The current economic crisis threatens to destroy all that India has gained in the past 15 years of growth. Who is to blame?
This year alone, backdoor subsidies for the oil sector will amount to about a tantalising Rs.3 trillion! And there is virtual consensus that even if oil prices come down to about $100 a barrel, the huge subsidy bills for the oil sector will remain high. Fertiliser subsidies are slated to cross another Rs.1 trillion! Even despite the massive increase in the fertiliser subsidy bill, farmers across India face a shortage crisis during the sowing season. Add food subsidy to this cocktail and suddenly you realise that just these three items could account for almost a mind-numbing and a spine-chilling 10% of the country’s GDP – clearly an unsustainable position by any yardstick! Add the massive increase in expenditure on social welfare schemes like NREGA and Sarva Shikhsa Abhiyan and you start realising that fiscal discipline has been thrown out of the window. Such scenarios in the past have always led to an economic slowdown, hurting both the poor and the middle-class. Says Bidisha Ganguly, Head, Economic Policy, CII, “We are already facing an economic slowdown and the way things are moving this slowdown is expected to continue in near future too. This is also quite evident from the fact that the industrial production has gone down from 11.5% to 8.3%. Trade deficit has already increased and in the wake of current situation this too is only expected to simply widen.” There is yet another disturbing indicator that is an ominous sign for the economy: the rate of growth of the infrastructure sector has crashed to just about 3.6% in April and May 2008.
Many have started drawing disturbing parallels with the late 1980s era when huge rises in trade and current account deficits, unsustainable fiscal deficits, high inflation rates, signs of political instability and ad hoc measures had eventually led to the crash of the Indian economy in 1990. After Rajiv Gandhi became Prime Minister in 1984, the Indian economy suddenly abandoned its historic ‘Hindu’ rate of growth of about 3% and started growing at about 6%. This was unexpected and unheard of. After his widow Sonia Gandhi renounced the post of the Prime Minister in 2004, the Indian economy astonished the world by growing at 8% to 9% every year.
This year alone, backdoor subsidies for the oil sector will amount to about a tantalising Rs.3 trillion! And there is virtual consensus that even if oil prices come down to about $100 a barrel, the huge subsidy bills for the oil sector will remain high. Fertiliser subsidies are slated to cross another Rs.1 trillion! Even despite the massive increase in the fertiliser subsidy bill, farmers across India face a shortage crisis during the sowing season. Add food subsidy to this cocktail and suddenly you realise that just these three items could account for almost a mind-numbing and a spine-chilling 10% of the country’s GDP – clearly an unsustainable position by any yardstick! Add the massive increase in expenditure on social welfare schemes like NREGA and Sarva Shikhsa Abhiyan and you start realising that fiscal discipline has been thrown out of the window. Such scenarios in the past have always led to an economic slowdown, hurting both the poor and the middle-class. Says Bidisha Ganguly, Head, Economic Policy, CII, “We are already facing an economic slowdown and the way things are moving this slowdown is expected to continue in near future too. This is also quite evident from the fact that the industrial production has gone down from 11.5% to 8.3%. Trade deficit has already increased and in the wake of current situation this too is only expected to simply widen.” There is yet another disturbing indicator that is an ominous sign for the economy: the rate of growth of the infrastructure sector has crashed to just about 3.6% in April and May 2008.
Many have started drawing disturbing parallels with the late 1980s era when huge rises in trade and current account deficits, unsustainable fiscal deficits, high inflation rates, signs of political instability and ad hoc measures had eventually led to the crash of the Indian economy in 1990. After Rajiv Gandhi became Prime Minister in 1984, the Indian economy suddenly abandoned its historic ‘Hindu’ rate of growth of about 3% and started growing at about 6%. This was unexpected and unheard of. After his widow Sonia Gandhi renounced the post of the Prime Minister in 2004, the Indian economy astonished the world by growing at 8% to 9% every year.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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