The End of Indian Growth Euphoria? What went wrong

               

RBI’s decision to leave CRR and repo unchanged sent negative vibes into the market.   RBI took bold step ignoring finance ministers hints to lower the interest rate to induce growth.  RBI believed injecting liquidity into market in the current scenario can deteriorate health of Indian economy further. With high inflation, policy paralysis, downgrade of sovereign bonds status to BBB -, global uncertainty in place many are prophesying that the Indian growth story is over. Is it?

                 

          Year 1991 stands tall in the economic history of India .The economic constitution was rewritten to save India, which was on verge of collapse. The reforms carried out changed the face of India. Past Decade India’s GDP growth has broken the intuition of ‘Hindu growth’. The world believed Indian will emerge as an economic super and will take over America by year 2025.Indian successfully steered through the global melt down even when the super powers struggled. So what went wrong? Why are credit rating agencies shrieking India may lose its investment grade for its sovereign bonds?

              

          The root cause for this crisis is set of intertwined complicated issues which are very complex to address. Here are few major issues which led India into this crisis 

1. Policy paralysis

2. Soaring Inflation.

3. Euro Crisis.

4. Depreciating rupee.

5. Huge fiscal deficit.

 Policy paralysis

               

Non cooperation from Allies and frequent stalling of parliament by oppositions for political mileage prevented government to pass crucial bills. The government could not allow increase in multi brand FDI Retail .with stiff opposition from parliament it had to roll back decision. It has great potential to create jobs, cold supply chain.  A series of scams, protests from civil societies made government to be more cautious on the decisions it take. Complex procedures to get clearances for setting up Industries delayed several huge projects like POSCO.  Red tapissim , rampant corruption led to the paralysis of government.

                To reform the current scenario we have to start it from here. Government has to get rid of all non cooperating allies and look for new friends. Opposition also should act more responsibly and let parliament function. The complex procedure to setup industries should be simplified. This will also trim of corruption and red tapissim .

Soaring Inflation

                With a soaring inflation growth slowed down . RBI had no option left other than to suck liquidity from market. Growth is always coupled with inflation.  So to prevent further spiraling  for  past two years RBI has significantly increased the repo rate hoping to tame Inflation. But the strategy misfired with a decline of growth rate. As a breather RBI has cut CRR to inject liquidity into market. But to its surprise the Recent IIP data revealed  stagnation in industrial growth.

                This situation cannot be fixed by RBI alone. It needs a helping hand from government . There are supply side bottle necks due to poor infrastructure. As part of reforms Indian railways has launched a new complete air-conditioned goods train from Surat to Delhi to ferry fruits and vegetables with less post harvest losses. Government has to come out of policy paralysis and invest hugely on these kinds of projects to get rid of supply chain bottle necks.

 Another reason for failure of RBI’s medicines to heal inflation due to existence of parallel economy. Parallel economy is combination of black money and counterfeit currency notes. When designing economic policy RBI always considers the money which is officially in circulation. Existence of mammoth parallel economy is making RBI recovery mechanisms ineffective .Parallel economy has many other repercussions also, so it’s high time that RBI issues new currency notes to get rid of this parallel economy.

A miscalculation now can spiral India into hyperinflation. A combined effort from government, RBI India can pull down the inflation pressure and put us back on the growth track.

Euro Crisis

 Many European nations are sick with contagious sovereign Debt crisis issue.  It started with Greece and spread to other nations. Failure of these Nations has slowed down investment. Now Investors prefer United States of America (U.S.A) sovereign bonds over other nations. A huge Chunk of Foreign is pulled out from India trouble shoot their domestic crisis or to invest in U.S sovereign bonds.

