Hemant K. Gupta
Like ‘Justice Delayed is Justice Denied’, similarly, delayed actions from the Government to revive the sagging economy may yield hardly any results. High interest regime has already done big damage as there is big industrial slowdown since previous month. This is the precise reason that despite sharp drop in inflation to 9%, sensex plunged although global markets were up.
However, P.M. continues to repeat, that India will return to 9% growth trajectory. Such statements appear to fool the public so that public, instead of tightening its belt for rainy days, continues to be spendthrift like our govt., as it will lead to higher revenues for the govt.
Reportedly, govt. is asking PSU’s to declare interim dividend so that around 10,000 cr. can pour into waste pit of the govt. Another news is that, Maharashtra Government may raise stamp duty on properties by 15-20% although it was already raised by more than 40% this year. Revenue collections from excise duty and import duty have come down in October ’08. This is what is more frightening because govt. will definitely raise tax/duty rates for higher revenue collection. Govt. has created huge army of parasites by presuming that its revenues will continue to gallop at same rate as in the past.
Politicians and bureaucrats continue to offer palliatives that our huge young population is our biggest asset. However, IIP nos. confirm that economy has slipped into the slow lane. Even a casual reader of the business pages of any newspaper will be fully familiar of the increasing woes of the economy. On one hand, Air-India is asking for 4000 crs. bail-out, on the other hand PSB employees may get 20% raise in their salaries. F.M. still reads something encouraging even in the stark IIP nos. There is talk of massive infrastructural programme by the govt. However, do we have any surplus? Our fiscal deficit is near the breaking point. Forex Reserves are fast depleting. China could announce massive package of Rs. 29,000 lakhs crs. as they are sitting on a USD 2 trillion reserves.
Another reason for the suffering is indiscriminate expansion undertaken by virtually all industrial houses. There was competition amongst competitors as to who will be the Numero Uno? Rationality was put on the back burner as to whether there will be enough consumers for multiple enhanced capacities. Money was available on the tap. Creating global capacities would be wise only if we were globally competitive. Many industries have created capacities of global scale but domestic market cannot consume entire production. Reportedly, Reliance has huge stock pile of approx. 6 lakh tons of its petro-product range. Now, it will be realized that all these expansions were too ambitious and hence share market continues to slide. Share prices that were attractive at 20,000 sensex are not so with sensex at 9000. Companies which had come out with FCCB will find it very difficult to meet interest and repayment obligations.
An ordinary professional/businessman is also feeling the big pain because, he has become habitual of extravagant lifestyle. What was considered luxury 3-5 years ago has become a necessity. We have given up train journey for flights. We have upgraded from Cinema Hall to Multiplex with leather reclining seats. We feel hesitant to shop at a Kirana Store and consume lot of fuel for shopping in a modern mall. We go for foreign holiday and not to Ooty or Mahableshwar. We don’t go for a picnic but take the kids to the amusement park. We took it for granted that our salaries and incomes will continue to rise with our expense. Saving was ‘sin’ and spending ‘in’.
Main reason for India’s growth in last 5 years was abundant foreign money. With foreign money almost drying up, it will be a long haul ahead for us. If, Govt. is really serious to enter the growth lane once again and to mitigate the miseries, govt. must reduce interest rates by 200 bps and also to reduce the maze of myriad taxes. If, industrial slowdown of October/November 08 is not arrested, sensex may fall to 6000 levels in near future and 09-10 GDP growth may not be more than 3%.