Across The Aisle: Who is minding the store?

Public anger is building against high prices of petrol and diesel. Between 2014 and 2018, due to low prices of crude oil, government saved Rs 15 per litre in the cost of production of petrol and also increased the excise duty by Rs 10 per litre. Same with diesel. With a relentless rise in retail prices, government has no choice but to cut the excise duties which it is loath to do. The one-trick pony has no other trick up its saddle.

Written by P Chidambaram | Updated: May 27, 2018 12:09:43 am
Who is minding the store? With a relentless rise in retail prices, government has no choice but to cut the excise duties which it is loath to do.

While you were absorbed in the designed-to-be-nail-biting-finish IPL cricket matches and the game of thrones in Karnataka, something happened to the economy. It is time that we dragged the government by the collar and asked them to attend to the issues that are gravely challenging the economy.

Current Account Deficit (CAD):

The CAD was a major challenge in 2012-13. Through hard measures, it was brought down to 1.74 per cent in 2013-14. A dramatic collapse in oil prices helped the NDA government to boast that they had wrought a miracle in the first three years. Now, when the tide has turned, government has no answers.

The CAD in 2017-18 was 1.9 per cent (likely) and for 2018-19 the estimate is 2.5 per cent.

Depreciating Rupee

A famous election promise was that the rupee-dollar rate (then Rs 59) will be brought down to Rs 40! Between January and May 2018, the rupee has been among the worst performing currencies. It has depreciated from Rs 63.65 to Rs 68.42 and may cross Rs 70.

Little impact on exports

During UPA I, merchandise exports tripled from USD 63 billion to USD 183 billion and, during UPA II, it grew to USD 315 billion. Under NDA, the number has remained below that peak. It touched a low of USD 262 billion in 2015-16 and struggled to close at USD 303 billion in 2017-18.

Rising crude oil prices

The party that began in September 2014 is over. Crude oil prices that had plummeted to USD 26 per barrel have increased to USD 79 and threaten to rise further. Nothing was done in the last four years to increase domestic production. No major international oil company is in India in exploration except British Petroleum and Cairn — and both are reluctant to invest more in exploring new fields.

And consequent rise in fuel prices

Public anger is building against high prices of petrol and diesel. Between 2014 and 2018, due to low prices of crude oil, government saved Rs 15 per litre in the cost of production of petrol and also increased the excise duty by Rs 10 per litre. Same with diesel. With a relentless rise in retail prices, government has no choice but to cut the excise duties which it is loath to do. The one-trick pony has no other trick up its saddle.

Rising inflation

After keeping inflation under control for four years, thanks to the RBI, CPI is poised to rise. It crossed 5 per cent in December 2017 and January 2018 and, since then, is hovering around 4.5 per cent. A good monsoon will help, a depreciating rupee will hurt.

Fall in bond prices, increase in bond yields

Between July 2017 and May 2018, the yield has increased by 1.4 per cent and stands at 7.87 per cent. Investors in bonds, including banks, have taken a huge hit. Critics have pointed to over borrowing by the government. The direction of bond prices and yields is not clear, sowing uncertainty in the minds of investors.

Worsening NPAs of Banks

NPAs of all scheduled banks had risen from 4.1 per cent in March 2014 to 10.2 per cent in September 2017, and have increased since. Operation Indradhanush lies in tatters. Everybody has been shot in the foot, some in the head: CEOs of banks, senior bank officials, statutory auditors, promoters and potential bidders. It will get worse.

Decline in Foreign Portfolio Investment

Net foreign portfolio investment turned negative in 2018 in February, April and May. If the US Fed raised interest rates, as is likely, the outflow will accelerate.

No evidence of job creation

Rival claims by persons with privileged access to data and veteran analysts of the job market have only made the confusion worse confounded. According to Labour Bureau Quarterly Surveys, only a few thousand jobs were created every quarter. If the Gross Fixed Capital Formation is down from its peak by about 5 percentage points, if the average growth rate of IIP in the last four years was 4.05 per cent, and if there is no export growth, it is difficult to believe that non-farm jobs in the millions were created.

Growing distress among farmers, neglect of MGNREGA

Average growth of the agriculture sector during the last four years was an anaemic 2.7 per cent. Cost +50 per cent as MSP is nowhere in sight. Most farmers do not get even the declared MSP.

MGNREGA is no longer demand-driven. Increase in the wage rate is pitiful, in many states the rate is lower than the prevailing minimum wage. 57 per cent of wage dues of workers were unpaid as of April 2018.

Disquiet over the ToR of the Fifteenth Finance Commission (FFC)

It is not only the term requiring the FFC to take into account the 2011 population Census, there are other terms that have caused concern among the states (and not only the Southern states). At least seven states are firm that only amendments to the ToR will be acceptable.

As you read this, you will be submerged in the flood of propaganda that has been unleashed by the government to celebrate the last four years. Of course, there will be some progress under any government. If you wish to join the celebrations, do so, but remember the dire state of the economy.

Website: pchidambaram.in @Pchidambaram_IN

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