Inflation Vs Rate cuts: A trade off

 

(This article was written by me for my BETA round 2nd interaction)


Since the great economic recession which happened in 2008, subsequent Indian governments and RBI have constantly faced one big dilemma and that dilemma has been on how to successfully trade-off or negotiate between inflation and rate cuts. India, a hugely populated nation along with its prospering middle class, has a natural demand for goods and services in the market which almost invariably outreaches our supply. It’s because of this excessive natural demand that India has not been real to unravel its true growth potential. Every time, Indian government and RBI try to provide slight incentives for the industry by increasing liquidity in the market in the form of rate cuts, it results in high consumer inflation figures. And, this has not happened just once or twice, it has continuously happened over the last 7 years which somehow has resulted in not enough space for the govt. to push forward with growth agenda. 

Today, India is seen across as a country that has a dual distinction of having both the largest youth workforce and the highest no.of people living below poverty line. So, for India, it becomes very much imperative to control its inflation in order to safeguard the interest of the poor people living in our country. Even, a slight increase in inflation can adversely affect the life of more than 40 Crore people. Also, on the other hand, we have a weak manufacturing industry which despite utilising the benefit of cost intensive labour in our country is not able to deliver consistently on the promises of providing cheap quality products. Creation of SEZ’s (Special economic zones), making easy accessibility of credit to micro, small enterprises haven’t helped in pushing forward the manufacturing sector either. Therefore, this strong demand and weak domestic manufacturing industrial growth have paved the way for big foreign companies to enter into the market. This has increased our dependency on foreign companies and their products. And also, these foreign companies are able to successfully eliminate the domestic competition by removing the smaller players from the market because of their huge size which give them cost advantage. 

Also, the purpose of giving rate cuts has been to give an incentive to the industry by providing easy accessibility to the credit. But, this hasn’t happened as most of the liquidity which generated in the market by decreasing rate cuts have been passed on to the customers in the form of retail loans and not in the form of industrial loans. Industry is still struggling with liquidity crunch despite several reduction in rate cuts in the last few months in the form of SLR, Repo rate, reverse repo rate, CRR. And last week only, RBI governor raised concerns regarding rising inflation again, which doesn’t come across as a good news for the industry. This is a duality and conundrum which India needs to manage cautiously to be able to register strong growth otherwise we would get stuck in this vicious cycle. 

Why we should be wary of the recent verdict given in Delhi Assembly Elections ?

Delhiites, despite being busy in valentine's week, have given a resounding and overwhelming verdict to Mr. Kejriwal and his political party AAP, by giving them 67 seats out of 70 in the recently concluded Delhi Assembly election. Amassing 54% of the vote share is something unheard of in this highly diverse and segregated democracy where religious sentiments still continue to play a greater role in deciding the fate of elections.  

The judgement seems to be loud and clear that Delhiites want a govt. who won't just rule but would act as their representatives, where the voice of the common man is heard, where their problems are being addressed, where inequality would remain dead and buried, where there will be no space and time for communal differences and violence. These seem to be some of the core issues based on which Delhi has given its verdict.

But, are these the only reasons for this kind of massive verdict in favour of AAP. I guess no. Looking at the complete picture, we can easily deduce the important role that freebies have played in this election. The outrageous, irrational, and over the board promises made by Mr. Kejriwal have played a greater role in this election than estimated by the so called pundits. Promises of constructing a school every 3.67 days and a college every 5.45 days over the period of next 5 years look beyond the scope of reality in the current context. Promises of drastically reducing the electricity and water prices have definitely gone down well with the electorates but the question still stands whether Mr. Kejriwal would be able to achieve this considering that Delhi as a UT is always dependent on other neighboring states for both resources. 

The problems just don’t end here. AAP, as a party in power, needs to understand that even the governments are required to maintain balance sheets. What we have heard till now is the expenditure part only. They will be requiring huge sums of money to uphold their claims and promises. I am still not sure where these revenues will come from. We still haven’t seen a plan in AAP’s political rulebook which can be effectively used for generating some revenues and I am not sure whether Mr. Kejriwal would ever be concerned about it or he will just try to happily pass on the burden for his freebies on central govt. When 60% of our villages are deprived of electricity connections even, forget about getting electricity, we surely can’t afford to give cheap electricity to the well-off section of the society. 

