Good news for economy

Even as political leaders sweat it out in view of the ongoing Assembly elections in five states and invariably raise economic issues in their election speeches, there are some definite signs of economic fundamentals further strengthening and perking up. First of all, the Indian rupee, which has been continuously sliding vis-a-vis US dollar for past some months, has made some smart recovery and is in the range of below Rs 70 mark, strengthening by five per cent from its all-time low of Rs 74.48 per dollar. Second, the price of petroleum products, especially petrol and diesel, has softened and has touched the lowest level in the past three months. The cumulative effects of these two developments are that there fewer chances of a price-hike across commodities and inflation going up. Also, the economic scenario looks more relaxed and comfortable across sectors following the softening of the interest rate by the US. And, there is a likelihood of oil prices going down further in the coming weeks. The issue of a weakening Indian rupee has often been raised during the ongoing election in five states. While economists at the Reserve Bank of India and other financial institutions maintained that even at Rs 75 to a dollar, the Indian currency is well positioned and is not a matter of concern. However, the weakening rupee and the rising oil prices made the common people panicky about the situation. The fallout of higher oil prices in the international markets was seen in the retail markets where the prices kept inching up and crossed Rs 80 for a litre of petrol. Diesel and LPG also saw a proportionate rise in their prices. With oil prices coming down and the Indian rupee strengthening, the problems that the Indian economy was facing till a few weeks ago is over, at least for the time being. In a measure to contain the rapidly growing oil prices, the centre had provided a one-time relief by cutting the excise duty by Rs 4 per litre while oil companies reduced the prices by Re one per litre, making the fuels cheaper by Rs 5 a litre. Amid the rising oil prices, there were renewed concerns that the inflation will go up but thanks to the strict RBI vigil and policy interventions, the inflation has remained tamed at below 4 per cent. In the past weeks, there have been talks of a conflict between the government and the RBI when media reports suggested that the government wanted the RBI to pass on a part of its cash reserves to the government so that it can offset its fiscal deficit. As the RBI honchos did not approve the idea, there were moments of a turf war, with some experts suggesting that the government is trying to undermine the autonomy of the central bank. Though the matter looks resolved with both the government and the RBI maintaining a studied silence over the issue, Finance Minister Arun Jaitley has cleared the air by saying that the government did not need funds from the RBI to settle its fiscal deficit at least for next months, that is till the end of the current financial year. He also suggested that the excess funds with RBI can be used for poverty alleviation programmes by the next government.

In a book released recently, former chief economic advisor Arvind Subramaniam has termed the demonetisation move a draconian shock that derailed the steady growth of the economy. Finance Minister Jaitley has already clarified that the disruptive impact of demonetisation was felt only for a couple of quarters and the exercise has helped broaden the tax base. The number of income tax returns filed has doubled since the demonetisation which rendered about 84 per cent of the cash invalid in a single stroke. Another advantage of the demonetisation move has been that it has made the economy more formal by making people put their money in the banking system. As the tenure of the current government at the Centre is about to come to an end, it's also the time to take stock of what all the government has done on the economic front. Apart from demonetisation, the government has to face the opposition's wrath on banking frauds and non-performing assets (NPA). In the last four years, a number of businessmen have fled the country after availing loans worth billions of dollars from public sector banks (PSB). That none could do so with private banks is an appropriate commentary on how PSBs have been exposed to frauds by established business groups. Though the legal process is underway to ensure that fugitive businessmen do return to the country and repay their loans, not much is expected on this front soon as the process is likely to linger on besides draining the resources of investigative agencies and the government.