We are in Deep Shit!
The Indian economy is in serious trouble. Are we ready to arrive at a political consensus to salvage it?
Mohan Guruswamy Delhi
It was bloodbath in markets yesterday with Sensex crashing 769.41 points, the biggest fall in four years, to end at 18,598 on fresh concerns about US stimulus withdrawal and rupee plunging to record low of 62, draining investor wealth by Rs 2 lakh crore.
After gaining 703 points in the last four sessions, the Sensex plunged 769.41 points, or 3.97 per cent, to 18,598.18 on all-round selling. Consumer durables, realty, banks and metal sector took the major beating. Investor wealth was said to have taken a beating of Rs 2 lakh crore. But if the real tanking of the Sensex over the week was just 66 points, then notional investor wealth would have come down by a much smaller Rs 20,000 crore.
It’s quite amazing that this news is not being reported in its totality. What is happening here? Was there anything about the economy that made the Sensex rise by 703 points in the first place? The answer is no. Was there something that went wrong with the economy on Friday that should have made it drop by 769? For that too the answer is no.
What is happening is the usual tug of war between the bears and bulls. After the amrit manthan between the devas and the asuras it took Shiva to swallow the poison and store in his gullet. Hence, Neelkant. Who will pick up the debris after yesterdays bloodbath? The fellows who exited yesterday will now be back in the coming weeks to pick stocks that were hammered yesterday. They will then propel them upwards and do it once again. The bears will keep trying to hold them back. So the tug of war will start all over again.
I am sorry, I don’t think the Sensex is an indicator of the health of the economy. In 1991 even as the economy was contracting, the stock market kept rising steeply. The then Finance Minister, Manmohan Singh, when asked about it said that it was an indication of confidence in his policies. It was no thanks to Manmohan Singh, but to Harshad Mehta. Nothing more foolish and stupid could have been said. Then, that is your typical Manmohan Singh.
If we need to judge the state of the economy the only true indicators are GDP growth, current account deficit, fiscal deficit, trade deficit, and ratios like savings to GDP, investment to GDP, tax to GDP, and inflation. And some more if you want to complicate life a bit.
GDP growth has decelerated, current account deficit is over 5 per cent, the fiscal deficit is near 6 per cent, trade deficit is over $180 billion, savings ratio is down to 31 per cent and the tax ratio is down to 10 per cent. And what are we doing? Subsidies have gone up from nine per cent of the central budget in 2004 to 16 per cent in 2012. Last year we imported gold worth $73 billion. In the last quarter alone this figure has gone up to $39 billion. Oil imports are $155 billion or over 55 per cent of the merchandise exports. The petroleum losses amount to a total of Rs160,000 crore with the power sector losses too standing at a mammoth Rs 60,000 crore. And add to this the Rs 43,000 crore lifeline we just gave to Air India. This is quite a list.