I hope Mr. Kejriwal is smart enough to understand that India at this stage really can't survive on freebies. Prudence and austerity have to be the sisters of governance in this time of ruckus and uncertainty. If he really wants to make an image for himself and his party at the national level, he needs to come out of that freebie zone to understand the realities of ground. At least, we are getting a picture of the structure that central govt. wants to implement in this country. Whether “Make in India” or not, at least we have a plan on paper from Mr. Modi. I guess letting economics run over politics is something which will decide whether Mr. Kejriwal would ever become an important player at the centre or not.

"India - a land of myths and dreams"

How ironical it can get that world’s 2^nd most populous and oldest civilization is a rare combination of myths and dreams. India, being famously known as the land of snake charmers for centuries, has never been able to completely annul its that image despite tremendous growth and development that we have witnessed in the last 3 decades. What adds further to the locus of this is how majority of the people in India still believe in themes of centuries old myths, fallacies, absurdity, black magic, witchcraft, etc. It’s worrying to see how eager people seem in this country to impress their deities for a little showering of divine grace and blessings. In one of the many such shocking cases, a khap panchayat in India issued an order of not allowing girls to get birth in their village as they thought that letting girls born would draw the wrath of rain god and they might have to face drought because of it. These cases make me question the very basic existence of our human intellect, if there is any. Were we born to be that much unreasonable and illogical that we would become the slaughters of the worst kind for nothing but piece of worthless myths. 

More than 65% of our population is below 35 years of age and despite that the number of people indulging in such kind of senseless, illogical stunts is no less than cyclopean. What’s more alarming and staggering is that most of the people indulging in such kind of gimmicks and irrationality are educated literates. This definitely raises questions on the quality of the education that is being imparted in this country or have these myths become so much ingrained and imbibed in us through generations that we have started treating them as a part of our social and religious values. Something somewhere has surely gone wrong. 

Despite having an educational system in place for most part of the last century, I see two completely diverse, opposite India. Both are educated but they seem poles apart. The first part of the India that I see is the one with aspirations and desires. They are surely moving ahead adopting art of deduction, inferences, and rationality as a means of living their lives. They seem to be adapting well with the changing times, and hence slowly but steadily they are drifting away from the fallacies that have strangled them for long, thereby helping society to become an organized tranquil place to live. And, the other India that I see despite being educated looks stuck behind in the fissure of gloominess, completely deprived of sense, struggling to keep terms with changing demands and times, thus trying to make its presence felt by indulging in activities which are nothing short of anarchistic in nature. The first India has dreams, and other one has myths. It’s the rare addendum of these two which makes for an intriguing sense of distress in me. On one hand, we have great scientists, philosophers, intellectuals and on the other side, we have those who follow the themes of irrationality just to show their kookiness and ludicrousness. 

This is evident that what we need now is not just education but a system, a society, a way of thinking where rationality is given more importance than those meaningless myths, where people are given freedom to make their choices and not just choked and suffocated in the adamancy of following those farce fallacies. Maybe the time has come for us all to show solidarity in creating such a system. We have lived long in those disillusioned world of ignorance where we have let irrationality overshadow rationality, impracticality overpower practicality. Time for change is here and it’s up to us to grab it. 

"Up And Running Again"

It’s been a long time since I have written an article, so I thought of restarting that exercise all over again, but this time with the changed purpose and perception. Believe me when I say that I have really missed writing here as it was an integral part of my daily routine to come here and blabber in the starting months of this year. But then with new job and tight schedule at work, I could barely find enough time to come here and express my views.


Approximately 20 days away from probably what is going to be the biggest and the most important day of my life, I think it’s the right time to get this blog going again with a promise that I would be staying here irrespective of what happens in 20 days or a year after that, or a year next to that. I will be coming up with an article shortly. Till that time, keep enjoying the festive season. 

Is Indian banking on the verge of temporary collapse?

As most of the public sector Indian banks came out with their Q4 results along with the annual results for the fiscal year 2013-14 last week, a sense of despondency gripped the Indian banking market with red alarms ringing in RBI and Govt. offices. The reason behind this alarming response to the annual results of the various banks, according to the industry experts, was quite simple. More than 23 of the 27 nationalized banks had their NPA’s increased in the period 2013-14 with actual profits realized being less than expected profits. More than 5 public sector banks had their profits in red. Except for Bank of Baroda and a few other banks (Q4 result of State Bank Of India hasn’t been announced yet), which managed to salvage and restore some confidence among the investors in the banking industry with their positive results, all other banks struggled to keep the momentum going. 

