Event ReportsPublished on Mar 09, 2013
Author and economic analyst M.R. Venkatesh says the controversies and court cases relating to the 2-G scam might have impeded FDI inflow. It shows that even agreements made with the Government in India are not fool-proof, he argues.
Indian economy in a crisis
Author and economic analyst M.R. Venkatesh argues that Indian economic situation is in a crisis. He said this while flagging a discussion on 'Budget-2013' at the Chennai Chapter of the Observer Research Foundation, on Saturday, 9 March 2013.

Mr. Venkatesh, a chartered accountant, is little surprised that, despite the critical situation, nobody is accepting this fact. "Nobody wants to accept the fact that we are in a crisis," he said and pointed out that the average growth of all industries in the country was not more than one per cent.

Mr. Venkatesh said he was astonished when the Finance Minister failed to admit the stagnation of the economy. For instance, the automobile industry in the country was stuttering, he said and referred to the competitive sales-pitch of major manufacturers to humour the customer. He still saw a dichotomy in all this, pointing out how corporate have been doing very well since 2005-06, recording 15-20 per cent surge in profits.

Mr Venkatesh outlined the status quo in the banking sector and said that they were under extreme stress and strain. He argued leaving out a couple of top-notch corporate groups, a few others accounted for a substantial share of bank credits, with some of them not being in a position even to service them. This apart, when an individual like Hassan Ali who reportedly owed the exchequer '100,000 crore in taxes was still at large, even as the Budget has sought to make smaller tax evasions a cognizable offence, describing it as an 'absurd move'. Mr. Venkatesh said that such a proposal would never be helpful in recovering the tax arrears. He stressed that much stronger punishment rather than just a show-cause notice would prove to be more efficient.

He said "the import of 'sensitive goods' is among the main reason for high fiscal deficit." But these 'sensitive goods' included dairy products, pulses and edible oil, apart from Chinese-made toys and other products that could be manufactured in the country itself, he said, adding that the targets set in the Budget were more speculative and maybe unachievable.

Mr Venkatesh made a mention about trade deficit, which is around $200 billion, of which $ 40 m related to trade with China, and included farm produce like Gujarat cotton, which was cheaper in China than in the rest of India, adding to the current-account deficit. He blamed it also on 'policy paralysis' of the Government, and said that where the policies were good, there was a lack of political will to implement/enforce them. Issues of governance also came in the way, he said, pointing out that over 1000 projects valued at ' 7.5-lakh crore were stalled, owing to delayed clearances, court orders and protests by NGOs.

Mr Venkatesh referred to Finance Minister P Chidambaram declaring in his Budget speech that FDI was no more a choice, but an imperative. "Though it is an imperative for Indians to allow FDI, it is still the choice of the investor to whether or not to invest in India," he said, referring to avoidable delays and governance issues in this regard. "India is plagued with bottlenecks," Mr Venkatesh said. "These bottlenecks suffocate the economy and drive the fiscal deficit." He also provided a 'trickle down' model that may arise due to higher imports of trivial goods. Higher fiscal deficit would lead to depreciation of rupee value, which in turn would lead to higher cost of imports.

Both during the talk and the discussions that followed, Mr Venkatesh referred to the controversies and court cases relating to the 2-G scam possibly impeding FDI. It showed that even agreements made with the Government in India were not fool-proof, he argued. "When inflation rates are higher than deposit rates, the savings might migrate to other avenues which may yield income," he said. So do when the rupee depreciates, he said and referred to the steep increase in gold prices - pointing out how globally it had nearly doubled during the four years of the Obama Administration in the US. The stock markets had responded negatively to the Budget in the early hours, he said adding to the large-scale presence of floating stocks of FII. "Stock markets cannot yield a 30 per cent gain," he asserted.

Talking about welfare programmes such as MNREGA, that ensures work for the unemployed, especially semi-skilled labour, Mr Venkatesh admitted that the workers were being paid higher now. But he also said that the "moral fibre of work culture is being eroded". He said that industries are beginning to suffer because of the irregularity of the labour and also said that such schemes brought about "easy money which in turn gives them access to easy liquor" - and thus counter-productive.

Discussing the expenditure side of the Budget, Mr Venkatesh asked if the people were really benefitting from the welfare schemes, and said global studies put the country far below some of the less developed and sub-Saharan nations in terms of various human development indices and governance-related rankings. He also said that India ranked 184 out of 185 in terms of clearing financial contract disputes by court and criticised the sluggish nature of settling the disputes.

As part of his suggestions for the future, independent of the Budget, Mr Venkatesh stressed the need for increasing food-production, and also pointed to the dichotomy of high food stocks in the Government warehouses driving up prices and restricting availability to the poorer sections of the society. He also wanted better education standards, to create skilled workers, pointing to a survey which showed that most Government school teachers in Tamil Nadu, for instance, sending their children to private schools as a measure of the existing system.

The post-Lecture discussion witnessed participants focusing on the lack of political and administrative will to execute Government programmes - independent of the party or coalition in power. Coupled with unimaginative Budget proposals, these could hamper growth. For instance, higher customs duties have been announced when an FTA with the EU was being negotiated, and there would have to be compromises, even before the year was out. State Governments, for their part, have put on hold several highway projects, for instance, for extraneous reasons. Power projects are being delayed owing to NGO-led environmental and land-acquisition protests and consequent court cases.

The number of super-rich, with income of more than '1 crore, is put at a mere 42,800. This number seems to be grossly under estimated, as statistics have shown the numbers to be no less than 125,000. One other important issue raised in the discussion was about subsidies. Participants also referred to subsidies, and said that the Government should come down heavily on that front.

(This report is prepared by Ramalingam Va, First-Year, BA (Journalism & Mass Communication), S R M University, Chennai)

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