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Posts archive for: April, 2009
  • Make the Rupee Stronger

    Ashwani Mahajan
    The last five years have seen the rupee constantly appreciate in value. In the past, initially due to devaluation and later due to the so-called market forces, the rupee was weak. Our balance of payment used to be in deficit due to which there was always a shortage of foreign currency. This meant more demand and less supply of dollars, which made the rupee weak. We had to shed more and more rupees for every dollar. But in the last few years our balance of payment has seen a dramatic turnaround. Unprecedented increase in IT exports, remittances from Non-Resident Indians and capital inflow — from FDI and FII — have been the main reasons for this. As a result our foreign exchange reserves started overflowing and reached nearly 300 billion dollars, and the appreciation of the rupee vis-à-vis the greenback was an obvious outcome.

    However, in the last few months the value of the rupee has started declining again. In fact, it has depreciated to around Rs 50 per dollar from Rs 40 in May 2007. This is because of the unprecedented outflow of foreign exchange brought on by the decision of Foreign Institutional Investors to pull out. This in turn has happened due to the shortage of liquidity in their own countries as a result of the global economic downturn.

    Theoretically, depreciation in the value of the rupee may bring about an increase in the value of exports and decrease in value of imports, and thereby, could potentially solve the problem of balance of payment. The value of Indian exports may rise if the price elasticity of Indian exports to the rest of the world is high. However, if history is any guide we find that devaluation of the rupee has never brought about any significant increase in our exports. On the contrary, it has never given us any relief in the balance of payment situation.

    Therefore, under the circumstances there is a need to ensure the stability of the rupee. Since the major cause of depreciation is the large-scale outflow of foreign exchange by the Foreign Institutional Investors, it is this that needs to be tackled. But the Government has not been able to do anything in the absence of a regulatory mechanism. Many foreign Governments — including that of China — have been trying to keep the value of their currencies intact. India also needs to adopt suitable measures to regulate FIIs. We can impose a minimum lock-in period for investments made by these investing institutions. Further, imposing tax on repatriation of profits may also be helpful in discouraging the outflow of foreign exchange.

  • Economic Agenda of Upcoming Elections

    People of India are going to elect their next government in April and May this year. There is no single political party or political combinations that have not been tested by the people of India. Even small regional parties have also participated in the government both at the centre and state level. For the last more than six months, present UPA government has been patting its own back counting its ‘achievements’. Previous NDA government had also boasted by way of its ‘India Shining’ campaign. Government is claiming that the GDP had been growing at a rate more than 9 percent per annum in the first four years of its regime and despite world wide recession, growth rate would still be little above 7 percent in the current fiscal. Government claims all round progress in the country. But the ground realities are saying a different story.

    Rising poverty
    When present UPA government took over the reign of power from NDA, 27 crore people were living below poverty line. Indian Statistical Institute, Kolkata, while analyzing the data collected by National Sample Survey Organization (NSSO) concluded that by the year 2009, 32.5 crore people would be living below poverty line. This implies that during UPA regime 5.5 crore more people had been pushed below poverty line. This conclusion gets strengthened by the fact that 50 percent population in rural India and 38 in urban India in suffering from malnutrition as reported by the World Bank. Sometime back Arjun Sen Gupta Committee also reported that 77 percent people in the country live with less than 20 rupees a day.

    Rising Prices
    Government claims that inflation rate has come down to near 3 percent. But the fact is that prices of food grains, edible oils, pulses, fruits and vegetates are sky rocketing and these essential commodities have gone out of reach of the common man. Actually prices of cars, electronic products and petroleum products have declined due to recession. But government is taking undue credit by counting the same as its achievement.

    Rising unemployment
    About one crore people have lost their employment in the last one year due to recession. If we add this figure to the count of unemployed before recession, we find that almost 6 crore people are unemployed today. Five years back this figure was 4 crores.

    Rising Hunger
    Poverty and hunger is on rise. According to UN’s World Food Programme, 22 crore people in India are suffering from hunger. Of 119 nations, our place is 94th in terms of hunger. According to the World Food Programme 56 percent females suffer from Animea and 59 percent children are underweight. UN says that the progress made in this direction has actually reversed and declining growth rate of food production, rising unemployment, declining purchasing power with poor have all made the problem of poverty and hunger even more acute. NSSO data collected on the sample of more than 1,24,000 households also support the findings of UN.

    Rising Health Expenses making people poor
    Poor are suffering not only due to rising food prices, but also from rising health expenses. According to World Health Organization, due to rising prices of medicines and other health related expenses, 16 percent more families were pushed below poverty line. WHO further says that 12 percent families had to sell their household assets to meet ever rising health expenses.
    Farmers’ Suicides
    More than 2 lakh farmers so far have committed suicide. In the last only five years more than 1.5 lakh farmers committed suicide. It is now an open secret that farmers are falling into debt trap as they are not getting remunerative prices for their produce. Ultimately problems of farmers culminate to a point that there is no option left for him except suicide. If ‘Anna-data’ farmer is suffering, how nation can prosper?

    Countrymen were told that the country can develop only with deep integration with rest of the world. Reign of economic administration was virtually handed over to international agencies like Mackinsey, Arthur Anderson, Moodys, Price Waterhouse, Lehman Brothers and the like. Today Arthur Anderson and Lehman Brothers have lost their existence, whereas large banks and financial institutions are lying flat on ground. It is unfortunate that following suggestions and instructions of these bodies, foreign capital was allowed a free entry and control of the economy was virtually seized by the foreign agencies and Trans-National Corporations. This policy of globalization has not be carried out by any single political party but has actually been implemented by different political parties during their respective regimes. More unfortunate is the fact that political leaders are not ready to own any responsibility for the present ills. Rather they are still beating the drum of so called economic reforms.

    Whistle for polls for next Lok Sabha is already blown. Farmers are facing bad times, even as per governments own admission more than 33 percent small scale and cottage enterprises have closed down, unemployment and poverty are at their Worst. But the government which came to power in the name of ‘Aam Admi’ in trying to boast on examples of well being of ‘Khas Admi’ and various other populist measures and thus trying to cover their wrong doings. While people one going to elect next government, political parties, are trying to woo voters and showing concerns about inflation, unemployment, hunger and farmers suicides but without committing on any strategy to take on these problems effectively. No political party is ready to give up present day policy of globalization and so called economic reforms. Political parties instead of wooing voters by catchy slogans should come clear on these issues and their proposed strategies to deal with the same.

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