So, what all this turmoil in India’s banking industry convey us? Is India on the brink of a temporary financial/banking collapse? The answers to the above questions seem ominous and menacing in short. Increasing Non performing assets (NPA) has been a major problem that India has faced for quite some time now. The NPA’s have increased to 3.02% of the total credits in 2013-14 as compared to 2.27% in 2012-13. These percentage numbers might not look haunting until we have a clue of the total credit numbers that we are dealing with. The total credit that we are dealing with is Rs. 56.57 lakh crore. Yes, you read it right. That amount is equivalent to 4 times of India’s budget for the year 2013-14. Further, with the performance and profitability of the sectors like textiles, infrastructure, basic metals, and chemicals, which account for more than 60% of the total outstanding credit, going down, we can expect the situation to get worse. 

So, how did we reach such an adverse situation? Banking industry reached such a dire state today because of our excessive and blind focus on opening more and more banks to achieve the goal of financial inclusion, without empowering our banks with the opportunities to compete in a fair manner by giving them the chances to absorb profits. 27 nationalized banks competing along with numerous private players, in the form of private banks and NBFC’s, for a share in a market and economy which was still in a nascent stage killed the growth of our banking institutions and ultimately led to losses. Instead of allowing a few banks to operate and expand their businesses, we opened a large number of the banking institutions at the same time in order to achieve our long desired goal of “financial inclusion”. In running for that goal, we increased the competition beyond a feasible limit for the industry to be profitable. Banking is an industry which requires a huge amount of operating costs accompanied with higher risks. Therefore, it is next to impossible for small banking institutions to compete with larger players in the market and hence continue making profits. This affects the overall credibility of smaller banking institutions, which is definitely not good for the health of the Indian banking industry. Hence, it is imperative on the central bank of the country i.e. Reserve Bank of India to be prudent and wise while trading off between achieving financial inclusion and maintaining stability of the banking institutions. Stability of the banking institutions can’t be sacrificed for a unidirectional aim of realizing financial inclusion. There has to be a balance between the two. Hope this balance is maintained.

Corporate Social Responsibility: A new dimension to corporate functioning

During 1950’s and 60’s, when American capitalism was at its pinnacle, a need was felt among different sections for more participation and engagement from the corporates in the cultural, social and environmental development of the society in which they operate and earn their profits. To make corporates more responsible and empathetic towards the society, primordial notions of governments being the sole proprietor of the development and upliftment of the society had to be squashed away. 

To achieve this feat, a phenomenon known as “Corporate Social Responsibility” came into existence during 1960’s to make corporates more liable towards the society and trigger a massive change in the dimension of their functioning. Though, in Indian context, it took more than 5 decades for the phenomenon to assume relevance. With the enactment of the new companies act, 2013, India has officially made it obligatory for the firms operating on and through Indian soil to comply with CSR norms. 

What is Corporate Social Responsibility?

Corporate social responsibility is basically defined as the responsibility of the corporates to undertake certain actions, which go beyond the personal profits of the firms, to do social good and hence benefit the society by engaging in the development process with their contributions. In India, firms, having a net worth of more than Rs 500 crs, or having a total turnover of more than Rs 1000 crs, or having a net profit of more than Rs 5 crs, have been asked to spend atleast 2% of their last 3 years average profit on society development as part of their CSR compliance. 

CSR is a step in the right direction for a highly underprivileged society like India where majority of the population is still sulking under poverty. According to the various estimates, CSR contribution from corporates in India would stand at something in between 15000 to 20000 crores for the year 2013-2014, which is not even 0.1% of India’s GDP. But still, a contribution is better than no contribution. It is important for any prospering society to share the burden of the development. Just relying on the govt. to do all the development work won’t do a lot of good. Hence, the onus rests not only on the corporates but also on us to share that burden. Purchasing items of a brand or a company which regularly engages in CSR activity can be a one to start with. 

National Rural Health Mission – The way to move forward

When in April 2005, National Rural Health Mission was commissioned and initiated by the Govt. of India to address the deserted health care issues in rural areas, the purpose of the mission was to ensure the institutionalization of a functional and efficient health care system in those areas. But, some critics, as they always do, rendered the targets envisaged by the mission to be too idealistic to be achieved in such a short span. Others accused the mission’s targets of being devoid of any realism and rationality. 

