Source: Economic Times


The country is facing a drought. An official declaration, of course, would emerge over the next fortnight. Although the situation may improve in parts of the country, there are many areas that are already in dire stress. There was some kind of a drought in 2009 as well. 

There’s something particularly striking this year on water storage. Storage in the dams was much higher during the monsoon of 2011 than in 2008 – the rapid decline in the water levels in November to below the 10-year average ought to have alerted our policymakers much earlier. Ironically, despite cities and villages reeling under water shortage this year and with all food grains reporting lower acreage sown till the end of July, the only crop that stands out with higher acreage sown this year compared to last year is the water guzzler sugarcane. 

That should make complete sense to a government whose borrowings have touched 42.51% of this year’s target. Actually, the government has recently said that borrowings are likely to be lower this year, but such talk will inspire no one. Where is the sense of restraint? Where is the sense of urgency that ought to be seen from a government that is facing a drought, an uncertain and unhelpful global environment and dipping industrial growth numbers? 

There is a serious drought as far as action goes and we need some strong people in positions of power. 

Congress president Sonia Gandhi has done well to put P Chidambaram back in the finance minister’s seat. 

Building the economy does not seem to be a priority at all. Now, the minister of road transport & highways has also gone on record saying the target of building 20 km of road a day is not possible for another three years. All in all, the inaction on so many fronts will cost the economy dearly in the long run, a point that we have made often before in our columns. So, what will it take for the economy to get going again? 

The Reserve Bank of India does not plan to cut rates, the world is not going to turn around miraculously, hopes of a recovery are receding as the months go by and the growth forecast remains in the 6% range this year. 

In other words, investment and growth now actually outpace inflation as matters of most concern. 

Let us look at the official Index of Industrial Production (IIP) numbers that have registered an overall negative growth in three out of the past twelve months. What has been particularly worrisome is that despite all the volatility, the capital goods sector has shown much lower growth – negative in nine months out of the last twelve for which data is available. There has been precious little policy action on this front. In fact, not only has there been little policy action, the discontinuation of data release of item-wise IIP production shows this government would rather cover up problems than fix them. 

Despite a hawkish monetary policy, inflation continues to reign high and the Reserve Bank of India has upped its forecast to 7%. It is clear to everyone that food prices are a problem, as Indicus Mandi price monitor has shown. 

When it comes to fuel, instead of decisive action, we see just small tinkering in terms of fuel price adjustments, even as the price of crude has risen over the past month to cross $100 a barrel. 

Though the rupee appreciated slightly over the past month, over the year ahead, volatility for the rupee will be a given, as global factors and risk perception will drive the currency. 

The country must be prepared to face the consequences of a fall in the rupee since we know now that the Reserve Bank of India cannot protect the rupee much. So growth is set to be down, inflation is set to be high, rates will not be lowered, and investment plans look dim. Is there anything to look forward to? Well, for what its worth, we have a new finance minister.