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Millennium Post

Manmohan in denial mode

Even as the political parties are gearing up to an election mode, will the sliding economy and the dipping rupee become a major poll issue in the ensuing Assembly and the Lok Sabha polls? Isn’t it time that the others learnt a lesson or two from US President Bill Clinton who rose to power on the ‘economy stupid’ slogan in 1992?  

While the political parties may try to strategise on the communal/secular divide and caste politics, they are not paying adequate attention to the rising prices, inflation and slow economic growth which affects the common man. While the Congress hopes that that its welfare measures like the Food Security bill, MNREGA and such other populist measures could be a game changer other regional parties also are searching for new populist schemes forgetting the real issues that touch the everyday life of the aam aadmi.  All that people want today is good life and enough income to meet both ends meet.

Right now the Indian economy is facing a crisis even though Prime Minister Manmohan Singh asserted last week that there is no question of going back to1991 situation when the country had to go with a begging bowl to the IMF. Look at the depressing economic scenario. The economic growth was just five per cent last year, the lowest in the past decade while the industrial production shrunk.
The inflation and food inflation have reached a 10 per cent mark. The manufacturing sector is not growing while the service sector and the industrial sector too have shrunk.  Added to that is a huge fiscal deficit and current account deficit, which will increase further after the implementation of the Food Security Bill and other welfare measures. The foreign exchange reserves are just enough for the next seven months.  The crisis has touched the financial sector and the stock markets. With the steep fall in the rupee and the expectations that the rupee may touch 75 to a dollar in the next few months things are not looking good for Singh.  A poll recently found that the gloom surrounding the Indian economy may deepen in the next three months with the rupee weakening further and inflation remaining high.

What led to this situation? Worsening current account flow and the insufficient flow of FDI despite the promises of the continuation of reforms are two main reasons for the crisis. Thirdly, overseas investors have pulled out about three billion dollars recently from the capital markets.  Fourthly, rising import bill is yet another reason for the present crisis. In addition, the global economic scenario, too, is not good.  It is not as if the government has not done anything but it is not enough or timely.  The RBI has come out with its own set of remedial measures but they are not effective. The government has put 10 per cent import duty on gold and silver to contain inflation. But the smuggling of gold has started already and most of the gold is coming from Dubai via Sri Lanka and Nepal. Chidambaram is making bold attempts to reduce government expenditure to fill up the gap by borrowing but there is doubt about meeting the targets.

The Congress is facing the flak, more so the economist prime minister. The opposition has got an issue to beat the UPA and the Congress with. The CPI-M, which blocked economic reforms in UPA-I, blames the government for the high current account deficit. The CPI has slammed the Congress for its neo-liberal policies. The BJP chief Rajnath Singh has observed,  ‘The government is failing to take effective steps to revive, restart and recharge the economic situation in the country.’  The Janata Dal (U) has asked the centre to strengthen the infrastructure instead of concentrating on foreign investment. The question is why did the government not see what was coming? There is clearly a lack of direction or economic vision that while inviting foreign capital, there is also the subsidy burden.  

Secondly, the government is in a denial mode but country should be told of the real crisis so that austerity measures could be adopted both at the government level and the public. Did we not do that in 1991? Thirdly, some schemes like the voluntary disclosure schemes and the issue of gold bond should be attempted to tide over the situation in the immediate future. The black money stashed away in foreign banks should be brought back.

Fourthly, there is an imperative need to build investor confidence and restore the sagging image of the country abroad. India should not lose the hard won place on the high table.
Fifthly, a more productive economy could be the best way to deal with the fiscal and current account deficit, which are increasing in an alarming way.

Sixthly, Indian industrialists should not be allowed to invest abroad and instead be persuaded to put their money in India. Above all, the political class cannot escape from taking responsibility. It is no use just blaming the government. If the Parliament had functioned these past four years, important legislation like the land acquisition bill could have been passed to improve economic growth. Political parties are vying with each other in coming up with populist schemes, which are not asset producing. There is no doubt that the poor should be taken care of but they should be helped to help themselves and not provide just free doles.

The falling rupee is a warning signal to wake up as every Indian has a responsibility to build up the country’s economic wealth.  India has moved up the ladder and it is the responsibility of everyone, politicians included to see that it goes up further. China has proved that economic muscle gives the real power for a global face.
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