, 30 per cent of population is still reeling under poverty, even according to ill-defined poverty. Between 2004-05 and 2009-10, only 20 lakh people could be provided employment in organised sector, while 251 lakh were pushed out of self-employment and 220 lakhs out of them joined the ranks of casual labour, according to 66th Round of NSSO. This indicates that despite economic growth, conditions of human development have not changed much. ‘The Economist’ (USA’s top economic magazine) writes that India’s growth story is seemingly ending. It reminds us of lower rate of growth 1970s and 1980s of nearly 4-5 per cent, which was called Hindu rate of growth by western economists in a derogatory sense.
Foreign investors, by their tactics to evade tax, are causing loss to the exchequer to the tune of more than one lakh crore. Instead of curbing these types of acts, government, has been giving further concessions to the foreign investors. GAAR which was proposed in budget 2012-13 to curb misuse of double taxation avoidance treaties by foreign investors is seemingly dropped. It seems that government lacks will power to adopt stern action in view of the payment crisis.
Economic Mismanagement
Sinking India rupee is live example of our economic mismanagement. In last few months our rupee has been constantly depreciating and exchange rate which was rupees 48.7 per US $, has gone to rupees 57 to 58 per US $ between February 2012 and July 2012. Widening of trade imbalance is being cited as the main reason for weakening of rupee. Unprecedented increase in import of gold and silver, high price of crude oil and ever rising imports from China are major reasons for widening of trade deficit. Apart from these reasons, large scale outflow of foreign exchange by Foreign Institutional Investors (FIIs) is also responsible for downfall of rupee.
Though there is no denial of the fact that India hardly has any control on crude prices, but we can definitely decide about the source of crude oil to reduce out go of our foreign exchange. For instance, if we import oil from Iran, 45 per cent of the payment can be made in the form of rupee. Import of gold which was only 25 billion in 2010-11, increased to US $ 50 billion in 2011-12, government did not do anything to stop the same.
Need for Good Management
Despite all ills of the economy, government looks totally devoid of policy prescriptions. In fact government has unable to use available options to bring the economy back on the track. Main reason for slowdown is the slowdown in factory production. Sluggish factory production is primarily due to two reasons, first, increase in prices of raw materials and fuel and second continuous rise in interest rates. Prices of raw materials and fuel are rising due to weakening of rupee and to solve this problem we need to strengthen the rupee. RBI is not taking the risk to reduce interest rates in view of inflationary tendencies set forth in the economy. Thus it is imperative to curb inflation. By reducing interest rates, we can also encourage investment in manufacturing, investment and other sectors apart from pushing demand for housing and consumer durables. All this can bring economy back on the track. Instead of cursing the allies, PM should exhibit will power to accomplish this task of bringing economy back on growth trajectory.
(The writer is Associate Professor, PGDAV College, University of Delhi and can be contacted at ashwanimahajan@rediffmail.com)
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