Trust vote leads to a feel good factor

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Ashok Handoo | 30 Jul, 2008
The UPA Government’s victory in the Parliament on the trust vote has sent a strong message to the country and the world that the Indian economy is destined to move forward, galloping, in the days ahead. The Finance Minister P Chidambaram is confident that the growth rate will be between 7 to 8 percent in the current year. The average growth during the NDA rule was 5 to 6 percent. Last year we touched the 9.1 percent growth rate.

What has been causing worry is the inflation factor that has touched 12 percent mark and is upsetting every section of the people of the country. But on this front too, good days seem to be in sight. With the Government free from the confidence vote distraction, it can now attend wholeheartedly to the task of tackling inflation. The Government has already set inflation and revitalizing the farm sector as its two most important priorities.

During the debate in Parliament on the Trust Vote the Prime Minister Dr. Manmohan Singh devoted a good portion of his time to the tasks ahead in the economic field. He stressed that the Government will control inflation without hurting growth and the investment in agriculture will be increased to boost output. Farm credit is expected to cross the target of Rs.2,80,000 crores in the current fiscal as against Rs. 2,50,000 crores last year. It was only Rs. 86,000 crores in 2003-04.

Quite obviously, the follow up of the Indo-US civil nuclear deal will be on a fast track. After all, it is the energy, particularly electricity, which will form the core of infrastructural development in future. The other areas that will be attended to are the reforms in Insurance and the pension field, for which the bills are pending for a long time. The new phase should see raising of Foreign Investment ceiling in the Insurance sector from the current 26 to 49 percent.

Soon after winning the trust vote, the financial atmosphere in the country has started looking up. Indian stock and bonds are rising and the value of the rupee is increasing. There is a better atmosphere for the financial markets. The feel good factor is all pervading.

As if on cue, the economic atmosphere has started looking up Internationally as well. The crude oil prices have fallen from an all time high of $147 barrel to less than $130. This is a good omen not only for India but for the rest of the world also as it will enable all to tackle inflation more effectively. Soaring oil prices during the last one year has been the major cause of inflation across the world. But these need to come down further and remain at that level not only for the benefit of oil producing countries themselves. That is because soaring inflation has hit the oil producing countries as well, since they have to import goods from other countries at much higher prices. Look at the Gulf countries where the economic boom has turned into a bust. Gulf Cooperation Council has realized that soaring oil prices are spurring further inflation which is adversely affecting their own economies. This realization needs to dawn on other oil producing countries as well.

Within the country, the declining trend of investment and resource flow in agriculture has not only been stopped but reversed. There is a bumper crop of 231 million tonnes of food grain production. The prices of edible oils have also started to come down. Adani Wilmar, producers of some popular brands of edible oils have already announced a reduction of Rs. 2 to 3 per litre, with immediate effect. Other players in the field are likely to follow suit.

As it is, inflation in India is largely an imported one. 70 percent of our oil comes from abroad. And as we import commodities, we along with the goods are importing inflation too, since the commodities cost us more. Inflation is sweeping through Europe with Germany recording the highest rate in the last 14 years. China, Pakistan, the Gulf countries and others are facing the monster of inflation. The US economy is destabilized due to the Sub-Prime crisis.

In India there is no shortage of any commodity as such. The increase in prices of food grains and other commodities is primarily due to increased demand rather than any shortfall on the supply side. This boost in demand is a result of consistent high growth rate for the last four years. This in turn means more money with the people and hence more demand. The increasing population is adding to this pressure. The bad patch, however, is that the benefits of this growth are not spreading evenly among the people, leading to a lopsided development.

The focus for the Indian Government for the next eight months when elections become due should therefore be to tackle inflation, deal with the oil crisis and prop the agricultural sector to increase production. Unless we attend to the supply side more vigorously by taking care of irrigation, agricultural inputs and other problems of farm sector it will be difficult to control inflation in the long run. The pricing disparity of agricultural products between the producer and the consumer in the market also needs to be tackled. Steel prices are under check at least for now but a long term strategy is called for in this field also.

On the demand management side, the Reserve Bank will come up with its review on the 29th of this month. The monetary measures taken so far are yielding results

It may therefore not be impossible to realize Dr. Manmohan Singh’s vision of projecting India as a self-confident nation, moving forward for a rightful place in the comity of nations, sooner than later.

* The author is a freelance journalist

Disclaimer: The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of SME Times or tradeindia.com