It is heartening to see Reserve Bank of India governor D Subbarao calling government and industry's bluff on rupee depreciation as well as inflation. By doing so, he has categorically exposed the faulty assumptions behind which the Prime Minister, Manmohan Singh, the chief economic adviser, Dr Kaushik Basu, and several chieftains of the Indian industry have been hiding their own failures. Prime Minister and the chief economic adviser have repeatedly blamed policy paralysis (under Coalition compulsions) to be the reason for the slowing of the economy, while the PM goes to shift the blame even to the Eurozone crisis.
"Europe alone cannot be blamed for the rupee's woes and inflation isn't merely due to supply-side constraints but has a structural element to it. I don't think this blame game can go on," Dr Subbarao on Tuesday addressing the Indian Merchants Chamber in Mumbai (RBI guv calls govt's bluff on Re, inflation http://bit.ly/NPZjG8). This is a significant statement coming from the RBI chief who should know what he is talking about. What upsets me more is that even the business journalists, who I thought were knowledgeable enough, refrained from coming out with the truth. None of the Business TV channels (and of course the business papers) had the courage to call a spade a spade. Except for an editorial or two, the business media only echoed what the industry wanted.
Prime Minister Manmohan Singh used the G-20 platform to reiterate what he has been saying earlier. "Our growth rate in 2011-12 declined to 6.5 % from the level of 8.4% in the previous year. This may look like a reasonable figure, given growth rates being experienced in the rest of the world, but or public is impatient for a return to high growth and faster jobs creation," he said at the Los Cabos in Mexico. Interestingly, RBI governor D Subbarao demolishes this argument. The Times of India says Subbarao struck out at those who argued that India at 6.8% was faster than the West. "We must remember that we are a low-income country with a per capita income of less than $1500. India is a supply constrained economy and should grow faster to bridge the income gap."
Well, the PM will need another smokescreen to hide.
Moving away from the growth rate obsession, I would also like to draw your attention to a misleading headline that I find are splashed across the media. 'Global investment seem less bullish on India after a series of policy flip flops by the government sapped confidence', reads the introduction to a news report (see Times of India, June 20, 2012: FDI inflows dip 8% this year). It is misleading because it very cleverly blames policy paralysis for the decline in FDI during the period Jan-April 2012. The RBI data shows that FDI had actually increased, compared to last year, in Jan and Feb, and thereby declined in Mar-April. Overall, against the inflow of $8.5 billion in 2011, it is $7.8 billion this year. But what remains hidden is that the decline in Mar-April is because of the Eurozone crisis when the entire world is witnessing an investment decline. It is not because of any policy flip flop within the country.
Nevertheless, what is not being mentioned is that between Jan-March 2012, India Inc had invested $ 8 billion overseas. This massive outgo is not because of policy mismatch within the country but the favourable conditions created by RBI allowing these companies to invest abroad. They have gone to greener pastures overseas. Therefore what is the use of crying over falling FDI when our own companies are investing heavily abroad? Mischievous reporting, isn't it?
I am glad RBI governor has made clear his views on inflation. He talked of the 'structural elements' that result in a higher inflation. This is what I have been stressing for several years now. At a time when there is no drop in agricultural output, including nutritious commodities like milk and eggs, I see no reason why the prices should be on an upswing. Huge cartelisation in the wholesale markets, followed by rampant exploitation by the retail traders, in the absence of any checks and control, has actually led to the present crisis. No economist wants to point out to this structural anomaly because any effort to bring the wayward trade under control would go against the tenants of the market economy, which they swear by. Also, they are paid to support the proposal of allowing FDI in retail, and so they go on singing the chorus. This is rather unfortunate. But that's how the realities are.
Showing posts with label Eurozone crisis. Show all posts
Showing posts with label Eurozone crisis. Show all posts
Eurozone Crisis: Why doesn't EU scrap the CAP subsidies?
When I look at the fallout of the Greek Tragedy on the global economy, including India, and at the same time try to make a sense of the economic crisis by sitting in front of the Business TV channels, I must admit I am left baffled. At a time when Sensex has gone below 16,000, and the Indian rupee has slid 22%, hitting a new low, and Finance Minister Pranab Mukherjee mulls austerity measures, what intrigues me is to find the land prices soaring, consumer spending increasing manifold, sales of cars and automobiles increasing amidst reports of 84% Delhiites planning a beach holiday this summer, there is something that I cannot understand.
First let us take a look at the fears emanating from the prospect of Greece quitting the Eurozone. Greece President Karlos Papoulias has already termed it as 'fear that could develop into panic'. In the last 24 hours (May 16), roughly Euro 700 million has been withdrawn from the banks. This has created a scare. I can understand how the stock markets will play this up, but I wonder why no one is talking of doing away with the wasteful expenditure that European Union indulges in year after year. Well, I am talking of the annual budget of EU, of which nearly 50 per cent or Euro 60 billion goes for what is called Common Agriculture Policy (CAP). Much of the remaining 50% budget also goes as subsidies for building infrastructure. Even at times of the 2008-09 economic crisis, and the emerging chaos, no one has ever mentioned the damage done by CAP. As if this is not enough, the proposal is to further enhance the spending under CAP in 2014-20 to Euro 400 billion.
