Of late we are getting news from the Government that the inflation is down to 7%, from the high double digit figures ruling roost for the past couple of years. Even 7% inflation when the GDP growth rate is < 7% is unacceptable. It should be around 3-4%.
Having said that I get a bad feeling that the Government is manipulating the figures keeping in mind the current elections to the 5 States, mainly UP and Punjab, and this low inflation figures is more to do with preventing a backlash against Rahul Gandhi, than anything else. With Railway fares likely to go up (unless Mamta refuses to do so, which is a possibility, in which case Central Government shall be forced to pump in money to support the ailing Railways, which anyway will put a burden on the common man by way of increased taxes elsewhere), and Government having the last window before the General Election to really take hard measures (with UP, Punjab elections out of the way, and with General Elections likely late 2013 or early 2014, this is the only chance to increase taxes), we are in for a harsh budget this time around, which would mean higher taxes, cut on subsidies etc. It is my reading that the inflation will touch double digits by April 2012.
While everyone is cribbing about the inability of the Government to reduce subsidies on Fertilizer, Kerosene, Diesel and Food grains, no one talks about the Tax Exemption and special benefits (which tatamounts to subsidy) to the Industry, which is many times more than those given to the poorer sections of the society. The argument that giving subsidy to industries spur employment is yet to be proven. Most of the subsidies given to industries have gone to fatten the pocket of the rich industrialists (or found its way back to the political parties as 'contribution' or bribes) rather than being passed on to the customers or in creating employement. No studies have been conducted or is likely to be conducted in doing a cost-benefit analysis of the the subsidies and special benefits given to the industrialists. And most of them enjoy the profits in private while passing on the losses to the poor public (All you have to do is to observe how Vijay Mallya is trying his best to force Government or the Public Sector Banks to bail Kingfisher Airlines out, rather than pumping in money from his liquor business. The Kingfisher mess is purely due to bad business modelling and still poorer management. Since Mallya is not willing to risk his wealth on reviving his Airline, why should SBI or Government, whose money is the common man's, do so?).
The RBI has given indications that the CRR is on a downward trend. This is to counter industrial recession. But reducing the CRR without slashing the Interest Rates is of no use. The former is likely to put in the market more money that could be lended out, but where are the takers? Who wants to take loans at such high rates?
The Stock Market is doing fairly well, but that is more due to FII inflow than due to the turning around of our economy.
The Government has been lurching from one crisis to another, and has hardly time to tackle the economic woes. With a lame duck Prime Minister, a tired Finance Minister, a beleagured Home Minister, a sick Party Chief and a dud PM in waiting there is a leadership vaccum.
We, the people of India, deserve this and more for re-electing Congress and UPA in 2009.
The adage, 'We get the Government we deserve' has never been truer.
