Our economic pundits in the government need to put their heads together and find out what is wrong with the economy and then try and set things right. The ambiguity about the economic indices continues with them being questionable what with the Index of Industrial Production (IIP) showing a reduction in July of more than 2%. Here the government is again talking of base year variations of close to 5% which they claim to have pulled the data down apart from the sector concerning rubber which dropped by 29%.
The base year issues had also plagued the GDP figures issued sometime back which at just above 7% with an adjustment factor of 5% turned out to be no growth at all. This assessment seems to be correct since with IIP showing a consistent pattern of fall over the last few months, low capital formation indicating laggard investment and no increase in jobs. The claim therefore of Indian GDP growth as the ‘fastest growing’ in the world is very debatable. Inflation continues to be the bugaboo for the Indian economy with no signs of abatement what with the WPI showing the highest increase in August in excess of 3.4% though CPI normalised at 5.5% on the back of softening of vegetable prices. The CPI will start climbing again when the effect of the high WPI kicks in.
We have also had back to back fuel prices being jacked up twice in the last one month, once substantially and then there was a correction, using economists parlance for a smaller increase. Exports continue to fall but for a June month increase which in these questionable times of figures could be considered an aberration since world trade have not shown any dramatic increase lately.
With the falling exports there has been talk of depreciating the rupee which sent jitters over the last week in the stock markets. Devaluation will not be a good thing for the Indian economy now though it is a short-term measure to boost exports, but it has wider ramifications in the economy. The rupee devaluation will also not increase exports since with softening demand worldwide it will only send wrong signals about the Indian economy in international circles.
The problems with the Indian economy are structural and the fissures run deep and superficial measures like lowering interest rates or devaluing the rupee will not help. Investment in industry will not grow unless the NPA issue with banks is sorted out. As long as the banks carry this millstone around their necks, industry will be hobbled. It is important that the NPA issue is resolved one way or another to clear the decks so to speak for the Indian economy to move forward.
Among all these storm clouds in the Indian economic skies, it is rather incongruous to see the Indian stock-markets dancing to the tune of the US Fed Reserve actions which saw a close to 500 points jump on the BSE index last week and then another 300 points jump on Sept 23, 2016 when the Fed Reserve Chairperson indicated no increase in interest rates but with a hint that it could still happen in 2016.
In this entire environment, if one can call the Finance Minister the Captain of the Ship for the Indian economy, in the form of Arun Jaitley, we find him with his nose up in the air making banal statements. Like when questioned about the veracity in the economic indices being put out by the CSO, he said that even the IMF accepts them! That is neither here nor there since the IMF accepts the figures given by each and every country without going into the correctness of the figures since that responsibility lies with the country submitting the information. Get your house in order, Mr Jaitley, since even the economists within our banking system have been questioning the correctness of the recent IIP, CPI & WPI figures being put out commenting that these seem to be in line with the government’s intention of painting a rosy picture of the Indian economy. While addressing the senior management of the PSB’s last week again exhibited his wishy-washy nature of blowing hot and cold. He correctly cautioned banks on the tendency to write off loans but gave no indication of how they should pursue the NPAs aggressively. Either he should tell the bankers that they should pursue these outstanding loans like they did Vijay Mallya’s and proceed on seizing pledged assets and passports which would mean that the Who’s Who of Indian industry would be in Tihar jail joining the likes of Be-Sahara Subrata Roy and others.
Some of the PSB top management would also find themselves in hot water for having colluded in sanctioning out-of-turn loans to these industrialists. That is one method to clear the NPAs which would be akin to Hercules cleaning the Aegean Stables but in this context the Indian financial system. The other alternative is to write off these NPAs to show the true colours of this BJP government which is pro-business and anti-aam aadmi.
To defend themselves in Parliament Jaitley will have the quid pro quo of quoting that the UPA government wrote off Rs 60,000 crore worth of farmers’ loans and he is doing no different with industrialists who after feathering their own nests do at least provide jobs to the aam aadmi, so he is benefiting both. But given the size of the NPAs, Jaitley will have to formulate a 5-year plan over which he could take it off the bank’s books so that the action is not overtly beneficial to big business and at the same time which the economy can absorb. These are the times that we are living in and it is difficult to understand whether we should laugh or cry at things going on around us since everything is like they say — bitter for some and sweet for others.
