Monday, January 9, 2012

2012 = Should the Gloom of 2011 continue? = Will it slip Below 2008? = What can be done & by whom?


Should the Gloom of 2011 continue?

Will it slip Below 2008?

What can be done & by whom?

2011 ended for India on a disastrous note in the economy, in Politics and  in public life. It looks as though, there is near unanimity in this opinion – but when I look back, I strongly feel, that this need not have been so.

The economy need not have slipped back. Neither Politics nor Public life need have slipped this low.

Whatever went wrong – need not have gone wrong – if only sensibility rather than Egos took charge of decision making.

Lok Pal was one such decision. Why could the Government not agree – with  either Team Anna or BJP or TMC (even with just one of them would have been sufficient) and just push their views into the Bill. What great loss would have been there for UPA – if its Government had agreed with any of them – or all of them – in the critical parts? There was and is no need whatsoever to be continually nitpicking as Government did – and keep the fire burning forever on the Lok Pal Bill. Even now, it is not Late. 

Even now – UPA can seize the Opportunity – and re-draft the Bill a little more - to suit the views of just two Parties in the Parliament – the BJP and the TMC. The Bill will be through – and this reduces BJP, TMC and Team Anna into immediate irrelevance on this so called sensitive issue. UPA must introspect – and see why and where it is unnecessarily faltering  on this issue and losing face. If UPA is always looking at Opposition and allies as enemies and dealing with the issues with an Ego Frame of mind – it can’t win. UPA must surprise the allies / opposition into accepting the Bill. Or else – the issue will remain vexatious and affect UPA in elections too.

There is a total Policy Paralysis in respect of Power sector Reforms. India is paying very dearly because of the total inaction of Government in respect of Land acquisition Bill, payment of dues to Power generation companies by the state electricity Boards, high cost of raw materials and fuel and a few other critical issues. Why should there be so much delay in the Land acquisition Bill – beats any one’s imagination. Can UPA blame opposition or allies on a Bill not brought before Parliament by it? There are only two issues in it. There should be fair compensation payable to the Land owner for parting with his land. He loses his livelihood in the process. Government can’t be leaving him without livelihood. So, if it has to pay him 5 or 6 times the prevailing registration value – it is well justified. 

The second issue is - if over 80 % of land is sold voluntarily at such just price, balance 20% of land can be acquired compulsorily at the same fair price. Every Individual needs Justice. But, at the same time, the country as a whole needs Justice too – from all the individuals. They can’t be so stubborn on an issue of so much national importance – when they do get Fair price – Fair, as deemed by 80% of land owners. So, what holds up this Bill? If any one ally opposes the Bill,– but, the Bill has the vast support of all other parties- then whose fault is it that all Power generation companies are about to collapse financially on all of their New projects, where they have sunk thousands of crores of rupees? So who comes first? Allies or country? Now the Great news is – that Banks may classify their earlier loans to these companies under NPAs, sooner or later – as these infrastructure companies cannot pay dues without finishing their projects – and the projects may take decades, in the absence of Policy support! And, all Policy support needed is a Bill on which there is majority support !!  Will there be any fresh loans to these most important sector companies ?? Banks are turning hesitant. Please act ! Act fast!!

Another simple matter is the Repo and reverse Repo rate increases continually effected by RBI in last 2 years for curbing Inflation – which has had absolutely no effect on Inflation. Inflation needed strong policy measures from different Ministries of the centre and the states. But, not a single measure seemed to be forth coming. On the other hand, there were measures which were directly stoking the inflation fire all along. On many occasions, the rate increases by RBI were almost simultaneously accompanies by rate increases of Petro, Diesel, gas etc by the Central Government itself. Which way will Inflation move – even if, we assume that RBI measures had some effect on Inflation – which I do doubt very much in the Indian context. 

If Food Inflation is down today – no thanks are due either to Government or to RBI – all credit goes to the rain god and the farmers. But, the High Interest rates today prevailing in India had multiple, adverse effects on the economy – and on Growth in many sectors. The producers are curtailing production and consumers are curtailing consumption. India cannot afford a deceleration in Growth – at this juncture. Indian economy is suffering VERY LESS – due to European woes and American woes – but, it is suffering more  because of our own omissions and commissions. 

Now, there is talk in Industry circles and some Market experts - that RBI may yet not reduce interest Rates – because, it cannot afford to lose face after having increased rates so many times. I strongly feel that this is a particularly unsavory argument.  The primary question today is - we have all lost face with Inflation continuing and Growth coming down to dangerous levels. 

Tax revenues are not picking up at all – to the estimated levels, because of this reason. Once, the extent of this becomes known – we will know that deficit financing too will increase in the same proportion. Government could not augment revenues through divestment process also. Auto, Housing, roads, buildings, power and – even banking sector is expected to be hit hard in coming days / months – but of course, RBI is not the one to be blamed – for it was trying hard to control inflation with one non-working weapon in its hands. But, if RBI fails NOW - to take into account the disturbing trends on the Growth scene and fails to  BOLDLY REDUCE INTEREST RATES DRASTICALLY -  then, well, OUR FM, Pranab Mukharjee has a lot to do in Budget and yet fail.

I personally do not give much importance to FDI IN RETAIL. I agree with TMC and BJP that this one measure is not a REFORM  but  a DEFORM. A measure that can affect the livelihood of lakhs / millions of Indians – can never be called a REFORM. What FDI can do in retail – Indian Investment can do better. There is a huge amount of money waiting to be invested in this sector within India and we can achieve huge progress by channelizing INDIAN INVESTMENT more effectively into this sector. If Farmer has to be helped to reform, let policies enable him to reform. If  retailer has to reform, let policies be framed first - for him to reform. But, let us not take away his livelihood on the pretext of FDI.

Telecom is a sector where Indian capital is flying out of India. Government Policies have reduced Profitability in this sector to abysmal levels. And yet, Government and Opposition both - are only worried about Government revenues in this sector and not about fresh capital Investments in this sector and sustaining this sector as a profitable one. 

Government’s own PSUs, BSNL and MTNL, urgently need to be made profitable by appropriate Policies. There must be a minimum support level for Key Tariffs - below which tariffs must not fall for any Telecom company – so that these 2 PSUs also remain alive and serve India. You can’t create 3 lakh direct Jobs (and much more indirect employment), or get back the around Rs.1 lakh crores of Investment Government has in these 2 PSUs.  Sustaining them - needs policy support and effective governance on them.

The Airlines sector is slipping into the abyss very Fast. In my view, huge taxation levels (of states and centre both) are responsible for the current state of affairs. The tax levels must come down by about 50 % urgently. Otherwise, whatever be the funds infusion into Government’s own Airlines and the private Airlines, that will only postpone their demise but will not make their operations 
profitable on a regular basis. If taxes are reduced to 50% - the airlines will not only survive but can reduce fares drastically, augment demand levels significantly, fly new planes and new routes - and contribute excellently to the growth of other sectors as well. Else - even safety levels can get compromised - and customer confidence levels can take a Big Hit, with every report coming in the news.

Will the situation become worse than 2008? It may – if these measures do not come through quickly.

One man can pull through all these things FAST and perhaps much better things too – if only he wishes to live up to his great reputation. It is Dr. Manmohan Singh. Sir, we wish you all success – but please do come out and act firm.

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