Finally after 9 years, we can say that those critics were absolutely right. But still, we are proud of what the mission has achieved in such a short span. Yes, we might not have accomplished our desired goal of making the health services accessible to each and every part of the country. Yes, there is still a huge dearth of good medical facilities, hospitals and doctors in rural areas. Yes, women still die while giving birth while children still succumb to basic health diseases. But, the mission still remains a success, a minor success for that matter. The conditions in the interiors have definitely improved which augurs well for India. 

Broadly speaking, the public health centres which had been dysfunctional for so many years have showed signs of improvement. The participation of the community in the health sector activities has showed resurgence after years of indifference. Availability of the therapeutic drugs for primary health care in the govt. sponsored medical outlets has improved. Similarly, the availability of the generic drugs has helped in reducing the cost of the treatments in rural areas which makes it more viable for the people living in those areas to go and avail medical treatments. Huge recruitment and deployment of accredited social health activists and “Anganwadi” workers have helped in amputating the bottlenecks by creating awareness among people about the benefits available to them under the scheme. These social health activists and anganwadi workers play a role of a coordinator between the people and the public health centres, which helps in penetrating in those areas which can’t be reached through formal organizational structures. 

All of this has improved the accessibility of the medical/health services in rural areas, which is quite evident from the decreasing number of people dying due to the non-availability or the lack of the health care facilities. It is true that we are quite far away from our mark, it might take us another 50 years to make health service accessible to each and every citizen of this country. But, a start is always better than no start.

The unsaid role of judiciary in Indian system

During 1947-50, when majority of the members of the Indian constitution drafting committee were busy framing the contours and guidelines of our broad exhaustive constitution, which we today irrevocably admire, there was a still a section of members in that committee who were skeptical about the degree of independence and power that had been granted and endowed to the judicial system. Those members were basically concerned about the extreme powers that were handed out to the judiciary that it could even supersede and repudiate the govt. of the day or any other constitutional/ statutory body except for the honourable president on certain issues. Their claims that concentrating so much power in a single body/institution would lead to dictatorial rule in India, raised many eyebrows among certain sections of the society. But, it was the grit determination and the resilience of the members on the other side who persuaded those skeptics in favour of the need of a powerful judiciary. 

Today, those who endorsed a powerful judiciary at that time stand vindicated. Their foresightedness regarding the preeminent role that judiciary would be playing down the years in the Indian system now stand validated. Today, judiciary in India, apart from its normal functions of promoting social justice and equality of law, is playing an important role in protecting the constitutional rights of the people. The recent active participation of the judiciary in compelling the executive and legislature to do its work properly comes across as a harbinger of hope in this era of inefficiency and mis-governance. Whether it was the judgement giving the right of “NOTA” to the voters or the judgement prohibiting the convicted people from fighting the elections or the judgement asking the govt. to set up a standing committee to review the corruption cases or the judgement lambasting the govt. for its indifference to women security, the cases are many where the Indian judiciary has stood up for the rights of the people against the incompetent and inert governance. 

Some people might criticize judiciary for constantly encroaching on the rights of executive and legislature or for interfering with the functioning of the govt., but what one would expect judiciary to do if the executive and legislature are not performing their duties properly. Surely, judiciary can’t just sit back and see people suffer at the incompetence of executive and legislature. There is a fine distinction between encroaching on somebody’s rights and asking somebody to perform their duties properly. If executive and legislature had been more vigilant on these issues or concerned about the rights of the people, judiciary wouldn’t have felt compelled to interfere in their functioning. There are not many institutions in this country on which people from all sections put their trust. Judiciary has been able to garner the confidence of the people because of the way it has handled itself in the last 60 years, and I hope it continues to do so because this country deserves atleast one institution of credence.

Blaming Hindu Nationalism for the rise of Mr. Modi in India is despicable

Over the last 2 months, most of the west dailies have targeted Hindu Nationalism for the sudden ascent of Mr. Modi in India. They have outrageously portrayed all Hindus as rabble militants, murderers, slayers who go about killing people of different religion on a daily basis. I know there are certain parts of our history which are reprehensible and sinful. There can be no possible justification for what happened in 1984 in Delhi or 2002 in Gujarat. I was not even born when 1984 happened and was only 10 when 2002 transpired but still when I look back at our country’s history today, I stand apologetic and guilty for what eventuated or played out in those yesteryears in our so called world’s largest democracy. This all marks in me a yearning desire of rewriting the history if I could ever. 

