Heralding India 2012: The Challenges and Hopefuls


By
Dr. B. Yerram Raju
Director, Projects and Research, Development & Research Services (P) Ltd.
Methodist Colony, Begumpet, Hyderabad-500016
Visiting Professor, Acharya Nagarjuna University, Guntur
Regional Director, PRMIA, Hyderabad Chapter
 


Come 2012: Lok Pal or no Lok Pal; inflation-slightly bending giving some credence to RBI's tight monetary policy, rupee against the US dollar with a rising hope, with the falling growth rate abetted by the Euro crisis, mounting corruption among the high ranks in bureaucracy and politicians sweeping the air of complacence that pervaded the Indian financial sector at the altar of global recession in 2008. India's poor measured by $2 a day income is close to its total population of 1947. The consoling factors like the demographic dividend, rising middle class, the billionaire parliamentarians that very few democracies in the world can boast in about half-a-century, are not offering enough incentives to the FIIs and FDIs. India's 135th rank among 167 nations in HDI is still a big cause for worry. There is also a halogen hallow in the darkening economic environment: Manmohan Singh and his team mates did well on the international front – relations across the borders, China, Burma, Pakistan, Bangladesh etc., its increasing acceptability in G-20, its global trade in-roads notwithstanding its recent decline in exports raising concerns on its current account balances, its upbeat voice in UN and green protocols lend enough credence for keeping the other foot strong.

The wavering Sensex  started looking up for the simple reason that the fundamentals of the economy seem to be still strong going by what the RBI data speaks. Domestic Savings grew at a comfortable level of 30.2 percent; investments grew close to 25 percent and per capita GDP at factor cost on the rise even between 31st March 2011 and August 2011 – from Rs.52096 to Rs.61054; and overall growth rate could still end up at 7-7.2percent. These are precisely the credentials required for a nation to reach the developed league according to Michael Spence, the Nobel Lauriat.  Further hopefuls are: the rise in Mergers and Acquisitions across the globe; increase in Research and Development outlays of the Government and Private sector alike; the premium on innovations and the fretful bite against corruption from the youth of the nation.

Challenges:

The biggest challenge is coping with the growing fiscal deficit that now stands at 74% as against the budgeted 47% of GDP with the General Elections to be held a year ahead of 2012-13. The Food Security Bill 2011 holds the promise of the biggest hole in the Government's treasury and the State Governments are unable to take the budget cuts. There is a huge power deficit accompanied by unhelpful coal reserves for the existing, leave alone the planned thermal plants in the country. There are risks beyond the government realm: weather risk that may upset the calculations on growth of the farm sector – minimum of 4 percent growth is imperative if the GDP growth has to sustain at 9 percent.

In this backdrop, what is required? 

The Finance Minister has a big task ahead – a sea of deficits in the oasis of resources. The fiscal deficit would hardly find space for further doll-outs. The US economy promises a revival with Obama cuts on outsourcing. The bail-out package to Europe, though less than required, also lends some hope to keep the balance swinging in favour of arresting unrest in the economy. But, Indian manufacturers have to find promising markets elsewhere. Russia, now joining the WTO after a two-decade-wait, could be a market in waiting along with the ASEAN. However, the domestic undoing in the last two years unfolding scams after scams needs tackling firmly and this is where the infirmity lies. Taxing the rich without upsetting the investment climate, for huge investments for infrastructure come mostly from the rich, is really a tight rope walking.

Markets are not going to behave worse if the FM makes bold to increase the Share transaction tax to at least one percent. Transaction tax for all high priced commodities like Diamond, Gold, silver and others needs to be introduced to augment the revenues of the Government. The farmers must be provided input subsidies of a larger scale than now but with laid out crop planning regionally acceptable; an overhaul of the agricultural markets through structural and legal changes for the farmers to discover the prices in volatile global commodity markets; investments in drought proofing the economy; making cooperatives work through legal reforms and finding resources for merit goods like education and health at double the rates prevailing now. In the context of Basel III, the northward movement of NPAs of the banks needs to be halted. Government as owner of 80 percent of the banking system has to keep on refurbishing capital whether budgeted or not. It has to go for public debt of an order that would not upset the future interest apple cart. Bond markets need encouragement with the reversal of the tight monetary policy. Supply side management is as much crucial as demand side management. Austerity measures, tackling higher wage demand, and economic discipline deserve no less attention. The year ahead may not be rosy but need not be reddish either, if the FM has courage of conviction and gets his Party support.
 

Dr.B.Yerram Raju
Biography and Track travelled…
click here

 

                                                                                                                                                                               

   Published on IndianFaculty.com: 03/01/2012

 Source: E-mail 02/01/2012

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