If withdrawal of Euro 700 million from Greece banks can cause panic, I have failed to understand why the European heads cannot stop subsidising its agribusiness companies (my estimates show that more than 90% of the total spending under CAP goes to MNCs and top agribusiness companies). So in a way the state coffers are being emptied for the rich corporates and the austerity measures that are being spelled out would hit the middle class and the poor. It is here that I find the French President Francois Hollande's poll promise of 75% tax on the income of the rich makes terrible economic sense.
Now look at India. The same virus afflicts the Indian policy makers. Yesterday I sat watch the NDTV Profit channel, one of India's leading business channels. At a time when everyone is talking of tightening the belt, the channel had a programme on where to make the investments in real estate in Bangalore. The anchor talked of three real estate options -- each above a package of Rs 1-crore -- where you could invest. Similarly, when you surf the channels, you find programmes which talk of hot commodities where investments could be made, the increasing investments in gold despite its price going through the roof, and so on. Whether it is gold or real estate, the prices have not come down despite the slump that is feared. Why?
Economic disparity that has been created over the years by neoliberal economics is actually the bane of the present crisis. The rich have become richer and the poor have been driven against the wall. Not only the bank executives, lavish pension and perks are being given to Presidents, Prime Ministers and parliamentarians (former French President Sarkozy is to receive lavish post-retirement perks, and the salary/perks of Indian parliamentarians have gone up manifold), As unemployment soars, mainline economists and policy makers suggest strong austerity measures, which in simple words means withdrawing social security nets.
I think the time is ripe for a radical overhaul of the economic structures. Politicians know what needs to be done, but it is the business leaders and the economists who will not let them use the axe.
First let us take a look at the fears emanating from the prospect of Greece quitting the Eurozone. Greece President Karlos Papoulias has already termed it as 'fear that could develop into panic'. In the last 24 hours (May 16), roughly Euro 700 million has been withdrawn from the banks. This has created a scare. I can understand how the stock markets will play this up, but I wonder why no one is talking of doing away with the wasteful expenditure that European Union indulges in year after year. Well, I am talking of the annual budget of EU, of which nearly 50 per cent or Euro 60 billion goes for what is called Common Agriculture Policy (CAP). Much of the remaining 50% budget also goes as subsidies for building infrastructure. Even at times of the 2008-09 economic crisis, and the emerging chaos, no one has ever mentioned the damage done by CAP. As if this is not enough, the proposal is to further enhance the spending under CAP in 2014-20 to Euro 400 billion.
If withdrawal of Euro 700 million from Greece banks can cause panic, I have failed to understand why the European heads cannot stop subsidising its agribusiness companies (my estimates show that more than 90% of the total spending under CAP goes to MNCs and top agribusiness companies). So in a way the state coffers are being emptied for the rich corporates and the austerity measures that are being spelled out would hit the middle class and the poor. It is here that I find the French President Francois Hollande's poll promise of 75% tax on the income of the rich makes terrible economic sense.
Now look at India. The same virus afflicts the Indian policy makers. Yesterday I sat watch the NDTV Profit channel, one of India's leading business channels. At a time when everyone is talking of tightening the belt, the channel had a programme on where to make the investments in real estate in Bangalore. The anchor talked of three real estate options -- each above a package of Rs 1-crore -- where you could invest. Similarly, when you surf the channels, you find programmes which talk of hot commodities where investments could be made, the increasing investments in gold despite its price going through the roof, and so on. Whether it is gold or real estate, the prices have not come down despite the slump that is feared. Why?
Economic disparity that has been created over the years by neoliberal economics is actually the bane of the present crisis. The rich have become richer and the poor have been driven against the wall. Not only the bank executives, lavish pension and perks are being given to Presidents, Prime Ministers and parliamentarians (former French President Sarkozy is to receive lavish post-retirement perks, and the salary/perks of Indian parliamentarians have gone up manifold), As unemployment soars, mainline economists and policy makers suggest strong austerity measures, which in simple words means withdrawing social security nets.
I think the time is ripe for a radical overhaul of the economic structures. Politicians know what needs to be done, but it is the business leaders and the economists who will not let them use the axe.
'When Paris sneezes, Europe catches cold."
No sooner results of French elections were announced, the markets went volatile. The new President, Francois Hollande, who loves calling himself 'Mr Normal', has already caused enough panic. With France losing its AAA credit rating, and also promising a socialist turn, the mood is certainly down. The reason is obvious. While the French see the emergence of the socialist Francois Hollande as a bacon of hope, the financial markets are upset. And once the financial markets are upset, you can be sure the mainline media and mainline economists will stand depressed.