  

This crisis has slowed down growth in Europe. Some states are even experiencing negative growth. Europe is the one of the largest export market for India. With decline in demand for goods and services in Europe the Indian export market is finding tough to survive. With decline of exports and stable imports the trade deficit ballooned

With current uncertainty in global economy and recent downgrading of Indian sovereign bonds is making investors looking for stable markets. With non-conductive atmosphere in the country India Firms are also diverting their investments abroad. Last year a sum equivalent to 60% of total FDI inflows into the country were invested across globe from India. Projections are that in the current year inflow of FDI will be balanced by outflow. So RBI is reluctant to reduce interest Rates as this can deplete the foreign reserves further and may push us back to Balance of payment crisis.

            

              India which steered efficiently through turbulent waters of Melt down. Started giving in to Euro Crisis. This issue can be resolved by promoting exports and instill confidence in investors. This can happen only if inflation is in under control with no policy paralysis.

Depreciating Rupee

                The rupee has reached all time low. This phenomenon is a direct impact of strong dollar. As mentioned above due to change of preference in investor back to U.S sovereign bonds the dollar is emerging strong against the world currencies.  Depreciated rupee is a blessing for export industry .But India is not able to exploit as there is a decline in external growth. The Huge Trade deficit and FDI movement out of nation has further pressurized rupee to decline.

                This issue can be resolved by opening up more sectors for FDI and liberalizing FDI inflow. Tobin tax also can be imposed to prevent instability in FDI.  The government also concentrates on bilateral agreements to boost exports so that BOP can be lowered.

Huge Fiscal deficit

               

IMF extended support to India on the condition that India would curtail its populist schemes and reduce its expenditure in non productive areas. But government is back to populist subsidy schemes. Subsidies are main reason for the ballooned fiscal deficit.  Diversion of funds into non productive schemes made government handicapped to invest in infrastructure.

                It’s high time for government to cull all the non productive schemes and reduce the fiscal deficit and use other funds to boost growth. In short government should believe in inclusive growth than subsidizing. Inclusive growth will improve purchasing power of people

               

                It’s evident that all the above issues are interrelated and can are very complex. These issues are critical in nature but can have solutions to put India back on growth spree. Lets hope government acts responsibly and steers us out like how it did during melt down.

The Story of Indian Brothels

                Yes you read it right its the story of brothels.  A Dictionary defines brothel is a place which houses prostitutes. But I believe it’s a place where destitute people live. 

                The Documentary ‘Born Into Brothels’ opens with an interview of  9 year old kid, kochi born to a prostitute.  kochi expresses her desire to get out this line and have a good life. You can find thousands of kids like Kochi in Red Districts of India who are searching for a ticket to get out of this misery.

                Prostitution is not something which emerged recently. Its one of the oldest profession of the world. It dates back to era of Babylonians. Even our Indian history speaks about devadasi system and brothel houses across kingdoms. But these houses don’t have king’s patronage any more. With advent of democracy in India the status of Prostitutes in the society got degraded further .The ministry of Woman and child development reports that there are 2.8 million sex workers in India out of which 36% of them are forced into flesh trade by 18 years.  Statistics also say that by 2025 in India every one child of 5 girls will be a child prostitute.

              
 It’s not the women who makes choice to lead life as a prostitute. In majority of cases Parents, husbands; relatives force woman and children into prostitution and work as pimps for easy bucks. There are many incidents where woman are sold to brothel by traffickers who lure them with the hope of employment or give false hope in the name of love. Of course there is also increase in College students indulging into prostitution to lead luxurious life. We can’t also deny high profile prostitution which involves demy gods. College students and models are involved to support their luxurious life.  But what this country is concerned now is about prostitution out of poverty. 

Prostitution is definitely an Evil. It’s a torture for women who are into it. But they have no choice other than to stay in it, as society won’t accept them back as a normal human being. It’s a open secret that brothels houses exploit sexual workers by under paying them and forcing them to live in harsh environment. These sex workers stay in brothels not by choice but by force.  Prostitution also involves drugs and illicit liquor .Prostitutes are forced into drug abuse by customers. This is further deteriorating the health condition of sex traders. Sex workers can’t seek help of any government or court as their employment is not legal

Many Indians believe that prostitution is illegal India.The truth is prostitution is legal and our law allows women to exchange sex for her material needs. But maintaining brothels, pimping, seducing customers, indulging in sexual activity close to public places are punishable offenses in India.Constitution of India guarantees its citizens protection from exploitation and from human trafficking. Government of India took many steps to suppress prostitution. It  signed UN convention on immoral trafficking in 1950. As a result ‘suppression of Immoral trafficking ‘(SITA) act was passed by in 1956. This was further amended in 1986 to create Prevention of Immoral Trafficking (PITA) act which forces government to provide rehabilitation if sex workers demand for it.

