Look back in ANGER!
Escalated fiscal troubles make 2013 a year best left behind
Mohan Guruswamy Delhi
When our economic history is written, 2013 might be called the year of the great chill. The GDP slowed again, but the rupee dropped by almost a fifth of its value—the biggest devaluation since 1967. In 1967, it had happened in one fell swoop, when the government realized the gross overvaluation of the rupee and slashed it down to a more realistic figure. But this year’s devaluation came like Chinese torture: drip by drip, day by day. The rupee had been in a freefall for over three months; an inert government sat and watched. The government lost control of the Reserve Bank of India (RBI). The RBI twiddled its thumbs, unsure what to do. Mercifully, the drama ended when the RBI Governor retired. Still, the macroeconomic situation, by and large, remains the same: a massive trade deficit ($203.6 billion); an impossible current account deficit (4.8 per cent of GDP); an unrequitable fiscal deficit (4.9 per cent of GDP)—all coupled with wholesale price index inflation (WPI) of 7.4 per cent, flagging savings and investments. India has been dealt a big double-whammy. Our sense of national well-being is now left to the capricious whims of foreign institutional capital swarming through the economy, and on Non-Resident Indian (NRI) deposits purchased at high interest.
Two years ago, India’s GDP grew at 9.3 per cent. This time last year, the GDP was expected to grow at 6.5 per cent. Instead, it is growing at 4.7 per cent. A shortfall of 1.8 per cent between hope and reality. Monetarily, that shortfall translates into approximately $70.20 billion in purchasing power parity (PPP) terms. In Indian rupees, this means a PPP shortfall of around Rs 4.42 lakh crore. True, it’s lower than the previous year’s Rs 7 lakh crore, but it is still imposing. Coupled with the ‘presumptive loss’—Comptroller and Auditor General’s (CAG) phrase—to the GDP last year, we are looking at a hole of about Rs 11.40 lakh crore for the last two years. If that’s what the people lost, the central government’s nominal loss in taxes foregone from falling growth is nearly Rs 30,000 crore. This year, the Government of India hoped to collect Rs 8.84 lakh crore in taxes. (The states would have collected a similar sum.) This means the presumptive loss of tax revenue is four per cent of budget estimates. However small the percentages may appear, these are not small sums of money, and India cannot do without them. Added to the drop due to the expected 2G spectrum sale, the failure of the Oil and Natural Gas Corporation (ONGC) stock issue and much lower collections from Public Sector Undertaking (PSU) disinvestment, there’s a serious lacuna in central government collections.
Since interest, salaries and—to some extent—defence allocations are inviolable, the hit manifests as deep cuts in social spending and capital expenditures. Already our capital-expenditure-to-budget ratio is an abysmally low nine per cent. Social welfare spending (however little may trickle down) impacts the poor and needy. Despite what the World Bank and International Monetary Fund (IMF)-trained gnomes in North Block, South Block and Yojana Bhavan say, the numbers of the poor are rising alarmingly. At Independence, India had about 320 million people; it now has that many poor alone. BPL estimates of 30 or 25 per cent matter little. In absolute terms, the number of poor people is on the rise, and governments have shown no inclination to stem the tide—a tide evident in massive economic migrations from Assam, Bengal, Bihar, Odisha, eastern UP and tribal regions. Over three-quarters of our tribal people still exist below the poverty line, giving them stark choices: either migrate to cities or revolt against the iniquitous system. They do both. Yet our middle and upper classes seem focused only on the migration of Bangladeshis into India: the establishment can take credit for successfully affixing us with blinders.
Growth in India is led by government spending and investments. When these drop, growth drops. Little wonder so much gloom and pessimism is enveloping the nation—this mood is universal now, from the biggest captains of industry (Ratan Tata, worth $100 billion) to the smallest of farmers (the average size of a farm holding has now fallen to 0.63 acres). The only one proclaiming messages of hope and improvement is the optimistic jack-in-the-box, Dr C Rangarajan, chairman of the PM’s council of economic advisers. Rangarajan’s optimism stems from the simple fact that he surveys numbers less than he does Chidambaram’s chair in North Block—particularly enticing with South Block just across the street. So close, yet so far!
BPL estimates of 30 or 25 per cent matter little. In absolute terms, the number of poor people is on the rise, and governments have shown no inclination to stem the tide
This story is from the print issue of Hardnews: DECEMBER 2013