Writes The Times of India in its balanced editorial, captioned French Evolution (May 8, 2012): "Hollande paints a roseate vision of the French economy -- promising thousands of new public sector jobs, lowering the retirement age, boosting social services -- but is yet to explain exactly how it will all happen. France's fiscal deficit is huge, causing Standard and Poor's to have downgraded its credit rating. Hollande promises closing this deficit by taxing the super-rich, a plan that may just lead to a flight of the panicked capital." Giving workers to right to retire (and earn pension) at the age of 60, if they had begun to work at 18, investing in French schools, and creating 1,50,000 new jobs besides pulling the French troops out of Afghanistan before the year end are some of the promises he has made.
Well, I am not an expert in foreign affairs nor am I am a keen follower of European politics. But over the last few years, the economic collapse of 2009 followed by the Eurozone crisis, has made me sit back and understand what is going wrong. I always thought Germany's misplaced emphasis on budget-tightening measures, better called austerity measures, were planned and promoted by the financial markets. The idea was to bring more money into the hands of rich, turn them into super-rich, and then believe some of it will trickle down to the poor. This is what Noam Chomsky had once termed as 'tough love' -- tough for you and me, and love for the rich.
I am not sure whether mainline economists and the mainline media will let Hollande wear his surgical gloves, and undertake some radical reforms that turns French economy for the benefit of its majority population. After all, US President Obama's rant of "a change you can believe in" remained a hollow promise. Corporate America didn't let me him perform the surgery he needed to. In the process, America has been left bleeding. It therefore relies more on 'quantitative easing' -- printing of currency notes, and bullying developing economies and other developing countries to open up for American products. It will not last long. We all know.
French President Hollande doesn't have to follow the stock markets to know what he is doing is right or wrong. The moment he disconnects with the financial markets, I can see a bright future for France. And as an Austrian statesman, Klemens Wenzel von Metternich, once said: "When Paris sneezes, Europe catches cold," I can only hope the cold Europe catches spreads like a virus across the globe. All that Hollande needs to focus on is how to convert his poll promises into action. Forget about fiscal reforms and rebuilding French competitiveness, as economists will go on suggesting, focus more on social turnaround. France needs to create mass employment, and spread the benefits of economic growth equitably among the masses. It needs a radical overhaul of the macro-economic policies that have brought the world to a brink. Hollande can surely lead the world out of dark woods. He has the mandate to do so. He cannot waste this opportunity.
Writes The Times of India in its balanced editorial, captioned French Evolution (May 8, 2012): "Hollande paints a roseate vision of the French economy -- promising thousands of new public sector jobs, lowering the retirement age, boosting social services -- but is yet to explain exactly how it will all happen. France's fiscal deficit is huge, causing Standard and Poor's to have downgraded its credit rating. Hollande promises closing this deficit by taxing the super-rich, a plan that may just lead to a flight of the panicked capital." Giving workers to right to retire (and earn pension) at the age of 60, if they had begun to work at 18, investing in French schools, and creating 1,50,000 new jobs besides pulling the French troops out of Afghanistan before the year end are some of the promises he has made.
Well, I am not an expert in foreign affairs nor am I am a keen follower of European politics. But over the last few years, the economic collapse of 2009 followed by the Eurozone crisis, has made me sit back and understand what is going wrong. I always thought Germany's misplaced emphasis on budget-tightening measures, better called austerity measures, were planned and promoted by the financial markets. The idea was to bring more money into the hands of rich, turn them into super-rich, and then believe some of it will trickle down to the poor. This is what Noam Chomsky had once termed as 'tough love' -- tough for you and me, and love for the rich.
I am not sure whether mainline economists and the mainline media will let Hollande wear his surgical gloves, and undertake some radical reforms that turns French economy for the benefit of its majority population. After all, US President Obama's rant of "a change you can believe in" remained a hollow promise. Corporate America didn't let me him perform the surgery he needed to. In the process, America has been left bleeding. It therefore relies more on 'quantitative easing' -- printing of currency notes, and bullying developing economies and other developing countries to open up for American products. It will not last long. We all know.
French President Hollande doesn't have to follow the stock markets to know what he is doing is right or wrong. The moment he disconnects with the financial markets, I can see a bright future for France. And as an Austrian statesman, Klemens Wenzel von Metternich, once said: "When Paris sneezes, Europe catches cold," I can only hope the cold Europe catches spreads like a virus across the globe. All that Hollande needs to focus on is how to convert his poll promises into action. Forget about fiscal reforms and rebuilding French competitiveness, as economists will go on suggesting, focus more on social turnaround. France needs to create mass employment, and spread the benefits of economic growth equitably among the masses. It needs a radical overhaul of the macro-economic policies that have brought the world to a brink. Hollande can surely lead the world out of dark woods. He has the mandate to do so. He cannot waste this opportunity.
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