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Indian Economy and Government Actions
Highlights
Indian Economy And Government Actions, Economy of India. Imported goods will be costlier – crude oil (diesel, petrol, kerosene, gas). As a result, movement of all goods and persons will be costlier. Cost of all goods will go up.
Depreciation of the Rupee – Its Effect
Imported goods will be costlier – crude oil (diesel, petrol, kerosene, gas). As a result, movement of all goods and persons will be costlier. Cost of all goods will go up.
Deficits & Debt
Current account deficit (CAD - Difference between incoming and outgoing currency) - $ 87.4 bn in 2012-2013
The reason for lower CAD in comparison to the difference in imports and exports is mainly the contribution from NRIs from West Asia besides other factors such as FDI.
India’s external debt – $ 388.5 bn; in rupees it was Rs. 19,42,500 crore when 1$=50 rupees. Now, it is Rs. 24,47,550 crore (1$=Rs.63)
Borrowings in 2012-2013 – Rs. 5.79 lakh crore
People going abroad for Education will have to spend about 25% higher than the previous year in Rupees.
In 2008, the Government borrowed Rs.700 crore a day.
In 2012-13, the Government borrowed Rs.1600 crore a day.
Imports-Exports
Reasons for lower export and higher import: Merchandise imports, excluding oil and gold, have been opened up and import duties lowered due to the so-called reforms.
Growth of merchandise exports is not commensurate with imports.
10-year Trend in Imports and Exports: Exports are up 5.7 times (increase by 253 billion $. Imports are up 7.8 times, that is, by 438 billion $. Besides oil and gold, imports of capital goods and consumer goods went up very steeply.
Taxes constitute 47% of retail petroleum product prices in the form of customs, central excise and VAT. Yet, no such tax revenues go towards building national and state highways or for the widening of roads and maintenance. These taxes go towards Government expenditure.
Why are Indian Goods Unable to Compete
High salaries in the organized sector, low productivity, high taxation; red tape and bureaucracy which obstructs rather than facilitates business and industry.
Bureaucratic Red Tape: In ease of doing business, India ranked 134 in 2012-13. To start a business, it ranked 179; it was 177 during the previous year. Singapore - 1st , Hongkong - 2nd , Newzeland - 3rd, U.S.A. - 4th, Denmark - 5th, Malaysia - 6th, Korea - 7th, Georgia – 8th, Norway - 9th, U.K. - 10th.
Government Salaries: A Class 4 employee in the AP electricity department: Basic Pay: Rs.10,000 & All Inclusive: Rs.23,000-Rs.25,000.
In comparison, in shops, establishments and small industries, a Class 4 employee’s minimum wage: Rs.6,000 all inclusive.
Revenue Expenditure is much higher than Revenue Receipts. The Government proposes to spend money that it has not earned, leading to rising debt. India’s debt burden is already the highest in Asia at 66.2% of GDP in 2011. Interest paid on Government debt is one of the largest components of our expenses – 24% of revenue expenditure.
At this critical stage, Government Actions have been as follows:
1. In a communication to the Chief Secretaries, the Department of Personnel & Training has said that the Government would bear the cost of medical treatment in foreign countries for IAS, IPS, and IFS personnel.
2. Food security bill to 67% of families will cost Rs. 1,20,000 crore per year. But the Below Poverty Line families equal only 22%.
3. D.A. to Government employees was increased by 10% from 1st July at a cost of Rs. 10,879 crore. It was raised by 8% in January. Now the D.A. is 90% of salaries. The Government must reveal the purpose of increasing the D.A. when pay commissions are already raising salaries.
4. The 5th pay commission salaries and wages hold good till 2015. Yet, the Central Government has appointed the 6th pay commission for 2016-17 before the election code comes into force (Elections to 5 states are in November-December 2013). The Government must reveal the basis of the 40% hike given in salaries by the 5th pay commission. Japan implements salary hikes based on inflation and does not constitute pay commissions.
5. Lee Kew drove his own car when he went to take oath as Singapore’s Prime Minister without sirens or escorts. In India, even the officers require drivers and attendants, let alone the ministers.
6. Air India losses in 2010-11 were Rs. 6,825 crore; accumulated losses were Rs. 27,000 crore; outstanding debt was Rs. 43,000 crore. Government is reimbursing these. Still, its employees continue to have the perks of travelling around the world, wherever Air India flies, once in two years along with their families. This facility has not been reduced.
7. APSRTC losses are Rs.1 crores per day.
Government Perks and Salaries vs The Farming Sector
When DA is increased twice a year for Government employees, is there a reason why a similar practice is not done to raise the minimum support prices for farmers.
Support price for black gram announced 3 years ago was Rs.4,300 per Quintal. Its price had come down to Rs.3,500 during April-May 2013. But the Government has not procured the crop.
While the 6th pay commission has been announced 3 years in advance, the support price for existing crop of paddy had not been announced in advance. At the same time, duty-free import of pulses has been extended even though current market price of pulses is less than the support price announced. VAT and Entry Tax on farm equipment has been removed by the Punjab Government. The Government must release the basis of price fixed for Rice, Wheat and Black gram as well as the basis for the revision of wages for Government employees.
The Mohankanda Committee concluded in 17-07-2012 that the production cost of paddy was Rs.1,400 per quintal. But, the Government fixed the support price at Rs.1,250 for coarse grain and Rs.1,280 for fine grain.
This is despite the fact that labour cost has risen. Further, fertilizer price has gone up by 200-300%. These factors were not taken into consideration in deciding the minimum support price.
Essential Services
None of the nations that have developed rapidly, like Japan, S.Korea, Taiwan, Singapore have bandhs or strikes and certainly no rasta rokos. On the other hand, there have been bandhs in 20 out of 60 days in Andhra Pradesh, related to the state’s bifurcation. These are events that have severe repercussions on the state’s development.
ESMA: India has an Essential Services Maintenance Act (ESMA). Both RTC and electricity supply companies come under the purview of the Act. The law gives great powers, but its execution rests with the State Government. The AP Government had invoked ESMA in August, but limited it to the no work-no pay rule. There was no move to prohibit strikes in at least the essential services, although the Government had the powers to do so.
Court Order: As far back as 2003, the Supreme Court had approved the Kerala High Court judgement on bandhs stating: As to their coercive nature. That no political party or organization can claim that it is entitled to paralyse industry and commerce in the entire state or nation, or prevent citizens from exercising their fundamental rights. The duty of the court to step in to protect the rights of citizens so that their freedom is not curtailed by any person or political organization. Political parties and groups that call for such bandhs and enforce them are liable to compensate the government, public and private citizens for the losses suffered by them.
In 2004, the Bombay High Court had directed the Shiv Sena and the BJP to pay Rs.20 lakh each as compensation for the loss of public property during the bandh called by them.
What measures has the State Government taken to contain the losses and to ensure that essential services are maintained? Our recommendation is that any stoppage of essential services as defined in ESMA – electricity, travel of any kind, including road and rail – in the form of bandhs, strikes and similar occurrences be defined as illegal and strong action be taken.
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