Some food for thought
"The task of the leader is to get his people from where
they are to where they have not been."
—Henry Kissinger (American Statesman, 1923)
Word for the day
Foment (v)
To instigate or foster (discord, rebellion, etc.).
First thought this morning
As we prepare to celebrate 75th anniversary of our republic in
three years, the debate over linguistic domination is most unfortunate.
Incidentally the same controversy was raised five years ago in June 2014 also.
I believe it is high time that the issue must be settled once
for all.
(a) The government
must make it absolutely clear that all citizens of India are free to use
whatever Sch-VIII Language they are comfortable with. The government and courts
must accept and honor all such communication.
(b) All citizens
should be encouraged to give primary education to their child in their
respective mother tongue. Thereafter, it should be the choice of the child to
decide the medium of instruction.
(c) All schools
should be encouraged to have a digital linguistic lab, where students can learn
Indian languages on their own at their convenience.
(d) On the occasion
of the platinum jubilee of our republic, a new national commission should be
set up to recommend the reorganization of states on economic viability basis.
The formation of states on linguistic basis has outlived its utility.
(e) All schools must
be encouraged to have linguistic diversity in their teaching staff.
Chart of the day
Policy action to direct market for next 2-3months
The tepid automobile sales numbers for the month of May
reinforce the idea that the slowdown witnessed in 4QFY19 GDP number is continuing
in 1QFY20 also.
The following data points are noteworthy from the May auto sales
numbers-
(a) For Maruti, sale
of mini segment fell 57% yoy.
(b) For M&M &
Escorts domestic tractor sales were down 17% and 20% yoy respectively.
(c) Royal Enfield
sales dropped 13.7% yoy.
(d) Tata Motors
passenger vehicle sales dropped 38% yoy.
(e) Two wheeler
sales data is mix. Bajaj and TVS domestic sales grew while Hero Motocorp's
sales contracted.
Prima facie the data indicates that the consumption
slowdown is more pronounced in rural and semi urban areas. This view is
supported by the sharp decline in agriculture and allied sector growth in
4QFY19. The sector grew at 2.9% in FY19, compared to last year growth of 5.0%.
In Q4FY19, the sector registered negative growth of 0.1% as against 6.5% growth
in Q4 FY18. Delay in progress of monsoon is further clouding the outlook for
the sector for FY20.
Further, 4QFY19 data also confirms that it is not only the
consumption that is slackening. There is an even sharper correction in investment
expenditure. Investments, as reflected by gross fixed capital formation (GFCF),
grew at 3.6% in Q4 compared to 10.6% in Q3. It is lowest growth in past eight
quarters.
The slowdown in core sector growth in April 2019 2.6% (vs 4.6%
yoy) due to negative growth in crude oil, natural gas and fertilizer output
further suggests that 1QFY20 GDP number may not be encouraging.
Private consumption (PFCE) grew 7.2% in Q4 compared to 8.4% in
Q3. Though higher government consumption offset it to some degree, but overall
government consumption expenditure was also lower for FY19 at 9.2% vs. 15% in
FY18.
The data highlights that to manage the fiscal deficit, there has
been Rs1.45trn reduction in expenditure with Rs 69,140 crore cut in subsidies
(primarily food subsidy cut of Rs 69,394 crore) to cover for Rs1.57trn
shortfall in total receipts. Poor GST and IT collections mostly are to be
blamed for lower revenue collection. Massive cut in food subsidies explains the
minimum income guarantee schemes for farmers (PM Kissan) and urban poor.
The factors like poor domestic liquidity, high real rates, poor
domestic demand, and trade led global slowdown make me believe that the
government shall take urgent fiscal measures to stimulate the economy. These
measures need to be adequately supported by the monetary easing by RBI.
I therefore expect in next few months—
(a) Lower real rates.
This should hurt the savers at large but support investment demand as well
higher government borrowing to stimulate the economy. It should be supportive
for equity investments generally.
(b) Higher effective
direct tax rate to compensate for lower GST collection and maintaining
socio-economic equity through equitable wealth redistribution. Discretionary
consumption may continue to face growth challenges.
(c) Liquidity easing
considerably. The credit market shall see acceleration in growth.