But, keeping that emotion aside, blaming and targeting Hindus and their nationalism for the rise of the BJP’s Prime Ministerial candidate, Mr. Modi, is atrocious and egregious. If majority of the Hindus are backing Mr. Modi, it’s not because he is a Hindu nationalist or personifier of Hindu nationalism. It’s because of the lack of better alternatives at the centre for the corrupt, rotten, debauched incumbent congress government. 

Congress has transcended all barriers when it comes to mis-governance. Indian economy under congress govt. has been in complete doldrums with growth numbers plummeting to the rock bottom without any hope of when and how would it revive. Unemployment and inflation numbers have been at all time high during congress regime along with the ever increasing fiscal and current account deficit. The condition has been so poor at the economic front that many rating agencies around the world have turned India’s outlook negative. The shinning growth story has been turned into a farce and mockery. Another five years to them, and we would find our-self next to Africa.

In these gloomy times, Mr. Modi has come out and presented himself as a harbinger of hope and revival. Setting aside the 2002 riots, he has done fairly well in almost all departments, atleast better than congress. No riots have taken place in Gujarat since 2002 which should be considered as a success of Mr. Modi’s tenure as Gujarat had quite a history of riots. Moreover, the lack of national level political alternatives in the country has tilted the battle in favour of Mr. Modi. So, blaming Hindus for Mr. Modi’s sudden upsurge is absolutely wrong. If Hindu nationalism had been so much active in the country, no Muslim, Sikh, Christian would have ever become the President, Prime Minister in the country. But, that’s not the case. We have learned to set aside our religion divergence to live like equals, i.e Indians. In the last 66 years, we Indians have tried hard to outstrip the barriers created by religion, caste. Let’s not fall back into it. Blaming Hindus is not a solution. Let the voters in this country decide the Next PM. 

Industrial Growth turns negative, all eyes on farmers to keep the numbers floating.

India, a nation which once promised to be the world’s harbinger of growth and development, has now slowing and steadily turning into a laughable stock. All those clamouring of impressive growth in the last decade seem to be fading away, as India is fast falling into an arena of despondency and hopelessness with no exit route.


This is what became glaringly evident when Central Statistics Organization (CSO) came out with the industrial growth figures of India for the month of February. The figures read something like these

Industrial Growth numbers for the month of February.

	Feb (2013-14)	Feb (2012-13)
Overall Growth Rate	-1.9%	0.6%
Manufacturing	-3.7%	2.1%
Electricity	11.5%	-3.2%
Mining	1.4%	-7.7%

The Industrial growth of India for the month of February, 2014 came out to be -1.9% as compared to 0.6% in the same month preceding year. Yes, you heard it right. India’s Industrial growth has turned negative. Something which seemed impossible a decade back has been achieved quite smoothly and quickly by our government and leaders.


What is more shocking and outrageous is that India has reached such a dire state when two of India’s best economists, Mr. Manmohan Singh and Mr. P. Chidambaram, have been in charge of the proceedings. While India on the whole is struggling, there are a few states which are still registering impressive growth rates.

	Growth rate of 2012-13
Bihar	15.05%
Madhya Pradesh	9.89%
Goa	8.47%
Kerela	8.24%
Odisha	8.09%
Gujarat	7.96%

The chief ministers of these states are not any renowned economists. Some of them even hadn’t studied economics, still they are outperforming two of India’s best economists. So, the first question which arises in our minds is why this is happening.  


The answer to this may vary for others, but for me personally, it has been the lack of conviction and faith shown by the govt. in domestic entrepreneurs, while giving excessive emphasis to FDI. Indian Govt. needs to learn that FDI is no magic wand which would troubleshoot all economic problems. It can boost growth slightly, but during tough times it won’t propel growth. The focus instead should have been more on promoting and strengthening domestic entrepreneurs and companies, which we sadly haven’t done. If we consider the American growth model, this point would become quite evident. America didn’t grow because of FDI, it grew because of the advancement of the american domestic companies, which today are considered as the benchmark for others.

We might be able to save our-self from the blemishes on the back of record agricultural production this year, but to be frank, this is not the India which we have dreamt of.