Managing Economy Govt not worth its salt !

Shivaji Sarkar
Is it beyond us or our Indian polity to manage the economy? A rumour on shortage of salt sets the market afire in Bihar and Assam, raising salt price to Rs 150 a kg! The inflation data does not capture this. But the indices touch new highs – wholesale at 7 per cent and retail rises by 10.09 per cent in a seven-month-cycle and over 18.09 per cent in a yearly cycle. Even non-food items are rising beyond the RBI’s tolerance level of 5 per cent and are up to 5.3 per cent.
As the entire household income has gone into a muddle of how to manage to buy commodities, consumer goods industry sales are plummeting. The September data shows the FMCG sector grew by 5.3 per cent against 7.3 per cent in August and 7.9 per cent in July.
Uncontrolled inflation, either with the connivance or apathy at the Government level is eating into the system. A concerned Finance Minister P Chidambaram announces an expenditure cut. He is also wary of falling tax collection as the industry remains in a tizzy. With falling revenue and higher expenses many projects, including Highway constructions, remain stalled.
Capital goods continue to be a negative indicator absence of investment in the system. It declined 6.8 per cent compared with 13.8 per cent in September last year. The Finance Minister’s move to cut expenses is likely to have a further impact on investments. Growth in the manufacturing sector is likely to be subdued, warns, Naina Lal Kidwai, President FICCI.
Inflation is hitting domestic demand. Lack of investor optimism is adding to the uncertainty. More the Government cuts expenses on projects approved by the Cabinet Committee on Investment, the more it hits the sentiments. It means that hope for growth is further stymied.
So where does the Finance Minister cut his expenditure? He himself says that his projects being temporarily stalled by the present State elections and the impending Lok Sabha polls would save him money to window-dress his Budget and “fiscal deficit would remain in check”. This is not an appropriate statement.
He has almost consumed over 70 per cent of his budgeted borrowing limits. Even to foot the bills of his regally extravagant officials, he would be going beyond the budgeted limit. No, whatever he does he wouldn’t be able to manage with the rest of the 30 per cent limit. The fiscal deficit – borrowing – is bound to grow.
Despite the Government being severely hit by inflation and the country in deep crisis, it has not curtailed any contemplated expenses or facilities of its officials. This is something Alauddin Khilji did in the 13th century. While his officials thrived, his royal exchequer had little money to foot the bills.
Before it is too late, Chidambaram needs to cut down on most of the unnecessary facilities and luxury personal purchases of the officials. The Government needs to not only survive but also steer the country out of this horrible morass. Government officials account for the largest Government expenses and their perquisites constitute almost 20 per cent of the bill. If it saves this 20 per cent it would fund about 100 projects.
The country is in deep trouble, analysis of Chidambaram’s statement reveals. The Finance Minister does not touch the bureaucratic extravagance for obvious reasons in an election year. But if he does the essential, plan projects would boost both development and growth process. He does not need to shy away from it.
Instead he is offering more sops to the employees by promising to appoint the Seventh Pay Commission, almost three years ahead of schedule. It is not a prudent policy. Chidambaram has to come out with ways to grease the economic indicators. Negative indicators are coming out of industry at 0.4 per cent rise in April-September. Manufacturing continued to remain sluggish at 0.6 per cent growth. Industry observers see stagnation continuing, says Madan Sabnaavis of Care ratings.
The Finance Ministry does not have the option to increase taxes. If it does it would only hit the industry and growth further. This apart, the rural sector has been so far adding to the numbers. Now inflation has hit it as well. The cash flow in this sector is not very positive. It is a big blow for the FMCG majors that derive 30-50 per cent of their sales from the hinterland and have been banking on rural growth to make up for a sluggish urban market.
Many soap and shampoo makers are seeing the numbers even out for rural and urban markets. It only suggests sales are coming down. Industry soon may have to taper off production and prepare possibly for a lay-off. Non-food and over the counters sales of FMCG goods are coming down both at rural and urban centres.
The Managing Director of Godrej, the largest consumer marketing company, Vivek Gambhir sees the consumers tightening their wallets due to inflation and some others say due to possible job losses. Producers of milk products, chocolates and prepared foods are bearing the brunt of the slowdown the most. Even areas like detergents, cosmetics and other personal care products are seeing contraction due to intensifying competition and slowing urban income growth. Even sales of aerated drinks are coming down.
Undeniably, inflation is engulfing the system like a deadly disease. The doctor knows the disease but does not know the medicine. So for the last over four years it has remained untreated. Now it has infected the doctor itself and it is financially debilitating him. How would the doctor treat himself or the system is the illusive question.
However, it isn’t true that the line of treatment is unknown. But the Government is dithering. It has to show the grit to contain the businesses extorting the populace. Does it need a new law? No. There are enough laws. The Essential Commodities Act is still on the shelf. There is a plethora of other laws. Had these been acted upon four years ago, the drift would not have been there.
Still it is not too late. Though it has already spared the rod, the child is not completely spoilt.  It needs to wield the rod not only to save the people but to save the entire economy and the Government itself from being eaten away by the deadly moth of inflation.
If it does not, it would not only send the message of India’s incapability to manage the economy but also accuse the engine of growth turning into an engine of disaster. If the Government cannot manage to maintain the price of salt, it is certainly not worth its salt. INFA

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