This is turning out to be an exercise in pessimism. In my last post in this blog, https://ramanujapuram.wordpress.com/2012/06/03/will-the-economy-perk-up/ , I had at least toyed with the idea of a possible turnaround in the economy. This appears to be a distant dream now.
Why would I say so now when the stock markets seem to think otherwise? Let us see. In 1992, there was one person who talked of “irrational exuberance” of the markets and also about not losing sleep over its movements when the markets were moving diametrically opposite to fundamentals. I can see parallels here. The movement is entirely due to exuberance following a perception that FDI will come pouring in torrents, quite unlike our monsoon that is playing truant in the current year. What is the reality? I do have some friends in the investment banking fraternity and their take is that corporate India is busy looking for bargains in Europe and elsewhere. Businesses have tanked across the globe and there are bargain basement sales going on. How well our businessmen will be able to manage these businesses is another story. But that I understand is the flavour of the month and hence we will find these worthies heading lemming like, to the continent to keep up with the Mittals or the Jhunjhunwalas.
So, who will, braving all the hurdles that our esteemed bureaucrats and politicians ensure come in the way of businesses, invest in India. There could be two sources, one the MNCs who have, in all probability, already fed some ‘motamaal’ to the powers that be. The other could well be the motamaal itself seeking new investments in India. After all, politicians appear to be rather fond of airlines as an investment destination. So they could well choose the FDI route rather that the FII route through sunny Mauritius. Unfortunately, FDI needs a lot more openness and transparency to be brought in. For instance, all KYC norms would apply for the purpose of opening bank accounts, registration and what have you. Thanks to young Chidu, it’s possible to invest in the stock markets through the PN route, which is another name for hot money seeking an investment outlet. Wonder how big names such as Morgan Stanley etc. lend their face to nameless individuals and help them to invest in Indian stock markets. That aside, I wonder how many big names in the USA etc. would risk their money in a country that has demonstrated its incompetence in managing the economy. From once being touted as an economic tiger we have become a whimpering pussy cat.
The P word or Patriotism is considered an old fashioned joke. When everyday brings a new scam to light, is there any doubt that whatever comes in will come with a price tag for services rendered. Any businessman will only do business where his investment fetches him a very good return. For instance, if one is employed in a high profile job with a salary of x, the expectation will be a return of 5x or more. Similarly with money invested in bribes etc. The expectation will be to make a quick buck and recover this ‘investment’. All the more reason to do it quickly, because Governments are notably fickle and are prone to change too.
Having pfaffed on for three paras, let me get to the nub. Where did we go wrong? There was a lot of good in the economy from 1999 onwards. Am seeing the inflation rate as an index of ‘Aal ij Waal ness’. The inflation rate as per the diagram here taken from the Net tells me that inflation in India was around 5% or less throughout the period between 1999 and 2007. Mind you, the NDA was in power for 5 of those 8 years and thereafter, the UPA took over. So here is the graph for inflation: –
The graph tells its own story. NDA rapidly brought down inflation fires stoked by a period of instability in Govt and ensured it stayed below 5%. Also note that inflation climbed up during Congress Raj in the glory days of Dr. MMS. One could no doubt talk endlessly about oil prices being low and other blahs that the sarkari fed journalists talk about but the graph tells its own story. One of the great quotes in Chak De India is “Team banana ke liye neeyat chahiye.” Or making a team requires (proper) intention. Similarly for achieving anything one needs some intention. Here the declared intention is one thing, and the actual one quite another.
Whatever spin the meisters of the UPA in the form of #PaidMedia conjure up, the fact remains that we have seen unprecedented loot of the country. And the audit of NREGA will surely tell its own story. From India Shining to India Whining in 8 years is the story of the UPA. They have managed to reduce the self respect of our country to a negligible fraction of what it was during the time of the NDA, dominated by the BJP. This has been accomplished through schemes designed ostensibly to help the Mango Man or Aam Aadmi, but somehow contrive instead, to help fill the pockets of various UPA politicos and their contractors who aid and abet in looting the exchequer. Worse still, the NREGA has robbed people that have made India, of their ability to work hard and earn a proper living and created a generation fed on doles, content with doing nothing for the better part of the year. Soon we will see food production suffer because of the non availability of agricultural labour during sowing or harvest time. We can see for ourselves the deleterious effect of an entitlement mentality on generations to come, provided of course, that there is anything left to distribute.
Let’s now turn our attention to the Current Account deficit, starting from 2000 to 2012. The Manhattans above the Plimsoll level signify surpluses and the ones below show deficits. Here is the picture: –
So while the NDA was busy trying to manage the economy well and ensure a surplus in the current account the UPA has squandered away the advantage through bad fiscal management. Data on fiscal deficit as a percentage of GDP shows the following: –
Here you can see that the deficit was pegged for the most part at a decent 3% or so during NDA days and that has since escalated to a high of 7.8% in 2009 and is at 4.6% in 2012, according to estimates. Actual fiscal deficit is now revealed to be 5.8% as per the following link.
Let us see the trend of fiscal deficits or the difference between revenue and expenditure. This graph says it all. Notice how deficits have gone higher from around 2007 onwards.
Well, a good economy cannot be run down immediately, even by the ‘experts’ in scamming of the UPA. Inheriting a great and healthy vibrant economy with a positive feel and pushing the country down the path of rack and ruin has been the Congress’s speciality. They have done it yet again. With the Dynasty back in the saddle, at least doing the backseat driving they are so used to, they have managed to get all indicators back to negative territory!
So far from doing any good to the country, the combined burden of fiscal profligacy with do gooder schemes such as NREGA, Nehru Gandhi schemes etc. as also the burden of numerous scams that have landed us in a position where we end up borrowing to cover the holes left by these fiscal misadventures, we must now depend on the following to bail us out of this mess: –
- FDI investment
- FII inflows
- The US Marines, maybe
Too bad that the FDI inflows will take their time coming in, FIIS will take their profits and go and the US marines are busy scrambling around to ensure that their salaries are paid.
So who was that worthy who said he would not lose sleep over the movements of the stock market. You guessed it! Our wonderful PM, Dr Manmohan Singh is he, the one who now feels that money does not grow on trees. Late discovery, Dr Singh. What were you doing when we had loot of the Treasury under your watch? What were you doing when your Economics endowed brain knew that NREGA etc. would drain the coffers of the Govt.? Remaining Khamosh or silent is not the answer to anything. People who do not take any money but allow others to do their mischief also get sacked. History will consign you to a hard to reach dustbin as you are undeserving of any respect.