A Dismal Economic Scenario

As the winter sets in, vegetable prices instead of coming down are shooting up. According to data released by the Ministry of Statistics and Programme Implementation, inflation increased rapidly from 3.92 per cent in September to 7.47 per cent in October, mainly because of rise in food prices. The reason is known to all – manipulation by the intermediaries who buy vegetables from the peasants and bring to the urban markets for sale. The remedy is also known – taking deterrent action under the provisions of the Essential Commodities Act. Why no action is being taken by the Centre and the State Governments is also known to all – the nexus between the intermediaries and the political parties. As this nexus is not going to be broken, the suffering people, the consumers, will have to suffer silently – they are doomed forever.
The same report also says that retail inflation rose to 3.58 per cent in October, driven mainly by the sharp rise in vegetable prices. The Reserve Bank’s Monetary Policy Committee has predicted that retail inflation will accelerate by 4.2 to 4.6 per cent in the next six months. Global crude prices are also rising and will further worsen the already worrying inflation trend. Grudgingly, it is being admitted in a roundabout way that demonetization and introduction of the GST have had a disrupting effect on the economy. By September, or by the end of the first six months of the current fiscal, budget deficit had reached 4.99 trillion rupees or over 90 per cent of the full year target. It is only to be expected that by the end of the fiscal the actual deficit will far overshoot the target, throwing the economy into doldrums.
The Centre is trying to have recourse to a remedy that will be worse than the disease. It has asked twelve public sector undertakings to pay the Government between 30 and 100 per cent of 2016-17 or 2017-18 net profit in dividends. Common sense would tell that if the companies are forced to pay through their noses, they are likely to become unviable or ‘sick’. This will then be a facile argument to sell them to private sector giants at a throwaway price. The Union Government’s revenues have already been hit by the public sector banks paying lower dividends. The latter are helpless in the face of lack of demand for borrowing. Not just the next year but the next few years will reveal how much damage the double whammy of demonetization and introduction of GST has done to the economy.

Wednesday, 15 November, 2017