Slow Down in Growth Only composite policy can yield envisioned results S. S. Johl Economy is not growing at its optimal, planned or expected rate, commodity prices measured in terms of wholesale index are showing downward trend and wheels of the economy, particularly of secondary sector are grinding to near halt. It is however a different matter that to the discomfiture of the public, retail prices of daily consumables are showing total disconnect with the wholesale price index and are rising by the day and never scale down even when the supplies increase through time. Previous remedial measure adopted by the government to provide exogenous stimulus to the growth have not succeed in making the economy look up. No doubt, In the globalized economy, the health of the economy is linked with the growth of the trade participating economies in the international market. The Gross Domestic Product (GDP) growth of the Indian economy that was 9.4 percent in 2008 has come down to 4.6 percent. World Bank puts it even lower at 3.2 percent. This decline is in consonance with declining and even negative GDP growth in the major trading partners of India. United States after experiencing negative growth in 2008 and 2009 witnessed weak recovery of1.8 percent in 2010 and again relapsed to 1.0 percent in2011 and 0.3 percent in2012. United Kingdom relapsed from 5.2 percent in 2011 to 1.3 in 2012. Germany growth declined from 3.0 percent to 0.7 percent and France from 2.0 percent to 0.7 percent. Denmark, Finland, Greece and Italy experienced negative growth. This scenario presents a near dismal situation for the Indian economy. Export performance also exhibited unimpressive growth that declined from 35.17 percent in 2010 to 28.26 in 2011 and 11.4 percent in 2012. The country’s share in world exports also did not improve from a level of 0.68 percent. Imports growth of the country too declined fro. 27.93 percent in 2010 and 34.5 percent in 2011 to 13.06 percent in 2012. Share in world imports declined from O.6 percent in 2011 to 0.51 percent in 2012. This has lead to the escalation of trade deficit from a level of Rs 533,680 crore in 2009 to Rs 1,042,007 crore in 2012. As a consequence, Inter alia, current account deficit grew at the rate of 19.6 percent in 2011 and 32.63 percent in 2012.Current account deficit in the first quarter of 2013 grew at the rate of 18.1 percent This indicates the economy of the country is in the vortex of stagnation and struggling to revive from the slump that is circumscribed by the very weak recovery in some of the major trading partners and some of them, especially in Europe, experiencing negative growth in their gross domestic product. This scenario is further aggravated on account of misplaced love of the Indians for yellow metal. Although it is difficult to estimate exactly, yet it is believed that households in India hold estimated more than 20,000 tons of gold, valued at more than 800 billion US Dollars. This forms some fourteen percent of the gold stock in the country. Foreign exchange reserves of US$ 280 billion appear to be mere pittance measured against the gold richness of the country and particularly of its households. Another drain on the financial resources of the country is the import of crude oil due to the ever escalating demand for petroleum products with fast increasing number of vehicles, especially petrol and diesel guzzling private cars. In the last decade the demand for imports increased on average of 17.6 percent per annum within a range of 1.37 percent and 52.97 percent per annum. With such a stark situation of economic slump and progressive debilitation of the economy, the government has gone into sop throwing mode, substantially increasing the subsidies of all kinds including provision of highly subsidized food grains to two-third of the population of the country without linking the financial out go with any productivity or creation of public assets. If this expanded programme of food subsidy could be linked to an expanded employment programmes like MNREGA covering more number of days of employment and increase in the wage rate, this could build up much needed infrastructure in the country on a wider scale. With one mouth, God has given two hands and muscles to the human beings to feed their stomach. The hands need work and are not meant to be spread out for doles. It is primary obligation of a welfare state to provide gainful employment to its working population. Such subsidies and free supplies turn the beneficiaries into a sort of beggars, which is a direct index of failure of governance in the country. For a faster growth, the prerequisites are (1) enabling efficient and affordable quality infrastructure, specially the power supply as well as transport and communication, (2) skill oriented educated management and upper level technicians, (3) healthy and responsible work force, (4) good governance that ensures entrepreneurial and personal security and (5) promotional administrative environment. Investors are very shy birds and fly away sensing even minor trouble. The government’s recent decisions to liberalize the FDI route to enhance investment in the country that would improve the GDP growth on an upwardly shifted production function are the steps in right direction. Yet, for its success, the basic determinants of growth need to be taken care of. In particular good governance that provides enabling administrative environment with promotional attitude, certainty and continuity of government policies, irrespective of change of the governments is crucial for FDI inflow as well as domestic investments. One of the major impediments to the investment in the country is the labour productivity and attitude of labour unions that emphasize only the rights ignoring the obligations part of their activities. This adversely affects the inflow of FDI and even the pace of domestic investments. It is one thing to annunciate a policy and it is another to create an enabling environment for effective implementation and outcome of that policy Further, there is a need to unleash the power of the wealth of the country that is encapsulated in gold held in the country, especially by the households. The recent measures taken by the government are quite mild to change the mindset of the people to dishoard gold and divert this wealth to the productive investments. Gold bonds with attractive yields and curves on gold hoarding through deterrent import duties and specific wealth tax on the metal can correct the situation to a considerable extent and can force the inert wealth flow into productive channels. There is also a need to expand public transport like bullet trains, city metros and buses to replace private cars in the down town areas of the cities that would reduce the pressure on demand for petroleum products. FDI in infrastructure of this type can go a long way in creating conducive environment for accelerated domestic investments also. The imperative is the composite policy that integrates all the determinants of growth. Ad hoc, piecemeal and jerky policy dispensations cannot be expected to yield the envisioned results.
Posted on: Sat, 27 Jul 2013 06:29:28 +0000
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