Lipid Profile of Indian Economy
Last week I visited an old dhaba from our college days. We ordered our favorite cream chicken with butter nan. “What do you think will I eat chicken with? Where the hell is pyaaz” – shouted one of my friends at the waiter. In a second’s lapse, the dhaba owner replied, “Saab, I can get you pyaaz, but it will cost you extra.” We looked at him empathetically and this initiated our discussion on the soaring prices of items of daily use and how things had changed over the last few years. It occurred to us how onion underwent transition from being a taken for granted side item to one demanding reverence. The discussion was further fuelled with how an economy once boasting of a growth figures of 8 – 9% was crawling even to maintain half of that rate. What went wrong? Who was to blame?
The existing state of economy is a multipart imbroglio of various drivers – some national, some international; some manageable, some uncontainable. Our Finance Minister’s favorite and excessively used reason for every fluctuation in the home economy is global factors. “Global factor” is just a rhetoric, in sense it only means US. So right from soaring petrol prices to depreciating rupee, Uncle Sam is responsible. While it might be true to some extent that US is a reason, but we cannot tag US as the malefactor. They released some cheap dollars while they were fighting recession half a decade back. Now their economy is improving and they are absorbing the excess liquidity from market. This has had an adverse effect on many developing economies but we have been the worst hit. Among the developing nations, the only currency that lags behind us is the South African Rand. In terms of statistics, this shows a very high correlation of our dependence on US imports. Not just imports with a tag “Made in US”, but also other commodities like crude which are traded in the green paper.
Is applying a ban or making it difficult to afford imported goods the real solution? I beg to disagree. We have been independent for more than 65 years. If we have still not been able to create a respect for Indian products among Indians, then there lies great problem in our system. Increasing taxes and import duties can help us relieve the symptoms but will actually worsen the underlying disease. In an International survey of entrepreneur friendly nations, we appear in the bottom 10%, behind many African countries. We spend less than 2% of our GDP on R&D, which is still considered as luxury suitable for the West. Increasing FDI in any sector, from organized retail to Insurance, never ceases to spark a fire amongst the ruling party and the opposition. We want to benefit from globalization without paying the price for it. FDI is looked at as the enemy of Indian products. I agree with this statement to some extent. But,the Government has enough handles in its controls to not let the foreign brands ruin the market of Indian products. It can with ease dictate its terms on the sections of society to be employed, raw material to be sourced from, percentage of total investment to be made in supportive infrastructure like godowns and cold storages etc. If FDI is allowed with some restraints for promoting inclusive growth, it can act as the oxygen to our otherwise ventilator dependent economy.
However, all the discussions on allowing FDI theretofore topic for evening teas and drawing room discussions a few years ago. The sad results that ensue is that companies don’t want to come to India. Rather they prefer countries like Philippines above us. The felon is our wavering policies. The recent example being a Supreme Court ban on bauxite mining in Niyamgiri hills of Odisha. Vedanta, a UK based company was rejected license to carry on bauxite mining in the Niyamgiri hill region, which is inhabited by an Indian tribe – Dongria Kondhs. 12 Gram Sabhas passed a resolution that they will not allow any mining in their well-regarded Niyamgiri hills, believed to be the abode of their deity – Niyam Raja. Keeping this logic by Supreme COurt for disallowing mining in these hills amuses me. I completely understand the pain of losing one’s home. This Can be addressed to in a suitable way by ensuring that each family of Dongria Kondhs is suitably re-inhabited. Rather, this can be an opportunity to provide them with employment and a means to earn livelihood. Citing saving of their Niyam raja as a reason against allowing mining shows the education levels among them.
Same is the case with coal mining. Thanks to our infamously famous coal block allocation scam, SC has put a stay on allocation of any further coal blocks forcing us to import the black diamond for our power plants. To make matters worse, public opposition to Kudankulam power plant, which can decrease our dependence on coal based power plants, further increases our dependence on foreign coal imports,and we talk of rising imports. Leave aside items like crude oil which we do not possess, we are not exploiting our rich possessions.
Instead of treating the disease, the Government has tried to control symptoms with temporary doses of analgesic along with a suicidal food bill which further disturbs the ledger. CAD has been financed with short term debt, which are maturing in 2014. Finance ministry needs to find a pragmatic and quick solution of returning this debt. RBI and Finance Ministry have tried all textbook methods of improving the rapidly deteriorating rupee. But our rupee seems to be in no mood of recuperating from the crisis till some major reforms are made for strengthening our overly praised strong fundamentals. The time is right to improve our old mistakes. Govt should assert in open that things like retrospective taxation are only on the pages of history. In place of considering FDI & FII as parasites, we should treat them as a potential for a symbiotic relationship. All these steps might take gestation time before presenting paybacks, but they can prove to be sound and long lasting measures. Other processes like soft debts might solve our problem for now but they will further entrap us into a vicious cycle and might drive us to a point where the only recluse is our forex reserves.
As Ronald Raegan once said – “An economist is someone who sees something that works in practice and wonders if it would work in theory ” – as of now, the famous economist brigade of our Government is clueless. And we middle class denizens sincerely hope that soon we are able to savour our taste buds with onions cut into discs and garnished with lemon juice, salt and pepper.