In our view, the present state of Indian economy is characterized by Denial, Dithering and Dilemma (3D). Both the government and RBI seem to be in complete denial mode insofar as the growth and macro economic problems are concerned. RBI has been dithering in taking a decisive action since past many quarters and hence letting the situation to exacerbate itself. The government is facing classic democracy dilemma in choosing between convenient politics and sound economics.
The consequences could be serious if immediate corrective steps
are not taken. Waiting for the formation of new government could be too late.
May be by then we would have lost the whole two decades of progress.
Come out of denial
(a) Both
the government and the regulator need to accept that 5% growth is normal and
good if it is inclusive and sustainable. Faster we realize this, sooner we will
be able to effect necessary structural changes in the planning process and
realign the resource allocation accordingly. Raising labor intensity of growth
and sustainable exploitation of natural resources would mostly alleviate the
problems being faced at present.
(b) Unlike
social inclusion, efforts aimed at economic inclusion made during past two decades
have at best been partially successful. As the coverage ratio of food security
law indicates, years of provisioning for the poor has failed in enabling most
of them. Unemployment levels are rising and so are socio-economic disparities.
Stop dithering
(c)
Even a plain reading of RBI’s statements
unambiguously brings out the dithering in RBI’s policy stance. For example, the
latest statement clearly admits that macroeconomic conditions are bad and
worsening fast. The hope of recovery later in the year is a plain platitude,
not supported by any evidence.
(d)
RBI should take a decisive “WHATEVER IT TAKES”
stand and guided the financial markets with a firm resolve, rather than making
the policy an issue of morality.
(e)
Though it has reluctantly admitted to slow growth,
it has done little to guide capital flows to achieve inclusiveness.
Shed dilemma
(f)
The experience of various democracies world over
has proved time and again that sound economics often makes for good politics,
but vice versa is often not true.
(g)
Secondly, under pressure the government is
sounding too desperate vulnerable. In these difficult times, it is willing to
compromise on many issues that could have significant long-term implications on
growth. For example, relaxing FDI norms in key sectors; allowing exploitation
of natural resources in hazardous manner, or ad hoc changes in taxation, subsidies or resource allocation which
would be difficult to reverse later.
Thought for the day
“All the powers in the universe are already ours. It is we who have put our hands before our eyes and cry that it is dark.”
- Swami Vivekanand (1863-1902)
Word of the day
Cyclopean (Adj):
Gigantic; vast.
Gigantic; vast.
(Source: Dictionary.com)
Shri Nārada Uvāca
Has the division of states on lingual basis outlived its utility?
Should The States Reorganisation Act, 1956 be re-drafted to re-organize states on economic criteria?
Not learning from Chandigarh, Congress proposes Hyderabad sharing.
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