Indian Economy – Need to be alert

Indian Economy - Need to be alert
Indian Economy - Need to be alert

Bengaluru

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he Economic numbers for November and December made available by Government and the numbers do not inspire confidence. At the time of writing, US stocks are down about 2% on China concerns and it is only a matter of time before India catches this contagion, even if India consumes a significant portion of what it produces.

Explaining reduction in capital goods output as being due to Chennai floods is laughable.


Firstly Inflation. Retail inflation has been steadily inching up since August and touched 5.6 percent in December, the highest since September 2014. This has been driven mainly by food prices – food inflation in December was 6.4 per cent, after remaining below the 6 per cent mark from April to November.

Again Food inflation was driven mainly by pulses, where inflation remained in the above 40 per cent range despite an improvement over the previous year. Inflation in prices of oils and fats and vegetables has been inching up, since July and September, respectively. Continued food inflation could affect significantly the middle class and aspiring middle class mood and Government does not seem to be concerned.

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]I[/dropcap]f Dal is above Rs.200($3) you can’t argue that automobile sales are going up — that is not India. Index of Industrial Production(IIP) shrunk to 3.2 % in November – Power plants and Capacity utilization are at a dismal 60% and CPI (Consumer Price Index) is at 5.6 % – pulses increased by 46% as indicated earlier. 17 out of 22 industry groups posted contraction in November and Capital goods sector is indicating that investment demand shrank by 25% – this gives danger signals. Explaining reduction in capital goods output as being due to Chennai floods is laughable.

Secondly Savings. Finance ministry should think of enhancing household savings, cutting taxes to household income and larger credit availability to the Un-incorporated sector which are primary engines of our `growth. As already seen imports have slowed down and a painful slowdown in exports complicates the problem. In the absence of these triggers, it will be difficult to even match last year’s growth numbers (7.3 percent) even with the revised down growth targets (7 – 7.5 percent as against 8 – 8.1 percent earlier).

In the midst of crisis in real economy Finance ministry is considering reducing corporate taxes – giving justification as suited/ booted Sarkar – that would be a pathetic decision. The ministry should come out of its financial markets obsession serving only global fund managers; real India is in deep crisis and cosmetics won’t help.


Note:
1. The conversion rate used in this article is 1 USD = 66.79 Rupees.

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Prof R. Vaidyanathan

Cho S Ramaswamy Visiting Chair Professor of Public policy[CRVCPPP]

Sastra University

An expert in Finance and a two times Fulbright Scholar, Prof. R Vaidyanathan is a much sought after author, speaker and TV commentator on all items related to Money and Finance.
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11 COMMENTS

  1. I fully agree with the views expressed by Mr. Srinivasan. The salaried class that too who are working in the Private companies are the worst affected. Those who are employed in Government ( either in State or Central Government) will get the pay hike regularly by the pay commission revisions, where as those middle class people employed in private concerns are always under the mercy of the employer.

    Moreover the people in the centre ( both the politicians and the officers ) are very much biased to South India particularly Tamil Nadu , Kerala, Karnataka and AP in almost all the developmental activities. I fully endorse the views of Mr.Srinivasan.

  2. The Government is giving a feeling that it is an extension of previous Congress Government! It looks hapless in the face of hurdles being posed by the Opposition!

  3. Yes Sir we need to sharpen our responses and reduce tax burden for salaried class. Interest rate cut is also welcome and farming class those who hold less than 10 acres must be fully exempted from tax like salaried class.

    Govt must help MSME sector through Mudra with larger reach. Important thing is that Govt must start linking of Southern Indian Rivers first fast to complete within a decade which would help Karnataka, AP, Telegana, TN, Kerala and Pondicherry and improve agriculture also link Maharashtra – Marathwada.

  4. Abolish IT, and raise copr TAX. Stop exemption being given to IT companies. Companies like Infosys are taking tax benefits and donating 15 Mil USD to Columbia/Harvard headed by an editor, hell bent on showing Indian epcis as oppressive.

  5. The reduction in income tax for the middle class will be a major boost to the economy. Hope AJ takes cue from experts like you.

  6. PM should consider replacing one Arun (Jaitley) by another Arun (Shourie) as FM. Or, Arun Shourie should be made in0-charge of PMO. We need an honest Finance expert, not a loyal lawyer.

  7. Reduction in interest rate caused pulses to grow by 46%. What a laughable argument!! As suggested why can’t finance ministry take care of real economy?

  8. Global conditions are going to impact domestic economy.But oil hs helped to build near 2 lakh cr savings for govt.Not an alarmist situation yet.But Govt wl hv to b cautious.GST bill if stopped further Cong wl b responsible for dooms

  9. Everybody including Dr Subramaniam Swamy clamoured for interest rate cut and RBi obliged and therefore inflation is inevitable. When Global growth is not encouraging india even it achieves 7 percent, it would be commendable.One month numbers should be the criterion for pressing panic button

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