Prostitution is a blooming 100 billion dollar industry globally. Many countries like Thailand legalized it and are using it for promotion of tourism .off late Indian red districts are also attracting tourists from abroad. This trend was observed during common wealth games. The big debate now is whether to legalize prostitution in India as an industry.

Legalizing prostitution is the only way to protect these outcasted people. It can light up fading lives of sex workers by

1.     restricting exploitation of brothel houses and will ensure proper wages for sex workers.

2.       providing them an identity in the society and will let them live in dignity.

3.       Sexually transmitted disease (STD) and HIV can be controlled as license will be issued only to healthy people.

4.       It will help government to effectively deliver rehabilitation programs and support to pull people who want to come out of flesh trade.

5.      It will socially elevate prostitutes who are being treated worse than animals now.

6.       It can prevent children being forced into prostitution.

7.       proving advice on safe sex to prostitutes.

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It won’t be fair if other side of coin is not discussed. Legalizing of prostitution will have its own impact society.

1.       Will allow them to set up brothel in notified areas also.

2.       India Will experience sharp raise of woman moving into prostitution as its easy way to earn money.

If the government is not ready to legalize this industry it has to at least implement following for betterment of prostitutes. 

1.       Government has to religiously implement PITA, which deals with rehabilitation and safe houses for woman who is willing to give up prostitution.

2.       Vocational training to provide alternative employment.

3.       Free Boarding schools for children of sex workers.

4.       Educate prostitutes to have safe sex and not to indulge in drug abuse . With this government can check spread of STD and HIV.

Prostitution is a one way opportunity. There is no coming back. Society is not ready to accept rehabilitated prostitutes. That is the sole reason why despite of government efforts prostitutes are not willing to join main stream of society.  This needs a change in our attitude towards them.. After all they are humans who are into flesh trade to fill their hungry stomachs. When society can accept corrupt people who sell their soul for money why can’t it accept people who sell their body for money?

The Nosy Government

Invention of internet by Tim Berners-Lee revolutionized the way world used to communicate. Almost a decade later social networking sites came up with new way to share thoughts.  The social networking wave has taken world with it, Indian youth are no exception. With more than 4 % India’s population as active social networkers the websites turned into a forum to express their opinions.

                        Posts on social networking sites are viral in nature and it can reach millions around the globe in a short span. “Kolaveri Di” song is an apt example for viral nature of social network. Past few years’s people effectively exploited the viral nature of social networking sites to organize protest against government.  Egypt is the forerunner to utilize the social networks to topple the autocratic government and establish a democracy.  The revolution in Egypt is a concrete proof of what social network sites can do to a nation.

We can observe this trend among Indians users also. During Anna Harare’s campaign for lokpal ,social networking played a key role to educate people to protest for a strong lokpal.  Off late Youth started using social networking sites to show their dissent against government. Few cartoons and morphed photos which are certainly objectionable became viral. This made government to take a decision to monitor posts on social networking sites.

Social networking sites are also being used to spread inflammatory content about religion. By Religious fundamentalist to turn youth against other religions. They are also being used for illegal activities like drug trafficking, child pornography etc. All these can be serious internal threats.

Its moral responsibility of government to protect its citizens from offensive content .So government has every right to monitor and censor inflammatory posts for national interests. But the Indian government should not turn autocratic like Chinese government and start censoring posts on internet against it. Government has to selectively exercise its power to censor posts. It can do it as long as it can justify its act to censor any post

            The Constitution of India guarantees fundamental right “freedom of expression” to its citizens. Constitutional framers did not want people to be deprived of freedom of thought from their colonial rule experiences. But this is not an absolute fundamental right given to the citizens. Government can suspend it on grounds of threat to national integrity, stability of government and armed rebellion.

