Coping with economic ills

BRP Bhaskar
Gulf Today

With the rupee in free fall, the stock market in violent fluctuation and inflation in two digits, last week threw up evidence that India’s economy is ailing.

While presenting the budget, Finance Minister P Chidambaram had held out hopes of a growth rate of 6.1 to 6.7 per cent during this year. Replying to a debate on the state of the currency in the upper house of Parliament on Friday, Prime Minister Manmohan Singh lowered the target to 5.5 per cent. Data released by the Central Statistical Organisation later shows even this may be unrealistic.

The CSO report said growth in the first quarter of the fiscal was only 4.4 per cent, the lowest since the global meltdown of 2009. The growth rate fell in every sector of the economy except that of social and personal services, which registered an increase — from 8.9 per cent to 9.4 per cent.

Some foreign analysts and domestic critics cited the Food Security Bill, which provides for heavy subsidy on grains supplied to the poor, as one of the reasons for the decline of the rupee. The fact, however, is that the rupee began falling weeks before the bill was adopted by the lower house of Parliament, and it was caused primarily by global investors moving money out of foreign financial markets following the US move to tighten money policy in view of improvement in its economy.

The economies of many countries had suffered when the US experienced meltdown a few years ago. It is ironic that some of them now suffer because the US economy is improving.

The rupee is not the only currency affected by outflow of foreign investment. The currencies of many developing countries from Brazil to Indonesia have suffered erosion in recent weeks. However, the rupee happens to be the worst hit.

India received foreign institutional investment of $12 billion this year. About $1 billion went out in a fortnight as investors began pulling out.

The main cause of the plight of the rupee is the growth in the current account deficit — the gap between the value of imports and that of exports — which touched an all-time high of $88.2 billion during the last financial year. This was 4.8 per cent of the GDP. The government planned to reduce the CAD to $70 billion, or 3.7 per cent of the GDP, this year. High oil and gold imports foiled its efforts.

Appeals to the public to reduce oil and gold consumption having failed, the government is considering other remedial measures. Buying more oil from Iran paying rupees and keeping petrol outlets closed from 8pm to 8am are among the ideas mooted to reduce oil import bill. Austerity measures are also envisaged.

Some analysts have likened the current situation to what prevailed in the early 1990s when India borrowed heavily from the International Monetary Fund and suggested going back to the IMF. However the government says the situation does not warrant recourse to IMF aid.

Its optimism is based mainly on two factors. One is that the country has foreign exchange reserves of about $280 billion as against short-term debts of about $172 billion. The other is that since there was plentiful rain during the year the outlook on the farm front is bright.

However, Corporate India has cause for worry. Taking advantage of the economic reforms, many companies borrowed heavily from abroad and the falling rupee has pushed up their repayment burden.

A US website has quoted an official of the financial services firm Morgan Stanley as saying 25 per cent of Indian companies technically do not have enough money to make interest payments and 15 per cent have negative cash flows.

Manmohan Singh shares Corporate India’s view that the answer to the current economic problems lies in more reform. However, since general elections are approaching, he cannot overlook the fact economic reform, while benefiting big corporations, has added to the misery of the poor. The food security and land acquisition measures which the government is trying to push through are aimed at mitigating its impact on the vulnerable sections of the population.

Amid the gloom of the week the state-owned Life Insurance Corporation spread a bit of cheer by releasing a report of the global research firm Dun and Bradstreet, which said India is likely to achieve an average growth rate of over 8.3 per cent between 2014 and 2020 and realise its full potential. -- Gulf Today, Sharjah, September 3, 2013.

Bickering over food security

BRP Bhaskar
Gulf Today

The Congress-led United Progressive Alliance government, which survives in office with the support of parties that are not part of the coalition, is making a bold bid to push through Parliament its ambitious food security scheme which aims at providing grains at low rates to about two-thirds of the country’s 1.2 billion people.

The UPA, which, according to opinion polls, is set to suffer heavy losses in next year’s parliamentary elections, expects the Food Security Bill it drew up in 2011 to turn the tide in its favour. Lack of a consensus held up its passage.

Last month, while Parliament was not in session, the government promulgated the measure as a presidential ordinance. Congress President Sonia Gandhi called a meeting of the 13 state chief ministers belonging to her party and exhorted them to implement the law in letter and in spirit.

Continuous disruption of Parliament has put a question mark over the future of the measure. The ordinance will lapse unless the two houses of Parliament pass a bill to replace it within six weeks of the start of the session.

With Rajnath Singh, president of the opposition Bharatiya Janata Party, assuring support to the bill last week the way appeared to be clear for its passage. But Gujarat chief minister Narendra Modi, whom Singh favours as the party’s prime ministerial candidate, threw a spanner in the wheel.

In a letter to Prime Minister Manmohan Singh, Modi claimed the measure was flawed and could not ensure calorific and nutritional security of the poor. He wanted the government to call a meeting of state chief ministers before enacting the bill. Chhattisgarh’s BJP chief minister Raman Singh and Tamil Nadu’s All India Anna Dravida Munnetra Kazhagam chief minister J Jayalalithaa have also voiced reservations about the bill.

Their opposition may be motivated by a desire to deny the Congress the electoral dividend it is looking for. But, then, some in the UPA camp are also critical of the measure. National Congress Party chief and Agriculture Minister Sharad Pawar has said it will make the beneficiaries lazy and dissuade them from working for a living.

The Samajwadi Party, which supports the government from outside, recently threatened to vote against the bill, peeved by the Congress party’s criticism of its government in Uttar Pradesh for initiating disciplinary action against an Indian Administrative Service officer.

According to government sources, up to 75 per cent of the rural population and 50 per cent of the urban population will get 5kg of grains each month under the measure at rates as low as Rs3 for rice, Rs2 for wheat and Re1 for coarse grains.

Modi has alleged the measure will reduce the entitlement of families below the poverty line, which are now getting 35kg of grains a month at subsidised rates, to 25kg. This is factually incorrect. The government has clarified that families classified as “poorest of the poor”, who are getting 35kg, will continue to enjoy the facility.

Right to Food Campaign, a civil society coalition, has criticised the measure on the ground that it is based on a minimalist vision. It wants a comprehensive law which will take into account the production, procurement, storage and distribution aspects and address the needs of vulnerable groups like migrants and the aged and the differently-abled.

The government has ignored the call to broaden the scope of the bill as it does not want to increase the burden on the exchequer. As the measure now stands, its implementation will require 61.23 million tonnes of grains a year, and the subsidy burden in the current year is estimated at Rs124.73 billion.

India Inc. has opposed the measure, arguing it will impose a heavy financial burden and slow down economic growth. It wants the government to use its resources to help the corporate sector with tax subsidies, claiming industry is the best driver of growth. Corporate India is so engrossed in itself that it does not see the productivity loss resulting from the poor physical status of workers.

The Food Security Bill is not perfect but marks a good beginning. It is in conformity with the Supreme Court’s ruling that right to food is a fundamental right of the citizen. What’s more, it may help plug the loopholes in the present public distribution system. India, which was 106th among 120 countries in the World Hunger Index last year, has to act fast to reduce poverty.--Gulf Today, Sharjah, August 20, 2013.