It’s all about choice. Misuse of any right can deprive us of that. Citizens should also responsibly exercise their freedom of speech. Just because constitution assures them a fundamental right they should not misuse it. Instead of posting derogatory comments they have participate in constructive discussion. In a democratic country like India every individual has a powerful tool called ‘VOTE’ to vent his/her anger against the government. Once citizens start responsibly using internet there won’t be any necessity for government to monitor and control social networking sites. 

After all none of us want to head back to colonial age!

The Indian Magic Wand

Corruption has broken the back of this nation and slowed down its progress. It can slip us back into abyss if we fail to treat this rot in society. Corruption is defined as “Dishonest or fraudulent conduct by those in power, typically involving bribery”.   Corruption is a punishable offence in India under Indian penal code and anti corruption laws. Anti corruption law passed in 1988 made offering a bribe also a crime. Every citizen of this nation knows bribery is a punishable offence and with numerous laws passed, constitutional and non constitutional bodies we still failed to curb corruption. There are numerous reasons for growth of corruption but the root cause for all the reasons is “degradation of moral values in society”.

             Proposal are brought in to create an ombudsman “ lokpal” to investigate corruption which covers all executive and government employees as early as 1969 but it could not be passed in parliament.  Off late civil societies are aggressively advocating need to bring in lokpal to reduce the corruption. Can lokpal be a magic wand to reduce the corruption??

         As The Administrative Reforms Commission (ARC) said “the Lokpal can remove the sense of injustice from the minds of deeply affected citizens but also necessary to instill public confidence in the efficiency of the bureaucracy “. Yes an effective Lokpal organization can reduce corruption.

  We have effective organization like CBI, CAG(its report revealed 2G scam) and CVC at central level and Anti corruption Bureau (ACB) at state to tackle these corruption. Even after having effective organization Corruption is rampant in India because of

  1. Snail paced judiciary process.

  2. Low conviction rate.

  3. Lack of teeth for existing organizations.

  4. Interference of politicians and bureaucrats in investigation.

                                    Most of aggrieved people are not approaching these organizations as they believe justice won’t be served to them. Creation a strong Ombudsman like lokpal can address all these issues. Institution like lokpal proved to be effective in Scandinavian countries and New Zealand and  turned them into corruption free countries.

But creation of lokpal without the following reforms can turn lokpal into a toothless tiger. 

1.      Red tapism is a major reason for corruption. Liberalizing government policies and relaxing the norms in non critical sectors can reduce Red Tape

2.      As per the new public Admistration theory, government has to roll back from the areas of exercise. By doing this it will minimize the role of public servants.

3.      Passing new laws to give teeth for existing organizations. Such as suo motu rights for investigation.

4.       Setting up fast track courts to convict criminals as soon as possible.

5.      Society has to inculcate high moral values.

    No one can predict whether lokpal can be right medicine for corruption. But its worth to give a try. The concrete solution for corruption is to morally elevate society to take an oath not to accept /offer a bribe. But institutes like lokpal can defiantly substantiate our efforts to reduce it.

Is It Essential to deifine Poverty line ?

When India ceded from British Empire the economic condition of India was in Doldrums .Majority of the population in India were poor, who could were not even afford two square meal a day.  Government of India adopted a mixed economy, to prevent greedy capitalist exploiting the poor.  Further the preamble of constitution was amended and the word “socialist” was added to reflect the approach of nation towards the poor. So as a socialistic Nation government launched poverty alleviation schemes to safeguard the poor of nation. Government of India used Poverty Line as an economic benchmark to identify individuals and households in need of government assistance and aid. People who are below this threshold are considered as people living Below Poverty Line.

            Over years governments introduced populist schemes to fortify their vote banks. As a result of excessive subsidy India almost went to verge of collapse in 1991. IMF and World Bank assisted India on a commitment that India would limit all its subsidies and non productive spending.  Government started to curtail target population for all its schemes. For example Public Distribution System (PDS) was revamped to Target public Distribution system (TDPS) the earlier catered to all Indians where as latter catered only to people whose economic status is low. This change in approach of government reinforced the importance of poverty line,

            Recent statistics show that more than 30% of people in India live on less than a dollar a day. How can these people afford sky rocketing food inflation and health care service prices. Some studies also state that poor are being pushed into poverty traps to repay the loans they take to meet their day to day necessities. To fight back and improve their economic status government role is indispensable.

With LPG reforms brought in the role of government is now more a welfare state. Government cannot cover all its citizens under its schemes as its resources are limited. Subsidies have become an over burden for government once again. In current scenario with growing fiscal deficit Government is rethinking on subsidy schemes. But subsidizing basic necessities for BPL people is indispensable for government. For example to ease government subsidy burden deregulated subsidy on petrol but diesel and LPG are still in subsidy basket as any hike in these prices will have direct impact on 30% population.

 Rajeev Gandhi stated that only 15 paisa of every 1 rupee spent by government is reaching people. It is known that subsides are being misused by the people who are not entitled for it .If government can plug all these leaks it can use the funds to provide more assistance to poor people of this nation. Government has come up with ambitious AADHAAR project to eliminate leaks by direct cash transfer beneficiaries.

As Jeffrey D. Sachs said “The key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development”. This can be achieved only by identifying poor and assisting them to climb up the ladder.

THE PETRO BOMB

Petrol prices up again. Nothing else can disappoint Indians more than this news. It’s a plight for common man. An Individual’s monthly allocation for petrol from his meager earnings has gone up by 12 %. When 30% of Indian still live below 28 Rs in cites and 18 Rs in rural India how can they recover from this petro SHOCK?? With sky rocketing inflation can a common handle this additional load on his broken back?
Opposition is blaming government for being insensitive on this issue. They also blame government for letting OIL COMPANIES to increase the price . Is government being really insensitive on the issue?? Is it really not concerned??
Here are some facts which main stream media and oppositions ignore to educate the people
1. Petrol is not covered under subsidy as earlier. Government deregulated petrol price in 2010, to reduce the subsidy burden of this nation.(fiscal deficient )
2. Ever low rupee value. This makes crude imports more costly.
3. Oil companies are not state companies any more they are public limited and their stocks are traded in stock exchanges.
4. Government is not Hiking LPG and Diesel prices as it have direct impact on prices.

The question you have in your head is why cant government reduces excise and customs duty on petrol??

1. First of all petrol is a natural non renewable resource and there is a steep increase in its demand in the past decade due to mammoth growth of automobile industry. If we continue at this pace we will surely deplete all the resources of petrol very soon.
2. To quench our nations thirst for Crude Oil, we import Oil from other nations. This drains our foreign exchange. So we need to careful import Oil. Irresponsible usage will lead to more import and fill further push us into Balance of Payments crisis again (BOP).
3. Government imposes tax to regulate the usage or production of certain good. Decreasing tax may lead to sudden spike in usage of good. (demand goes up when prices are brought down)
4. Taxes are the only way which government has to discourage people to waste resources and wisely use them. How many of us seriously think of using public transport systems.

Rise in petrol prices will lead to inflation. Its Common myth. The entire nation runs on Diesel and mind you government did not de regulate diesel and LPG they are still covered under subsidy basket. Hiking these prices may lead to HYPER Inflation. Government is subsidizing the diesel from the taxes collected on petrol. Petrol is a luxury and we can survive even with out it (public transport, pooling). 30% of population who are below poverty line wont be effected by this petrol hike .The problem with this nation is they expect government enterprises to subsidize if its not some Bharat perto corp. or Indian oil and some private player people would have not even said a word. How can public limited company deliberately make loses?? It has share holders who invested in it with a profit motive.
Finally I want to conclude by saying the petrol hike was inevitable in the present economic status.